The Department of Labor issued a final rule raising the thresholds applicable to an employer’s obligation to pay overtime. The rule sets new levels applicable to the so-called “executive, administrative, and professional” (“EAP”) exemption from overtime requirements and for qualifying as a “highly compensated employee.” The initial updates will become effective on July 1, 2024. The rule also establishes a new updating mechanism for setting those thresholds going forward.

As we have discussed previously in this CFS Review blog, the Department of Labor shook up the mortgage industry in 2010, announcing that mortgage loan originators would not typically qualify for the administrative exemption from the obligation to pay employees overtime and minimum wage under the federal Fair Labor Standards Act. Mortgage lenders then needed to examine the duties and compensation levels of their origination staff to determine whether they could remain exempt. If not, the lenders had to begin monitoring the hours those individuals worked – no easy feat, nor is the task of calculating a commissioned salesperson’s “rate of pay” for overtime purposes.

The new rule will raise the standard salary level to quality for the EAP exemption as follows:

• Beginning July 1, 2024, $844 per week.
• Beginning on January 1, 2025, $1,128 per week.

(Currently, that salary level is generally $684 per week.) The Department is not changing the duties test for the EAP exemption at this time.

In order to qualify for an exemption as a “highly compensated employee” (“HCE”) in addition to performing the duties of such an employee, he or she would have to earn at least the following salaries:

• Beginning on July 1, 2024, $132,964 per year.
• Beginning on January 1, 2024, $151,164 per year.

(Currently, that salary level is $107,432.) These salary standards will apply on a proportional basis to the extent they span time periods. The Department will continue to allow for a final make-up payment during the last pay period.

The Department’s final rule also adjusts the methodology for setting salary levels, explaining that the Department seeks to ensure that “fewer lower-paid white-collar employees who perform significant amounts of nonexempt work are included in the exemption,” and will be more effective in determining who is employed in a bona fide EAP capacity. The final rule provides that future updates to the standard salary level and HCE total annual compensation threshold with current earnings data will begin on July 1, 2027 and continue every three years thereafter.