DOL increases the salary threshold for EAP employees

UPDATE: As of November 15th, 2024, a Texas Federal Judge struck down this DOL rule.  All increases are null and the federal exempt salary threshold is back to $684 per week or $35,568 annually.  Many states have a higher threshold than the federal guidelines, so be sure to check your state for its’ requirements.

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The DOL has announced a new final rule!  This rule deals with the increases to the salary thresholds that employers may pay to their salaried workers.  At Paper Trails,  we understand that business owners can feel a bit lost amid all the rules and updates, so we’re deeply committed to simplifying this complex terrain for you. Our goal is to help you manage these changes with clarity and confidence, ensuring that you stay informed and in control of your payroll and HR responsibilities.

This article will guide you through the basics of employee exemptions under the Fair Labor Standards Act (FLSA), focusing particularly on the Executive, Administrative, and Professional (EAP) exemptions. We’ll also detail the important DOL increases to the salary thresholds that determine these exemptions, which are set to change in the coming years. By the end, you’ll have the knowledge you need to classify your employees accurately and ensure your business remains compliant with these new salary limits.

Exempt vs. non-exempt employees

First let’s determine which employees are impacted by this increase to the salary threshold.  From a payroll perspective, employees are generally classified into two categories: exempt and non-exempt. This classification determines how an employee’s pay is calculated, particularly concerning overtime.

• Non-exempt employees are paid an hourly rate that must meet the minimum wage standard and are entitled to overtime pay. This means if they work more than 40 hours in a week, they must be paid at least one and a half times their regular hourly rate for each hour worked beyond the standard 40 hours.
• Exempt employees, on the other hand, receive a fixed salary that must meet a certain minimum regardless of the number of hours they work. This means they do not get overtime pay, even if they work more than 40 hours a week. To be classified as exempt, employees must meet certain criteria related to their job duties and the salary they earn.

Understanding EAP exemptions

These certain criteria related to their job duties are known as EAP exemptions.  EAP stands for Executive, Administrative, and Professional. These are categories under the Fair Labor Standards Act (FLSA) that define specific types of exempt employees. Employees in these categories are exempt from overtime pay if they meet three criteria:

1. They are paid a salary, not hourly.
2. Their salary meets a minimum specified threshold.
3. They perform primarily executive, administrative, or professional duties as defined by the regulations.

These roles typically require a higher level of expertise or responsibility.  Let’s look at each of the EAP exemptions.

Executive Exemption

1. Primary Duty: The primary duty of an executive employee must be managing the business or a certain department.
2. Management Role: This includes the authority to direct the work of other employees and to make decisions on hiring and firing.
3. Regular Supervision: An executive must regularly supervise at least two or more full-time employees.

Administrative Exemption

1. Primary Duty: The primary duty is the performance of office or non-manual work directly related to management or general business operations.
2. Discretion and Independent Judgment: The employee has the authority to make important decisions without significant oversight.

Professional Exemption

1. Primary Duty: The primary duty must be work requiring advanced knowledge, predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
2. Advanced Knowledge: This must be in a field of science or learning customarily acquired by a prolonged course. This category includes roles such as lawyers, doctors, architects, engineers, and teachers.

DOL updated salary thresholds

Recently, the Department of Labor announced updates to these thresholds, effective from July 1, 2024. These changes are crucial for small business owners to understand, as they may affect the classification of some of your employees:

• Before July 1, 2024, the standard salary level is $684 per week ($35,568 annually).
• Starting on July 1, 2024, this will increase to $844 per week ($43,888 annually).
• Then on January 1, 2025, the standard salary level will rise again to $1,128 per week ($58,656 annually).

For highly compensated employees, the threshold for total annual compensation will also increase:

• Before July 1, 2024, it’s $107,432 annually.
• From July 1, 2024, it will be $132,964 annually.
• On January 1, 2025, this will rise to $151,164 annually.

These updates mean that some employees who are currently exempt may no longer qualify based on the new salary thresholds, requiring changes to be made.

What should employers do with these DOL increases to salary thresholds?

As the salary thresholds for exempt employees are set to increase, employers must take steps to ensure compliance. First, review your current payroll to identify which employees may be affected by the new salary levels. It’s crucial to assess whether any exempt employees’ salaries fall below the upcoming thresholds and make increases as necessary. Additionally, consider conducting an audit of job descriptions to verify that they accurately reflect employees’ duties and responsibilities. This is vital since classification isn’t solely based on salary but also on the nature of the work performed. Employers should also stay informed about further updates, as these thresholds will adjust periodically.

Conclusion

At Paper Trails, we strive to break down these complex topics like the DOL increase in salary thresholds into manageable information so that you can focus on what you do best—running your business. Remember, staying informed and prepared is the best way to navigate these changes smoothly. If you’re unsure about how these updates affect your business, it’s a good idea to seek guidance to ensure compliance and avoid any potential issues down the road.  Feel free to contact our team here for help with your payroll and HR processes.