Rule2024-08038
Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 26, 2024
Effective
July 1, 2024
Issuing agencies
Labor DepartmentWage and Hour Division
Abstract
The Department of Labor (Department) is updating and revising the regulations issued under the Fair Labor Standards Act implementing the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees. Significant revisions include increasing the standard salary level, increasing the highly compensated employee total annual compensation threshold, and adding to the regulations a mechanism that will allow for the timely and efficient updating of the salary and compensation thresholds, including an initial update on July 1, 2024, to reflect earnings growth. The Department is not finalizing in this rule its proposal to apply the standard salary level to the U.S. territories subject to the Federal minimum wage and to update the special salary levels for American Samoa and the motion picture industry.
Full Text
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[Federal Register Volume 89, Number 82 (Friday, April 26, 2024)]
[Rules and Regulations]
[Pages 32842-32973]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08038]
[[Page 32841]]
Vol. 89
Friday,
No. 82
April 26, 2024
Part IV
Department of Labor
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Wage and Hour Division
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29 CFR Part 541
Defining and Delimiting the Exemptions for Executive, Administrative,
Professional, Outside Sales, and Computer Employees; Final Rule
Federal Register / Vol. 89, No. 82 / Friday, April 26, 2024 / Rules
and Regulations
[[Page 32842]]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 541
RIN 1235-AA39
Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales, and Computer Employees
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule.
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SUMMARY: The Department of Labor (Department) is updating and revising
the regulations issued under the Fair Labor Standards Act implementing
the exemptions from minimum wage and overtime pay requirements for
executive, administrative, professional, outside sales, and computer
employees. Significant revisions include increasing the standard salary
level, increasing the highly compensated employee total annual
compensation threshold, and adding to the regulations a mechanism that
will allow for the timely and efficient updating of the salary and
compensation thresholds, including an initial update on July 1, 2024,
to reflect earnings growth. The Department is not finalizing in this
rule its proposal to apply the standard salary level to the U.S.
territories subject to the Federal minimum wage and to update the
special salary levels for American Samoa and the motion picture
industry.
DATES: The effective date for this final rule is July 1, 2024. Sections
541.600(a)(2) and 541.601(a)(2) are applicable beginning January 1,
2025.
FOR FURTHER INFORMATION CONTACT: Daniel Navarrete, Acting Director,
Division of Regulations, Legislation, and Interpretation, Wage and Hour
Division, U.S. Department of Labor, Room S-3502, 200 Constitution
Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not
a toll-free number). Alternative formats are available upon request by
calling 1-866-487-9243. If you are deaf, hard of hearing, or have a
speech disability, please dial 7-1-1 to access telecommunications relay
services.
Questions of interpretation or enforcement of the agency's existing
regulations may be directed to the nearest Wage and Hour Division (WHD)
district office. Locate the nearest office by calling the WHD's toll-
free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5
p.m. in your local time zone, or log onto WHD's website at <a href="https://www.dol.gov/agencies/whd/contact/local-offices">https://www.dol.gov/agencies/whd/contact/local-offices</a> for a nationwide listing
of WHD district and area offices.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
The Fair Labor Standards Act (FLSA or Act) requires covered
employers to pay employees a minimum wage and, for employees who work
more than 40 hours in a week, overtime premium pay of at least 1.5
times the employee's regular rate of pay. Section 13(a)(1) of the FLSA,
which was included in the original Act in 1938, exempts from the
minimum wage and overtime pay requirements ``any employee employed in a
bona fide executive, administrative, or professional capacity[.]'' \1\
The exemption is commonly referred to as the ``white-collar'' or
executive, administrative, or professional (EAP) exemption. The statute
expressly gives the Secretary of Labor (Secretary) authority to define
and delimit the terms of the exemption. Since 1940, the regulations
implementing the EAP exemption have generally required that each of the
following three tests must be met: (1) the employee must be paid a
predetermined and fixed salary that is not subject to reduction because
of variations in the quality or quantity of work performed (the salary
basis test); (2) the amount of salary paid must meet a minimum
specified amount (the salary level test); and (3) the employee's job
duties must primarily involve executive, administrative, or
professional duties as defined by the regulations (the duties test).
The employer bears the burden of establishing the applicability of the
exemption.\2\ Job titles and job descriptions do not determine EAP
exemption status, nor does merely paying an employee a salary.
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\1\ 29 U.S.C. 213(a)(1).
\2\ See, e.g., Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S.
190, 209 (1966); Walling v. Gen. Indus. Co., 330 U.S. 545, 547-48
(1947).
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Consistent with its broad authority under the Act, in this final
rule the Department is setting compensation thresholds for the standard
test and the highly compensated employee test that will work
effectively with the respective duties tests to better identify who is
employed in a bona fide EAP capacity for purposes of determining
exemption status under the Act. Specifically, the Department is setting
the standard salary level at the 35th percentile of weekly earnings of
full-time salaried workers in the lowest-wage Census Region ($1,128 per
week or $58,656 annually for a full-year worker) \3\ and the highly
compensated employee total annual compensation threshold at the
annualized weekly earnings of the 85th percentile of full-time salaried
workers nationally ($151,164). These compensation thresholds are firmly
grounded in the authority that the FLSA grants to the Secretary to
define and delimit the EAP exemption, a power the Secretary has
exercised for 85 years.
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\3\ In determining earnings percentiles in its part 541
rulemakings since 2004, the Department has consistently looked at
nonhourly earnings for full-time workers from the Current Population
Survey (CPS) Merged Outgoing Rotation Group (MORG) data collected by
the U.S. Bureau of Labor Statistics (BLS). As explained in section
VII.B.5.i, the Department considers data representing compensation
paid to nonhourly workers to be an appropriate proxy for
compensation paid to salaried workers, although for simplicity the
Department uses the terms salaried and nonhourly interchangeably in
this rule. The Department relied on CPS MORG data for calendar year
2022 to develop the NPRM, including to determine the proposed salary
level. The Department is using the most recent full-year data
available for this final rule, which is CPS MORG data for calendar
year 2023. The new standard salary level of $1,128 per week is $12
to $30 less than the Department estimated in the NPRM. 88 FR 62152,
62152-53 n.3 (Sept. 8, 2023).
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The increase in the standard salary level to the 35th percentile of
weekly earnings of full-time salaried workers in the lowest-wage Census
Region better fulfills the Department's obligation under the statute to
define and delimit who is employed in a bona fide EAP capacity. Upon
reflection, the Department has determined that its rulemakings over the
past 20 years, since the Department simplified the test for the EAP
exemption in 2004 by replacing the historic two-test system for
determining exemption status with the single standard test, have
vacillated between two distinct approaches: One used in rules in 2004
\4\ and 2019,\5\ that exempted lower-paid workers who historically had
been entitled to overtime because they did not meet the more detailed
duties requirements of the test that was in place from 1949 to 2004;
and one used in a rule in 2016,\6\ that restored overtime protection to
lower-paid white-collar workers who performed significant amounts of
nonexempt work but also removed from the exemption other lower-paid
workers who historically were exempt because they met the prior more
detailed duties test, an approach that received unfavorable treatment
in litigation.\7\ Having grappled with these different approaches to
setting the standard salary level, this final rule retains the
simplified standard test, the benefits of
[[Page 32843]]
which were recognized in the Department's 2004, 2016, and 2019
rulemakings,\8\ while, through a revised methodology, fully restoring
the salary level's screening function and accounting for the switch
from a two-test to a one-test system for defining the EAP exemption,
and also separately updating the standard salary level to account for
earnings growth since the 2019 rule.
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\4\ 69 FR 22122 (April 23, 2004).
\5\ 84 FR 51230 (Sept. 27, 2019).
\6\ 81 FR 32391 (May 23, 2016).
\7\ The Department never enforced the 2016 rule because it was
invalidated by the U.S. District Court for the Eastern District of
Texas. See Nevada v. U.S. Department of Labor, 275 F.Supp.3d 795
(E.D. Tex. 2017).
\8\ See 84 FR 51243-45; 81 FR 32414, 32444-45; 69 FR 22126-28.
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The new standard salary level will, in combination with the
standard duties test, better define and delimit which employees are
employed in a bona fide EAP capacity. By setting a salary level above
what the methodology used in 2004 and 2019 would produce using current
data, the new standard salary level will ensure that, consistent with
the Department's historical approach to the exemption, fewer lower-paid
white-collar employees who perform significant amounts of nonexempt
work are included in the exemption. At the same time, by setting the
salary level below what the methodology used in 2016 would produce
using current data, the new standard salary level will allow employers
to continue to use the exemption for many lower-paid white-collar
employees who were made exempt under the 2004 standard duties test. The
combined result will be a more effective test for determining who is
employed in a bona fide EAP capacity. The applicability date of the new
standard salary level will be January 1, 2025. The Department is not
finalizing its proposal to apply the standard salary level to the U.S.
territories subject to the federal minimum wage and to update the
special salary levels for American Samoa and the motion picture
industry.\9\
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\9\ The Department proposed in sections IV.B.1 and B.2 of the
NPRM to apply the updated standard salary level to the four U.S.
territories that are subject to the federal minimum wage--Puerto
Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the
Northern Mariana Islands (CNMI)--and to update the special salary
levels for American Samoa and the motion picture industry in
relation to the new standard salary level. The Department will
address these aspects of its proposal in a future final rule.
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The Department is also increasing the earnings threshold for the
highly compensated employee (HCE) exemption, which was added to the
regulations in 2004 and applies to certain highly compensated employees
and combines a much higher annual compensation requirement with a
minimal duties test. The HCE test's primary purpose is to serve as a
streamlined alternative for very highly compensated employees because a
very high level of compensation is a strong indicator of an employee's
exempt status, thus eliminating the need for a detailed duties
analysis.\10\ The Department is increasing the HCE total annual
compensation threshold to the annualized weekly earnings amount of the
85th percentile of full-time salaried workers nationally ($151,164).
The new HCE threshold is high enough to reserve the test for those
employees who are ``at the very top of [the] economic ladder'' \11\ and
will guard against the unintended exemption of workers who are not bona
fide EAP employees, including those in high-income regions and
industries. The applicability date of the new HCE total annual
compensation threshold will be January 1, 2025.
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\10\ See 69 FR 22172-73.
\11\ Id. at 22174.
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In each of its part 541 rulemakings since 2004, the Department
recognized the need to regularly update the earnings thresholds to
ensure that they remain effective in helping differentiate between
exempt and nonexempt employees. As the Department observed in these
rulemakings, even a well-calibrated salary level that is not kept up to
date becomes obsolete as wages for nonexempt workers increase over
time.\12\ Long intervals between rulemakings have resulted in eroded
earnings thresholds based on outdated earnings data that were ill-
equipped to help identify bona fide EAP employees.
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\12\ 84 FR 51250-51; 81 FR 32430; see also 69 FR 22164.
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To address this problem, in the 2004 and 2019 rules the Department
expressed its commitment to regularly updating the salary levels.\13\
In the 2016 rule, it included a regulatory provision to automatically
update the salary levels.\14\ Based on its long experience with
updating the salary levels, the Department has determined that adopting
a regulatory provision for updating the salary levels to reflect
current earnings data, with an exception for pausing future updates
under certain conditions, is the most viable and efficient way to
ensure the EAP exemption earnings thresholds keep pace with changes in
employee pay and thus remain effective in helping determine exemption
status. This rule establishes a new updating mechanism. The initial
update to the standard salary level and the HCE total annual
compensation threshold will take place on July 1, 2024, and will use
the methodologies in place at that time (i.e., the 2019 rule
methodologies), resulting in a $844 per week standard salary level and
a $132,964 HCE total annual compensation threshold. Future updates to
the standard salary level and HCE total annual compensation threshold
with current earnings data will begin 3 years after the date of the
initial update (July 1, 2027), and every 3 years thereafter, using the
methodologies in place at the time of the updates. The Department
anticipates that, by the time the first triennial update under the
updating mechanism occurs, assuming the Department has not engaged in
further rulemaking, the new methodologies for the standard salary level
and HCE total annual compensation requirement established by this final
rule will have become effective and the triennial update will employ
these new methodologies. The new updating mechanism will allow for the
timely, predictable, and efficient updating of the earnings thresholds.
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\13\ 69 FR 22171; 84 FR 51251-52.
\14\ 81 FR 32430.
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The Department estimates that in Year 1, approximately 1 million
employees who earn at least $684 per week but less than $844 per week
will be impacted by the initial update applying current wage data to
the standard salary level methodology from the 2019 rule, and
approximately 3 million employees who earn at least $844 per week but
less than the new standard salary level of $1,128 per week will be
impacted by the subsequent application of the new standard salary
level. See Table 25. As explained in section V.B.4.ii, for 1.8 million
of the affected employees (including the 1 million impacted by the
initial update), this rule will restore overtime protections that they
would have been entitled to under every rule prior to the 2019 rule.
The Department also estimates that 292,900 employees who are currently
exempt under the HCE test, but do not meet the standard test for
exemption, will be affected by the proposed increase in the HCE total
annual compensation level. Absent an employer increasing these
employees' pay to at or above the new HCE level, the exemption status
of these employees will turn on the standard duties test (which these
employees do not meet) rather than the minimal duties test that applies
to employees earning at or above the HCE threshold. The economic
analysis quantifies the direct costs resulting from this rule: (1)
regulatory familiarization costs; (2) adjustment costs; and (3)
managerial costs. The Department estimates that total annualized direct
employer costs over the first 10 years will be $803 million with a 7
percent discount rate. This rule will also give employees higher
earnings in the form of transfers of income from employers to
employees. The
[[Page 32844]]
Department estimates annualized transfers will be $1.5 billion, with a
7 percent discount rate.
II. Background
A. The FLSA
The FLSA generally requires covered employers to pay employees at
least the federal minimum wage (currently $7.25 an hour) for all hours
worked and overtime premium pay of at least one and one-half times the
employee's regular rate of pay for all hours worked over 40 in a
workweek.\15\ However, section 13(a)(1) of the FLSA, codified at 29
U.S.C. 213(a)(1), provides an exemption from both minimum wage and
overtime pay for ``any employee employed in a bona fide executive,
administrative, or professional capacity . . . or in the capacity of
[an] outside salesman (as such terms are defined and delimited from
time to time by regulations of the Secretary [of Labor], subject to the
provisions of [the Administrative Procedure Act] . . .).'' The FLSA
does not define the terms ``executive,'' ``administrative,''
``professional,'' or ``outside salesman,'' but rather directs the
Secretary to define those terms through rulemaking. Pursuant to
Congress's grant of rulemaking authority, since 1938 the Department has
issued regulations at 29 CFR part 541 to define and delimit the scope
of the section 13(a)(1) exemption.\16\ Because Congress explicitly gave
the Secretary authority to define and delimit the specific terms of the
exemption, the regulations so issued have the binding effect of
law.\17\
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\15\ See 29 U.S.C. 206(a), 207(a).
\16\ See Helix Energy Solutions Group, Inc. v. Hewitt, 143 S.Ct.
677, 682 (2023) (``Under [section 13(a)(1)], the Secretary sets out
a standard for determining when an employee is a `bona fide
executive.''').
\17\ See Batterton v. Francis, 432 U.S. 416, 425 n.9 (1977).
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The exemption for executive, administrative, or professional
employees was included in the original FLSA legislation passed in
1938.\18\ It was modeled after similar provisions contained in the
earlier National Industrial Recovery Act of 1933 and state law
precedents.\19\ As the Department has explained in prior rules, the EAP
exemption is premised on two policy considerations. First, the type of
work exempt employees perform is difficult to standardize to any time
frame and cannot be easily spread to other workers after 40 hours in a
week, making enforcement of the overtime provisions difficult and
generally precluding the potential job expansion intended by the FLSA's
time-and-a-half overtime premium.\20\ Second, exempt workers typically
earn salaries well above the minimum wage and are presumed to enjoy
other privileges to compensate them for their long hours of work. These
include, for example, above-average fringe benefits and better
opportunities for advancement, setting them apart from nonexempt
workers entitled to overtime pay.\21\
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\18\ See Fair Labor Standards Act of 1938, Pub. L. 75-718,
13(a)(1), 52 Stat. 1060, 1067 (June 25, 1938).
\19\ See National Industrial Recovery Act, Pub. L. 73-67, ch.
90, title II, 206(2), 48 Stat 195, 204-5 (June 16, 1933).
\20\ See Report of the Minimum Wage Study Commission, Volume IV,
pp. 236 and 240 (June 1981).
\21\ See id.
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Section 13(a)(1) exempts covered EAP employees from both the FLSA's
minimum wage and overtime requirements. However, because of their long
hours of work, its most significant impact is its exemption of these
employees from the Act's overtime protections, as discussed in section
VII.C.4. An employer may employ such exempt employees for any number of
hours in the workweek without paying an overtime premium. Some state
laws have stricter standards to be exempt from state minimum wage and
overtime protections than those which exist under federal law, such as
higher salary levels or more stringent duties tests. The FLSA does not
preempt any such stricter state standards.\22\ If a state establishes a
higher standard than the provisions of the FLSA, the higher standard
applies in that state.
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\22\ See 29 U.S.C. 218(a).
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B. Regulatory History
The Department's part 541 regulations have consistently looked to
the duties performed by the employee and the salary paid by the
employer in determining whether an individual is employed in a bona
fide executive, administrative, or professional capacity. Since 1940,
the Department's implementing regulations have generally required each
of the following three prongs to be satisfied for the exemption to
apply: (1) the employee must be paid a predetermined and fixed salary
that is not subject to reduction because of variations in the quality
or quantity of work performed (the salary basis test); (2) the amount
of salary paid must meet a minimum specified amount (the salary level
test); and (3) the employee's job duties must primarily involve
executive, administrative, or professional duties as defined by the
regulations (the duties test).
1. The Part 541 Regulations From 1938 to 2004
The Department's part 541 regulations have always included earnings
criteria. From the first Part 541 regulations, there has been ``wide
agreement'' that the amount paid to an employee is ``a valuable and
easily applied index to the `bona fide' character of the employment for
which [the] exemption is claimed[.]'' \23\ Because EAP employees ``are
denied the protection of the [A]ct[,]'' they are ``assumed [to] enjoy
compensatory privileges'' which distinguish them from nonexempt
employees, including substantially higher pay.\24\ Additionally, the
Department has long recognized that the salary level test is a useful
criterion for helping identify bona fide EAP employees and provides a
practical guide for employers and employees, thus tending to reduce
litigation and ensure that nonexempt employees receive the overtime
protection to which they are entitled.\25\ These benefits accrue to
employees and employers alike, which is why, despite disagreement over
the appropriate magnitude of the part 541 earnings thresholds, an
``overwhelming majority'' of stakeholders have supported the retention
of such thresholds in prior part 541 rulemakings.\26\
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\23\ ``Executive, Administrative, Professional . . . Outside
Salesman'' Redefined, Wage and Hour Division, U.S. Department of
Labor, Report and Recommendations of the Presiding Officer [Harold
Stein] at Hearings Preliminary to Redefinition (Oct. 10, 1940)
(Stein Report) at 19.
\24\ Id.; see Report of the Minimum Wage Study Commission,
Volume IV, p. 236 (``Higher base pay, greater fringe benefits,
improved promotion potential and greater job security have
traditionally been considered as normal compensatory benefits
received by EAP employees, which set them apart from non-EAP
employees.'').
\25\ See 84 FR 51237; see also Report and Recommendations on
Proposed Revisions of Regulations, Part 541, by Harry Weiss,
Presiding Officer, Wage and Hour and Public Contracts Divisions,
U.S. Department of Labor (June 30, 1949) (Weiss Report) at 8.
\26\ 84 FR 51235; see also Stein Report at 5, 19; Weiss Report
at 9.
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The Department issued the first version of the part 541 regulations
in October 1938.\27\ The Department's initial regulations included a
$30 per week compensation requirement for executive and administrative
employees. It also included a duties test that prohibited employers
from claiming the EAP exemption for employees who performed ``[a]
substantial amount of work of the same nature as that performed by
nonexempt employees of the employer.'' \28\
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\27\ 3 FR 2518 (Oct. 20, 1938).
\28\ Id.
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[[Page 32845]]
The Department issued the first update to its part 541 regulations
in October 1940,\29\ following extensive public hearings.\30\ Among
other changes, the 1940 update newly applied the salary level
requirement to professional employees; added the salary basis
requirement to the tests for executive, administrative, and
professional employees; and introduced a 20 percent cap on the amount
of nonexempt work that executive and professional employees could
perform each workweek, replacing language which prohibited the
performance of a ``substantial amount'' of nonexempt work.\31\
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\29\ 5 FR 4077 (Oct. 15, 1940).
\30\ See Stein Report.
\31\ 5 FR 4077.
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The Department conducted further hearings on the part 541
regulations in 1947 \32\ and issued revised regulations in December
1949.\33\ The 1949 rulemaking updated the salary levels set in 1940 and
introduced a second, less stringent duties test for higher paid
executive, administrative, and professional employees.\34\ Thus,
beginning in 1949, the part 541 regulations contained two tests for the
EAP exemption. These tests became known as the ``long'' test and the
``short'' test. The long test paired a lower earnings threshold with a
more rigorous duties test that generally limited the performance of
nonexempt work to no more than 20 percent of an employee's hours worked
in a workweek. The short test paired a higher salary level and a less
rigorous duties test, with no specified limit on the performance of
nonexempt work. From 1958 until 2004, the regulations in place
generally set the long test salary level at a level designed to exclude
from exemption approximately the lowest-paid 10 percent of salaried
white-collar employees who performed EAP duties in lower-wage areas and
industries and set the short test salary level significantly
higher.\35\ The salary and duties components of each test complemented
each other, and the two tests worked in combination to determine
whether an individual was employed in a bona fide EAP capacity. Lower-
paid employees who met the long test salary level but did not meet the
higher short test salary level were subject to the long duties test
which ensured that these employees were employed in an EAP capacity by
limiting the amount of time they could spend on nonexempt work.
Employees who met the higher short test salary level were considered to
be more likely to meet the requirements of the long duties test and
thus were subject to a short-cut duties test for determining exemption
status.
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\32\ See Weiss Report.
\33\ See 14 FR 7705 (Dec. 24, 1949).
\34\ Id. at 7706.
\35\ See Report and Recommendations on Proposed Revision of
Regulations, Part 541, Under the Fair Labor Standards Act, by Harry
S. Kantor, Assistant Administrator, Office of Regulations and
Research, Wage and Hour and Public Contracts Divisions, U.S.
Department of Labor (Mar. 3, 1958) (Kantor Report) at 6-7. Under the
two-test system, the ratio of the short test salary level to the
long test salary levels ranged from approximately 130 percent to 180
percent. See 81 FR 32403.
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Additional changes to the regulations, including salary level
updates, were made in 1954,\36\ 1958,\37\ 1961,\38\ 1963,\39\ 1967,\40\
1970,\41\ 1973,\42\ and 1975.\43\ The Department revised the part 541
regulations twice in 1992 but did not update the salary thresholds at
that time.\44\ None of these updates changed the basic structure of the
long and short tests.
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\36\ 19 FR 4405 (July 17, 1954).
\37\ 23 FR 8962 (Nov. 18, 1958).
\38\ 26 FR 8635 (Sept. 15, 1961).
\39\ 28 FR 9505 (Aug. 30, 1963).
\40\ 32 FR 7823 (May 30, 1967).
\41\ 35 FR 883 (Jan. 22, 1970).
\42\ 38 FR 11390 (May 7, 1973).
\43\ 40 FR 7091 (Feb. 19, 1975).
\44\ The Department first created a limited exception from the
salary basis test for public employees. 57 FR 37677 (Aug. 19, 1992).
The Department also implemented a 1990 law requiring it to
promulgate regulations permitting employees in certain computer-
related occupations to qualify as exempt under section 13(a)(1) of
the FLSA. 57 FR 46744 (Oct. 9, 1992); see Pub. L. 101-583, sec. 2,
104 Stat. 2871 (Nov. 15, 1990).
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The Department described the salary levels adopted in the 1975 rule
as ``interim rates,'' intended to ``be in effect for an interim period
pending the completion of a study [of worker earnings] by the Bureau of
Labor Statistics . . . in 1975.'' \45\ However, those salary levels
remained in effect until 2004. The utility of the salary levels in
helping to define the EAP exemption decreased as wages rose during this
period. In 1991, the federal minimum wage rose to $4.25 per hour,\46\
which for a 40-hour workweek exceeded the lower long test salary level
of $155 per week for executive and administrative employees and equaled
the long test salary level of $170 per week for professional employees.
In 1997, the federal minimum wage rose to $5.15 per hour,\47\ which for
a 40-hour workweek not only exceeded the long test salary levels, but
also was close to the higher short test salary level of $250 per week.
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\45\ 40 FR 7091.
\46\ See Pub. L. 101-157, sec. 2, 103 Stat. 938 (Nov. 17, 1989).
\47\ See Pub. L. 104-188, sec. 2104(b), 110 Stat 1755 (Aug. 20,
1996).
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2. Part 541 Regulations From 2004 to 2019
The Department published a final rule in April 2004 (the 2004 rule)
\48\ that updated the part 541 salary levels for the first time since
1975 and made several significant changes to the regulations. Most
significantly, the Department eliminated the separate long and short
tests and replaced them with a single standard test. The Department set
the standard salary level at $455 per week, which was equivalent to the
20th percentile of weekly earnings of full-time salaried workers in the
lowest-wage Census Region (the South) and in the retail industry
nationally. The Department paired the new standard salary level test
with a new standard duties test for executive, administrative, and
professional employees, respectively, which was substantially
equivalent to the short duties test used in the two-test system.\49\
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\48\ 69 FR 22122.
\49\ See id. at 22192-93 (acknowledging ``de minimis differences
in the standard duties tests compared to the . . . short duties
tests'').
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In the 2004 rule, the Department acknowledged that the switch to
the single standard test for exemption was a significant change in the
regulatory structure,\50\ and noted that the shift to setting the
salary level based on ``the lowest 20 percent of salaried employees in
the South, rather than the lowest 10 percent'' of EAP employees was
made, in part, ``because of the proposed change from the `short' and
`long' test structure[.]'' \51\ The Department asserted that
elimination of the long duties test was warranted because ``the
relatively small number of employees currently earning from $155 to
$250 per week, and thus tested for exemption under the `long' duties
test, will gain stronger protections under the increased minimum salary
level which . . . guarantees overtime protection for all employees
earning less than $455 per week[.]'' \52\ The Department acknowledged,
however, that the new standard salary level was comparable to the lower
long test salary level used in the two-test system (i.e., if the
Department's long test salary level methodology had been applied to
contemporaneous data).\53\ Thus,
[[Page 32846]]
employees who would have been subject to the long duties test with its
limit on the amount of time spent on nonexempt work if the two-test
system had been updated were subject to the equivalent of the short
duties test under the new standard test. For example, under the 2004
rule's standard test, an employee who earned just over the rule's
standard salary threshold of $455 in weekly salary, and who met the
standard duties test, was exempt even if they would not have met the
previous long duties test because they spent more than 20 percent of
their time performing nonexempt work. If the Department had instead
retained the two-test system and updated the long test salary level to
$455, that same employee would have been nonexempt because they would
have been subject to the long test's more rigorous duties analysis due
to their lower salary.
---------------------------------------------------------------------------
\50\ See id. at 22126-28.
\51\ Id. at 22167.
\52\ Id. at 22126.
\53\ Id. at 22171. The Department last set the long and short
test salary levels in 1975. Throughout this preamble, when the
Department refers to the relationship of salary levels set in this
rule and the 2004, 2016, and 2019 rules to equivalent long or short
test salary levels, it is referring to salary levels based on
contemporaneous (at the relevant point in time) data that, in the
case of the long test salary level, would exclude the lowest-paid 10
percent of exempt EAP employees in low-wage industries and areas
and, in the case of the short test salary level, would be 149
percent of a contemporaneous long test salary level. The short test
salary ratio of 149 percent is the simple average of the 15
historical ratios of the short test salary level to the long test
salary level. See 81 FR 32467 & n.149.
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In the 2004 rule, the Department also created a new test for
exemption for certain highly compensated employees.\54\ The HCE test
paired a minimal duties requirement--customarily and regularly
performing at least one of the exempt duties or responsibilities of an
EAP employee--with a high total annual compensation requirement of
$100,000, a threshold that exceeded the annual earnings of
approximately 93.7 percent of salaried workers nationwide.\55\ The
Department also ended the use of special salary levels for Puerto Rico
and the U.S. Virgin Islands, as they had become subject to the federal
minimum wage since the Department last updated the part 541 salary
levels in 1975, and set a special salary level only for American Samoa,
which remained not subject to the federal minimum wage.\56\ The
Department also expressed its intent ``in the future to update the
salary levels on a more regular basis, as it did prior to 1975.'' \57\
---------------------------------------------------------------------------
\54\ 69 FR 22172.
\55\ See id. at 22169 (Table 3).
\56\ Id. at 22172.
\57\ Id. at 22171.
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In May 2016, the Department issued a final rule (the 2016 rule)
that retained the single-test system introduced in 2004 but increased
the standard salary level and provided for regular updating.
Specifically, the 2016 rule (1) increased the standard salary level
from the 2004 salary level of $455 to $913 per week, the 40th
percentile of weekly earnings of full-time salaried workers in the
lowest-wage Census Region (the South); \58\ (2) increased the HCE test
total annual compensation amount from $100,000 to $134,004 per year;
\59\ (3) increased the special salary level for EAP workers in American
Samoa; \60\ (4) allowed employers, for the first time, to credit
nondiscretionary bonuses, incentive payments, and commissions paid at
least quarterly towards up to 10 percent of the standard salary level;
\61\ and (5) added a mechanism to automatically update the part 541
earnings thresholds every 3 years.\62\ The Department did not change
any of the standard duties test criteria in the 2016 rule,\63\ opting
instead to adopt a standard salary level set at the low end of the
historical range of short test salary levels used in the pre-2004 two-
test system.\64\ The 2016 rule was scheduled to take effect on December
1, 2016.
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\58\ 81 FR 32404-05.
\59\ Id. at 32428.
\60\ Id. at 32422.
\61\ See id. at 32425-26.
\62\ See id. at 32430.
\63\ Id. at 32444.
\64\ In the 2016 rule, the Department estimated the historical
range of short test salary levels as from $889 to $1,231 (based on
contemporaneous earnings data). Id. at 32405.
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On November 22, 2016, the U.S. District Court for the Eastern
District of Texas issued an order preliminarily enjoining the
Department from implementing and enforcing the 2016 rule.\65\ On August
31, 2017, the district court granted summary judgment to the plaintiff
challengers, holding that the 2016 rule's salary level exceeded the
Department's authority and invalidating the rule.\66\ On October 30,
2017, the Department of Justice appealed to the U.S. Court of Appeals
for the Fifth Circuit, which subsequently granted the Department's
motion to hold that appeal in abeyance while the Department undertook
further rulemaking. Following an NPRM published on March 22, 2019,\67\
the Department published a final rule on September 27, 2019 (the 2019
rule),\68\ which formally rescinded and replaced the 2016 rule.
---------------------------------------------------------------------------
\65\ See Nevada v. U.S. Department of Labor, 218 F. Supp. 3d 520
(E.D. Tex. 2016).
\66\ See Nevada, 275 F.Supp.3d 795.
\67\ See 84 FR 10900 (March 22, 2019).
\68\ See 84 FR 51230.
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The 2019 rule (1) raised the standard salary level from the 2004
salary level of $455 to $684 per week, the equivalent of the 20th
percentile of weekly earnings of full-time salaried workers in the
lowest-wage Census Region (the South) and/or in the retail industry
nationally; (2) increased the HCE total annual compensation threshold
from $100,000 to $107,432, the equivalent of the 80th percentile of
annual earnings of full-time salaried workers nationwide; (3) allowed
employers to credit nondiscretionary bonuses and incentive payments
(including commissions) paid at least annually to satisfy up to 10
percent of the standard salary level; and (4) established special
salary levels for all U.S. territories.\69\ The 2019 rule did not make
changes to the standard duties test.\70\ While using the same
methodology used in the 2004 rule to set the salary threshold, the
Department did not assert that this methodology constituted the outer
limit for defining and delimiting the salary threshold. Rather, the
Department reasoned the 2004 methodology was well-established,
reasonable, would minimize uncertainty and potential legal challenge,
and would address the concerns of the district court that the 2016 rule
over-emphasized the salary level.\71\ The Department acknowledged that
the new standard salary level was, unlike the salary level set in the
2004 rule, below the long test salary level used in the pre-2004 two-
test system.\72\ As in its 2004 rule, the Department ``reaffirm[ed] its
intent to update the standard salary level and HCE total annual
compensation threshold more regularly in the future using notice-and-
comment rulemaking.'' \73\ The 2019 rule took effect on January 1,
2020.\74\
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\69\ The Department established special salary levels of $455
per week for Puerto Rico, Guam, the U.S. Virgin Islands, and the
CNMI (effectively continuing the 2004 salary level); it also
maintained the 2004 rule's $380 per week special salary level for
employees in American Samoa. Id. at 51246.
\70\ See id. at 51241-43.
\71\ See id. at 51242.
\72\ Id. at 51244.
\73\ Id. at 51251.
\74\ A lawsuit challenging the 2019 rule was filed in August
2022. The district court upheld the rule and an appeal of that
decision was pending at the time the Department issued this final
rule. See Mayfield v. U.S. Department of Labor, 2023 WL 6168251
(W.D. Tex. Sept. 20, 2023), appeal docketed, No. 23-50724 (5th Cir.
Oct. 11, 2023).
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C. Overview of Existing Regulatory Requirements
The part 541 regulations contain specific criteria that define each
category of exemption provided for in section 13(a)(1) for bona fide
executive, administrative, professional, and outside sales employees,
as well as teachers and academic administrative personnel. The
regulations also define exempt computer employees under sections
13(a)(1) and 13(a)(17). The employer bears the burden of establishing
the applicability of any exemption.\75\ Job titles and job descriptions
do not determine
[[Page 32847]]
exemption status, nor does merely paying an employee a salary rather
than an hourly rate.
---------------------------------------------------------------------------
\75\ See, e.g., Idaho Sheet Metal Works, 383 U.S. at 209;
Walling, 330 U.S. at 547-48.
---------------------------------------------------------------------------
As previously indicated, to satisfy the EAP exemption, employees
must meet certain tests regarding their job duties \76\ and generally
must be paid on a salary basis at least the amount specified in the
regulations.\77\ Some employees, such as doctors, lawyers, teachers,
and outside sales employees, are not subject to salary tests.\78\
Others, such as academic administrative personnel and computer
employees, are subject to special, contingent earning thresholds.\79\
The standard salary level for the EAP exemption is currently $684 per
week (equivalent to $35,568 per year), and the total annual
compensation level for highly compensated employees under the HCE test
is currently $107,432.\80\ A special salary level of $455 per week
currently applies to employees in Puerto Rico, Guam, the U.S. Virgin
Islands, and the CNMI; \81\ a special salary level of $380 per week
applies to employees in American Samoa; \82\ and employers can pay a
special weekly ``base rate'' of $1,043 per week to employees in the
motion picture producing industry.\83\ Nondiscretionary bonuses and
incentive payments (including commissions) paid on an annual or more
frequent basis may be used to satisfy up to 10 percent of the standard
or special salary levels.\84\
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\76\ For a description of the duties that are required to be
performed under the EAP exemption, see Sec. Sec. 541.100 (executive
employees); 541.200 (administrative employees); 541.300,
541.303-.304 (teachers and professional employees); 541.400
(computer employees); 541.500 (outside sales employees).
\77\ Alternatively, administrative and professional employees
may be paid on a fee basis for a single job regardless of the time
required for its completion as long as the hourly rate for work
performed (i.e., the fee payment divided by the number of hours
worked) would total at least the weekly amount specified in the
regulation if the employee worked 40 hours. See Sec. 541.605.
\78\ See Sec. Sec. 541.303(d); 541.304(d); 541.500(c);
541.600(e). Such employees are also not subject to a fee basis test.
\79\ See Sec. 541.600(c)-(d).
\80\ See Sec. Sec. 541.600(a); 541.601(a)(1).
\81\ See Sec. Sec. 541.100; 541.200; 541.300.
\82\ See Sec. Sec. 541.100; 541.200; 541.300.
\83\ See Sec. 541.709.
\84\ Sec. 541.602(a)(3).
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Under the HCE test, employees who currently receive at least
$107,432 in total annual compensation are exempt from the FLSA's
overtime requirements if they customarily and regularly perform at
least one of the exempt duties or responsibilities of an executive,
administrative, or professional employee identified in the standard
tests for exemption.\85\ The HCE test applies only to employees whose
primary duty includes performing office or non-manual work.\86\
Employees considered exempt under the HCE test must currently receive
at least the $684 per week standard salary portion of their pay on a
salary or fee basis without regard to the payment of nondiscretionary
bonuses and incentive payments.\87\
---------------------------------------------------------------------------
\85\ Sec. 541.601.
\86\ Sec. 541.601(d).
\87\ See Sec. 541.601(b)(1); see also 84 FR 51249.
---------------------------------------------------------------------------
D. The Department's Proposal
On September 8, 2023, consistent with its statutory authority to
define and delimit the EAP exemption, the Department published a Notice
of Proposed Rulemaking (NPRM) to revise the part 541 regulations.\88\
The Department proposed to increase the standard salary level to the
35th percentile of weekly earnings of full-time salaried workers in the
lowest-wage Census Region (currently the South), equivalent to $1,059
per week based on earnings data used in the NPRM.\89\ The Department
also proposed to apply this updated standard salary level to the four
U.S. territories that are subject to the federal minimum wage--Puerto
Rico, Guam, the U.S. Virgin Islands, and the CNMI--and to update the
special salary levels for American Samoa and the motion picture
industry in relation to the new standard salary level.\90\ The
Department additionally proposed raising the HCE test's total annual
compensation requirement to the annual equivalent of the 85th
percentile of weekly earnings of full-time salaried workers nationally,
equivalent to $143,988 per year based on earnings data used in the
NPRM. Finally, the Department proposed a new mechanism to update the
standard salary level and the HCE total annual compensation threshold
every 3 years to ensure that they remain effective tests for exemption.
---------------------------------------------------------------------------
\88\ See 88 FR 62152.
\89\ The Department noted that the final rule would use the most
recent earnings data available to set the standard salary level,
which would change the dollar amount of the resulting threshold. See
88 FR 62152-53 n. 3.
\90\ In this final rule the Department is not finalizing its
proposal in section IV.B.1 and B.2 of the NPRM to apply the standard
salary level to the U.S. territories subject to the federal minimum
wage and to update the special salary levels for American Samoa and
the motion picture industry. The Department will address these
aspects of its proposal in a future final rule. While the Department
is not finalizing its proposal, it is making nonsubstantive changes
in provisions addressing the territories as a result of other
changes in this final rule.
---------------------------------------------------------------------------
The public comment period for the NPRM concluded on November 7,
2023. The Department received approximately 33,300 comments in response
to the NPRM during the 60-day comment period.\91\ Comments came from a
diverse array of stakeholders, including employees, employers, trade
associations, small business owners, labor unions, advocacy groups,
nonprofit organizations, law firms, academics, educational
organizations and representatives, religious organizations, economists,
members of Congress, state and local government officials, tribal
representatives, and other interested members of the public. All timely
received comments may be viewed on the <a href="https://www.regulations.gov">https://www.regulations.gov</a>
website, docket ID WHD-2023-0001.
---------------------------------------------------------------------------
\91\ In <a href="http://regulations.gov">regulations.gov</a>, the number of comments received is
listed as 33,310 and the number of posted comments is 26,280. This
difference is because one commenter, WorkMoney, attached thousands
of comments to their one submission.
---------------------------------------------------------------------------
Commenter views on the merits of the NPRM varied widely. Some of
the comments the Department received were general statements of support
or opposition, while many others addressed the Department's proposal in
considerable detail. As with previous part 541 rulemakings, a majority
of the total comments came from comment campaigns using similar or
identical template language. Such campaign comments expressed support
or opposition to the proposed salary level, and sometimes addressed
other issues including applying the salary level to teachers,\92\ and
concerns from nonprofit agencies. However, the Department also received
thousands of unique comments. Significant issues raised in the comments
are discussed in this final rule. Comments germane to the need for this
rulemaking are discussed in section III, comments about the NPRM's
proposals are discussed in section V, and comments about the potential
costs, benefits, and other impacts of this rulemaking are discussed in
section VII. The Department has carefully considered the timely
submitted comments about the Department's proposal.
---------------------------------------------------------------------------
\92\ As noted above, teachers are among the employees for whom
there is no salary level requirement under the part 541 regulations.
See Sec. 541.303(d).
---------------------------------------------------------------------------
The Department received a number of comments on topics that are
beyond the scope of this rulemaking. A significant number of commenters
(including a large comment campaign) urged the Department to newly
apply the part 541 salary criteria to teachers. The Department did not
solicit comment about the exemption criteria for teachers in the NPRM
and, as many commenters on this issue recognized, addressing this issue
would require a separate rulemaking. Other topics outside the
[[Page 32848]]
scope of this rulemaking include, for example, a request that the
Department extend the right to overtime pay to medical residents,
create exemptions from the salary level test, allow employers to credit
the value of board and lodging towards the salary level, clarify issues
related to the fluctuating workweek method of calculating overtime pay,
or create a ``safe harbor'' provision for restaurant franchisors. The
Department is not addressing these issues in its final rule.
Several stakeholders such as Catholic Charities USA and the
National Council of Nonprofits expressed concern about funding and
reimbursement rates to meet potential new overtime expenses. The
Department appreciates the concerns conveyed in these comments and the
challenges of adjusting public funding. As discussed in section
V.B.4.iv, however, the Department's EAP regulations have never had
special rules for nonprofit or charitable organizations and employees
of these organizations are subject to the EAP exemption if they satisfy
the same salary level, salary basis, and duties tests as other
employees.
III. Need for Rulemaking
The goal of this rulemaking is to set effective earnings thresholds
to help define and delimit the FLSA's EAP exemption. To achieve this
goal, the Department is not only updating the single standard salary
level to account for earnings growth since the 2019 rule, but also to
build on the lessons learned in its most recent rulemakings to more
effectively define and delimit employees employed in a bona fide EAP
capacity. To this end, the Department is finalizing its proposed
changes to the standard salary level and the HCE test's total annual
compensation requirement methodologies. Additionally, to maintain the
effectiveness of these tests, the Department is finalizing an updating
mechanism that will update these earnings thresholds to reflect current
wage data, initially on July 1, 2024 and every 3 years thereafter. The
Department's response to commenter feedback on the specific proposals
included in the NPRM is provided in section V. This section explains
the need for the Department to update the part 541 earnings thresholds
and addresses commenter feedback on whether the earnings thresholds
established in the 2019 rule should be increased.
As the Department explained in the NPRM, there is a need for the
Department to update the salary level to fully restore the salary
level's screening function and to account for the shift to a one-test
system in the 2004 rule, which broadened the exemption by placing the
entire burden of this shift on employees who historically were entitled
to the FLSA's overtime protection because they performed substantial
amounts of nonexempt work and earned between the long and short test
salary levels, but became exempt because they passed the more lenient
standard duties test. Since switching from a two-test to a one-test
system for defining and delimiting the EAP exemption in 2004, the
Department has followed different approaches to set the standard salary
level. In 2004, the Department used a methodology that produced a
salary level amount that was equivalent to the lower long test salary
level under the two-test system.\93\ This approach continued to perform
the historical screening function of the long salary test--providing
overtime protection to employees who earned less than the long test
salary level. But it broadened the exemption to include employees
earning between the long and short test salary levels who historically
had not met the long duties test (and therefore were not considered
bona fide EAP employees) and now became exempt if they met the less
rigorous standard duties test.\94\ The Department followed this same
methodology to set the standard salary level in 2019, but applying the
2004 rule's methodology to contemporaneous data in 2019 resulted in a
salary level that was lower than what would have been the equivalent of
the long test salary level and thus did not fulfill the historical
screening function for low-paid employees.\95\ This broadened the EAP
exemption even further by, for the first time, exempting a group of
white-collar employees earning below the equivalent of the long test
salary level.
---------------------------------------------------------------------------
\93\ See 69 FR 22168-69.
\94\ Id. at 22214.
\95\ See 84 FR 51260 (Table 4) (showing that the salary level
derived from the Department's long test methodology would have been
$724 per week rather than the finalized $684 per week amount).
---------------------------------------------------------------------------
To address the concern that the 2004 rule did not provide overtime
compensation for lower-salaried white-collar employees performing large
amounts of nonexempt work, in 2016 the Department set the standard
salary level using a methodology that produced a salary at the low end
of the historical range of short test salary levels.\96\ This approach
restored overtime protection to lower-salaried white-collar employees
who performed substantial amounts of nonexempt work, but it also made
nonexempt some employees paid below the new salary level who performed
only a limited amount of nonexempt work and would have been exempt
under the long duties test.\97\ In the challenge to the 2016 rule, the
district court expressed concern that the 2016 rule conferred overtime
eligibility based on salary level alone to a substantial number of
employees who would otherwise be exempt.\98\
---------------------------------------------------------------------------
\96\ 81 FR 32405.
\97\ See 84 FR 10908; 84 FR 51242.
\98\ See Nevada, 275 F.Supp.3d. at 806.
---------------------------------------------------------------------------
As explained in greater detail in section V.B, setting the standard
salary level at the 35th percentile of weekly earnings of full-time
salaried workers in the lowest-wage Census Region ($1,128 per week,
$58,656 annually), which is below the midpoint between the long and
short tests, will work effectively with the standard duties test to
better define and delimit the EAP exemption, in part by more
effectively accounting for the switch from a two-test to a one-test
system, and will reasonably distribute the impact of the shift by
ensuring overtime protection for some lower-salaried employees without
excluding from exemption too many white-collar employees solely based
on their salary level.\99\ The new standard salary level will also
account for earnings growth since the 2019 rule and fully restore the
historical screening function of the salary level test. At the same
time, the duties test will continue to determine exemption status for a
large majority of all salaried white-collar employees subject to the
part 541 regulations.
---------------------------------------------------------------------------
\99\ See section V.A.3.
---------------------------------------------------------------------------
As the Department has explained,\100\ earnings thresholds in the
part 541 regulations gradually lose their effectiveness as the salaries
paid to nonexempt employees rise over time. These impacts grow in the
absence of increases to the salary threshold that keep pace with wage
growth. Moreover, the longer it takes for the Department to implement
such increases, the larger the increases must be to restore earning
thresholds to maintain their effectiveness. More than 4 years have
passed since the 2019 final rule established the current earnings
thresholds. In the intervening years, salaried workers in the U.S.
economy have experienced a rapid growth in their nominal wages, such
that the current $684 per week salary level now corresponds to
approximately the 12th percentile of earnings of full-time salaried
workers in the lowest-wage Census Region and retail nationally. The
longer the Department waits to update these earnings thresholds, the
less effective they become in helping define
[[Page 32849]]
and delimit the EAP exemption. For example, applying the 2019 standard
salary level methodology to current earnings data will result in a new
threshold of $844 per week--a 23 percent ($160 per week) increase over
the current $684 salary level. Earnings for full-time wage and salary
workers nationally have increased even more rapidly, rising by 24
percent during this period.\101\
---------------------------------------------------------------------------
\100\ See, e.g., 84 FR 51250-51.
\101\ Estimate based on the change in median usual weekly
earnings of full-time wage and salary workers from Q3 2019 to Q4
2023. BLS, Median usual weekly earnings of full-time wage and salary
workers by sex, quarterly averages, seasonally adjusted. <a href="https://www.bls.gov/news.release/wkyeng.t01.htm">https://www.bls.gov/news.release/wkyeng.t01.htm</a>.
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The Department is also increasing the HCE total annual compensation
threshold to the annualized weekly earnings amount of the 85th
percentile of full-time salaried workers nationally ($151,164). Similar
to the standard salary level, nominal wage growth among higher-wage
workers has eroded the effectiveness of the HCE threshold; data shows
that the $107,432 threshold now corresponds to the 70th percentile of
annual earnings of full-time salaried workers nationwide. Reapplying
the 2019 methodology (annualized weekly earnings of the 80th percentile
of full-time salaried workers nationally) to current earnings data
would result in a threshold of $132,964 per year--a 24 percent increase
over the current threshold of $107,432. Increasing the HCE test's total
annual compensation threshold equivalent to the 85th percentile of
salaried worker earnings nationwide will result in an HCE threshold
reserved for employees at the top of today's economic ladder and,
unlike a lower threshold, not risk the unintended exemption of large
numbers of employees in high-wage regions.
Finally, the Department is adopting a mechanism to regularly update
the thresholds for earnings growth, which will ensure that the
thresholds continue to work effectively to help identify EAP employees.
As noted above, the history of the part 541 regulations shows multiple,
significant gaps during which the salary levels were not updated and
their effectiveness in helping to define the EAP exemption decreased as
wages increased. While the Department has generally increased its part
541 earnings thresholds every 5 to 9 years in the 37 years between 1938
and 1975, more recent decades have included long periods without
raising the salary level, resulting in significant erosion of the real
value of the threshold levels followed by unpredictable increases.
Routine updates of the earnings thresholds to reflect wage growth will
bring certainty and stability to employers and employees alike.
The Department received many comments addressing the adequacy of
the current salary and compensation thresholds set in the 2019 rule and
the need for this rulemaking. Generally, employees and affiliated
commenters, including labor unions, worker advocacy groups, plaintiff-
side law firms, and others, supported the rulemaking as an overdue
effort to restore FLSA protections that have eroded in recent decades,
though a number of commenters urged the Department to adopt higher
threshold increases than those proposed in the NPRM. By contrast, most
employers and affiliated stakeholders opposed the main aspects of the
proposal, with many urging the Department to withdraw the NPRM
altogether. Some employers supported the proposal, or stated that they
would support, or not oppose, some change to the current thresholds.
Many commenters agreed with the Department's assessment that the
current salary level is too low.\102\ See, e.g., Coalition of Gender
Justice and Civil Rights Organizations; Coalition of State Attorneys
General; Economic Policy Institute (EPI); Schuck Law LLC; Texas
RioGrande Legal Aid; United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy, Allied Industrial and Service Workers
International Union (United Steelworkers). Several commenters asserted
that the current standard salary level ``fails to provide a true
incentive for employers to balance the additional hours they ask of
their workers with the costs of . . . overtime pay[,]'' which they
stated in turn undermines the FLSA's policy goals of providing ``extra
pay for extra work . . . [and] spreading employment.'' See, e.g.,
Center for Law and Social Policy (CLASP); Caring Across Generations;
Family Values @Work; Jobs to Move America; North Carolina Justice
Center; Workplace Justice Project. Opining that the standard salary
level ``has been increased too infrequently--and by too little[,]''
Business for a Fair Minimum Wage asserted that the ``current outdated
overtime threshold is ripe for abuse and fosters unfair pay, worker
burnout, poorer health and safety, and increased employee turnover.''
American Federation of Labor and Congress of Industrial Organizations
(AFL-CIO) asserted that the $684 per week salary level is ``so low that
it risks becoming irrelevant[.]''
---------------------------------------------------------------------------
\102\ Commenter views on the adequacy of the current HCE
threshold are addressed in section V.C.
---------------------------------------------------------------------------
Finally, some supportive commenters provided reasons why, in their
opinion, this rulemaking is timely. A joint comment submitted by 10
Democratic members of the House of Representatives asserted that
``[o]vertime standards are long overdue for a meaningful update.'' See
also AFL-CIO (asserting that setting the salary level below the long
test level in the 2019 rule ``led to the faster irrelevance of the
current level''). The Coalition of State AGs commented that
``[r]egardless of whether [the $684 per week standard salary] level was
appropriate in 2019, economic trends in the intervening years have
rendered that level obsolete . . . [as] $684 in January 2020 has the
same buying power as $816.90 in September 2023.'' Sanford Heisler Sharp
LLP (Sanford Heisler Sharp) invoked ``the explosion of remote work
since 2020'' as support for the rulemaking, asserting that the
significant increase in telework since 2020 has meant that employers
are ``no longer constrained by the practical limitation of the worker
leaving the workplace.''
Many employer trade associations that were neutral or opposed to
the NPRM's specific proposals for increasing the compensation levels
expressed openness or support for a rulemaking to change the existing
part 541 earnings thresholds. See, e.g., Alliance for Chemical
Distribution; Growmark Comment Campaign (GROWMARK); National Cotton
Ginners Association; National Golf Course Owners Association. Reporting
on the results of a survey taken of its members, Society for Human
Resource Management (SHRM) stated that its members ``support a
reasonable increase to the rule's minimum salary threshold . . . as
only 4% of the total number of respondents indicated that they would
not support any increase.'' Independent Sector remarked that ``a
healthy and equitable nonprofit workforce requires an increase in the
salary threshold beyond $35,568.'' See also North Carolina Center for
Nonprofits (``The Center recognizes that a higher salary level
threshold would benefit people served by nonprofits and many nonprofit
employees, and we encourage the Department to move forward with a final
rule that increases the [current] salary level threshold[.]'').
National Association of Convenience Stores commented that it
``acknowledges that the minimum salary level should be revisited
occasionally, and it support[s] USDOL's approach in 2019 of doing so
approximately every four years[.]'' See also Retail Industry Leaders
Association
[[Page 32850]]
(RILA) (``We recognize that the DOL committed itself in 2019 to engage
in more regular reviews of the salary threshold level for the [EAP]
exemptions and that the DOL now is following up on that commitment.'').
Other employer stakeholders disputed the need for this rulemaking.
Many of these commenters, including the American Bus Association,
Americans for Prosperity Foundation, Construction Industry Round Table,
and National Restaurant Association, asserted that increases to the
part 541 earnings thresholds were unnecessary at this time because the
last update took effect on January 1, 2020. A number of commenters
stated that prior salary level updates have occurred less frequently.
See, e.g., National Association of Manufacturers (NAM) (never less than
5 years); National Demolition Association (on average every 9 to 10
years); National Association of Wholesale Distributors (NAW)
(historically 7 to 9 years). National Retail Federation (NRF) commented
that ``[t]here has been no increase of the federal minimum wage since
2019, and therefore, there is no need to adjust the minimum salary
threshold.'' NRF further asserted that there was no need to increase
the part 541 earnings thresholds because ``market forces have already
increased the compensation of lower-level exempt employees'' since
2019, echoing the sentiment from several individual employers that
markets should determine employee wages rather than government
regulation. See also, e.g., Casa Del Mar Beachfront Suites (opposing
changes to the regulations and stating that the wages it pays ``are
based on free enterprise and competitive business plans''); Individual
Small Business Commenter (asking the Department to ``let the market
take care of the situation''). Numerous commenters also asserted that
the Department should refrain from amending the part 541 regulations at
this time due to current conditions in specific industries or the
broader economy. See, e.g., Asian American Hotel Owners Association,
Inc.; American Hotel and Lodging Association (AHLA); College and
University Professional Association for Human Resources (CUPA-HR); Food
Marketing Institute (FMI); Indiana Chamber of Commerce; National
Association of Home Builders (NAHB).
Finally, a small number of commenters opposed this rulemaking on
the grounds that the Department lacks the legal authority to use any
salary criteria to define and delimit the EAP exemption. See, e.g.,
America First Policy Institute (AFPI); National Federation of
Independent Business (NFIB); Pacific Legal Foundation.\103\ However,
the overwhelming majority of commenters did not oppose the use of
salary criteria in the part 541 regulations or address the Department's
authority, and a number of employer representatives expressed general
support for the use of earnings thresholds. See, e.g., AHLA (``[M]oving
to a duties-only test would undoubtedly result in a more rigid duties
test . . . [and] likely result in excessive burdens on the hospitality
industry, including new and onerous recordkeeping requirements and
increased litigation costs.''); National Restaurant Association
(``[S]alary levels save investigators and employers time by giving them
a quick, short-hand test[.]''); Transportation Intermediaries
Association (``Implementing a duties-only test without considering
salary would be overly complex[.]''). This sentiment is consistent with
stakeholder feedback provided in earlier part 541 rulemakings.\104\
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\103\ See discussion in section V.A.
\104\ See supra note 23.
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Having reviewed the comments received, the Department remains of
the view that the earnings criteria in the part 541 regulations must be
increased and disagrees with commenters that urged the Department to
withdraw its proposal. In addition to updating the salary level to
account for wage growth since 2019, an update is needed in part because
the current standard salary level is too low to fully perform its
screening role, as it is now significantly below the contemporary
equivalent of the historical long test salary level ($942 per
week).\105\ Moreover, as the Department explained in the NPRM, there is
a need for the Department to update the salary level to account for the
shift to a one-test system in the 2004 rule, which broadened the
exemption by placing the entire burden of this shift on employees who
historically were entitled to the FLSA's overtime protection because
they performed substantial amounts of nonexempt work and earned between
the long and short test salary levels, but are now exempt because they
pass the more lenient standard duties test. This effect would continue
to grow over time in the absence of an increase to the current $684 per
week standard salary level.
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\105\ See sections V.B. and VII.C.8.
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The Department disagrees with the criticism from some commenters
that this rulemaking is premature due to the relative recency of the
2019 rule. In that rule, the Department ``reaffirm[ed] its intent to
update the standard salary level and HCE total annual compensation
threshold more regularly in the future'' than it has in the past,
noting that ``long periods without updates . . . diminish the
usefulness of the salary level test and cause future increases to be
larger and more challenging for businesses to absorb.'' \106\ Notably,
the Department initially proposed in the 2019 NPRM to codify a
commitment to update the part 541 earnings thresholds on a quadrennial
basis (i.e., once every 4 years) through notice and comment
rulemaking.\107\ While that proposed commitment was not adopted in the
2019 final rule, the Department reaffirmed the importance of, and its
commitment to, regular updates in its 2019 final rule. The Department's
2019 final rule in no way suggested that increases to the part 541
earnings thresholds should occur only after some longer period of time.
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\106\ 84 FR 51251-52.
\107\ 84 FR 10914-15.
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Relatedly, the fact that employee salaries have grown substantially
since 2019 underscores the need for this rulemaking. Commenter
assertions to the contrary, including that the federal minimum wage has
not increased since the salary level was last updated, misunderstand
the purpose of the part 541 earnings thresholds, which are intended to
assist in the identification of EAP employees based on the wages
employees presently receive.\108\ To the extent that employers have
already been providing raises to exempt EAP workers since January 1,
2020 (the effective date of the 2019 final rule), as some commenters
contended, those increases should be appropriately reflected in the
earnings thresholds to ensure their effectiveness.
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\108\ The Department ``is not authorized to set wages or
salaries for executive, administrative, and professional employees .
. . [and] improving the conditions of such employees is not the
objective of the [part 541] regulations.'' Weiss Report at 11.
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The Department is sensitive to commenter concerns about the
potential impact of this rulemaking on affected employers. However, as
discussed in greater detail in the regulatory impact analysis in
section VII, the costs of this rule, while significant, are a necessary
byproduct of ensuring a salary level that works effectively with the
duties tests both now and in the future.
IV. Effective Date
The Department proposed that all aspects of the proposed rule would
become effective 60 days after publication of the final rule. This
proposed effective date was consistent
[[Page 32851]]
with the 60 days mandated for a ``major rule'' under the Congressional
Review Act and exceeded the 30-day minimum required under the
Administrative Procedure Act (APA).\109\ The Department recognized that
the 60-day proposed effective date was shorter than the effective dates
for the 2004, 2016, and 2019 rules, which were between approximately 90
and 180 days. The Department stated that a 60-day effective date was
appropriate, however, in part because employers and employees are
familiar with the procedures in the current regulations from the 2019
rulemaking and changed economic circumstances have caused a strong need
to update the standard salary level. The Department also sought
comments on whether to apply different effective dates to different
provisions of the proposed rule. The Department is finalizing an
effective date of July 1, 2024. The change to the standard salary level
methodology and the change to the HCE total annual compensation
methodology will have a delayed applicability date of January 1,
2025.\110\ Accordingly, the standard salary level and HCE total annual
compensation requirement will increase at the initial update on the
effective date July 1, 2024 (to $844 and $132,964, respectively), again
on the applicability date for the new methodologies on January 1, 2025
(to $1,128 and $151,164, respectively), and then every 3 years after
the initial update on July 1 (using the methodology in effect at the
time of each update).
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\109\ See 5 U.S.C. 801(a)(3)(A); 5 U.S.C. 553(d).
\110\ The January 1, 2025 applicability date is six months after
the effective date of the rule.
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The Department specifically asked for comments on whether the
effective date for the increase of the standard salary level should be
60 days after publication as proposed or instead if the increase should
be made effective at a later date, such as 6 months or 1 year after
publication of the final rule. If the effective date were longer than
60 days, the Department sought comments on ``whether it should
initially adjust the salary level to reflect recent wage growth (for
example, making an initial adjustment for wage growth 60 days after
publication of a final rule and having the final rule standard salary
level be effective 6 months or a year after publication).'' \111\ Were
it to follow such an approach, the Department sought comments on the
methodology it should use for an initial update, specifically ``whether
to implement an initial update to the standard salary level, effective
60 days after publication of a final rule, that uses the current salary
level methodology (the 20th percentile of weekly earnings of full-time
nonhourly workers in the lowest-wage Census Region and retail
nationally) and applies it to the most recent data available[.]'' \112\
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\111\ 88 FR 62180.
\112\ Id. Commenters generally did not address the Department's
suggestion that a delay in the effective date for the proposed
standard salary level increase be combined with an initial update to
the existing salary level to reflect wage growth. An individual
commenter acknowledged the Department's suggestion but ``defer[ed]
to the economists and statisticians to comment as to whether, if the
effective date is later than 60 days, the Department should
initially adjust the salary level to reflect recent wage growth, and
if so, the methodology for doing so.'' See also Ho-Chunk, Inc., a
subsidiary of the Winnebago Tribe of Nebraska.
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The Department did not specifically request comment on delaying the
effective date of the proposed HCE compensation threshold beyond 60
days or on making an initial update using current data and the existing
HCE compensation methodology if it were to delay the effective date of
the new total annual compensation threshold. The Department stated that
it believed a 60-day effective date was appropriate for the proposed
increase to the HCE compensation threshold because only a relatively
small number of employees earning between the current and proposed HCE
compensation thresholds would not meet the standard duties test and be
affected by the proposed change. The Department sought comment on the
proposed effective date for the HCE compensation threshold.
Lastly, the Department proposed that the first automatic update to
the new compensation levels be effective 3 years after the proposed 60-
day effective date. The Department sought comments on whether the date
for the first automatic update should be adjusted if it were to make an
initial adjustment to any of the compensation levels.
Many commenters that objected to the proposed rule also objected to
the proposed 60-day effective date should the Department go forward
with a final rule. Commenters addressed their comments to the single
60-day effective date and generally did not suggest different effective
dates for different provisions. Several commenters suggested effective
dates between 90 and 180 days, which the NPRM noted was the range for
recent rules. See, e.g., HR Policy Association (minimum of 90 days);
International Foodservice Distributors Association (IFDA) (minimum of
90 days); American Society of Travel Advisors (ASTA) (90 to 180 days);
RILA (at least 120 days); NAIS/NBOA (at least 120 days). Several
commenters suggested a 180-day effective date. See, e.g., AASA/AESA/
ASBO; CUPA-HR; LeadingAge; NRF. The National Council of Young Men's
Christian Associations of the United States of America (YMCA) suggested
an effective date of at least 6 to 9 months. The United States Chamber
of Commerce (Chamber), National Association of Convenience Stores, and
NAFCU suggested an effective date of 12 months. Commenters including
the U.S. Small Business Administration Office of Advocacy (SBA
Advocacy), National Automobile Dealers Association, and Partnership to
Protect Workplace Opportunity (PPWO) suggested an effective date of 12
to 18 months. Commenters including Seyfarth Shaw LLP (Seyfarth Shaw)
and Credit Union National Association (CUNA) suggested an effective
date of 150 days to align with the proposed notice period for future
update amounts. A number of commenters suggested tying the effective
date to the beginning of the next calendar year (January 1, 2025). See,
e.g., Seyfarth Shaw; SHRM; RILA; YMCA. Some commenters suggested a
longer time period between the publication and effective date of the
final rule for specific industries or types of employers. See, e.g.,
Boy Scouts of America (requesting at least 12 months of lead time for
nonprofit employers); Small Business Majority (180 days for small
businesses with fewer than 50 employees). A few commenters linked the
need for a longer effective date with what they asserted was
uncertainty as to the final salary amount caused by the Department's
projections in footnote 3 of the NPRM, with NRF asserting that ``[t]he
brevity of the implementation period is particularly problematic given
the Department's . . . lack of clarity about the dollar value of the
proposed threshold.'' See also HR Policy Association; RILA.
Several commenters suggested phasing in any increase in the salary
level, often in addition to an initial extension of the proposed
effective date. Commenters advocating for a phase-in suggested a range
of steps or timeframes. See, e.g., ASTA (not less than 3 years);
Chamber (3 years in even or incrementally larger steps); North Carolina
Center for Nonprofits (``multiple years''); National Council of
Nonprofits (two or more steps); PPWO (a period of years), Safe Journeys
(6 years); Washington Farm Labor Association (``multi-year''); YMCA
(proportional increases over 5 years).
Most commenters supporting the Department's proposal did not
specifically address the effective date for the Department's proposed
changes. Commenters including American Federation of Teachers (AFT),
National
[[Page 32852]]
Partnership for Women & Families (National Partnership), and National
Women's Law Center (NWLC) urged the Department to finalize the rule
``without delay.'' American Federation of State, County, and Municipal
Employees (AFSCME) specifically supported the 60-day effective date as
proposed. A number of commenters in the home and community-based health
services sector, that were generally supportive of the Department's
intent but expressed concerns with its proposal, advocated for a longer
effective date. ANCOR suggested a 2-year delayed effective date
followed by a 3-to-5-year phase-in of the new salary level. See also
Advancing States (18-month to 2-year effective date); National
Association of State Directors of Developmental Disabilities Services
(NASDDDS) (18- to 24-month effective date for providers of services to
individuals with intellectual and developmental disabilities); United
Cerebral Palsy (phase-in or transition period for the Department to
work with the Centers for Medicare and Medicaid Services and the
Administration for Community Living to minimize impact on access to
services). BrightSpring Health Services urged the Department to delay
the effective date for 2 years and to consider an enforcement delay for
the sector as it did in 2016.
As discussed below, the Department believes it is important to
update the standard salary level in part to account for substantial
earnings growth since the Department last updated the salary level in
the 2019 rule. It has been more than 4 years since the Department
updated the salary level, and economic conditions have changed
significantly since then as evidenced by the salary increase that would
result by applying current data to the 2019 salary level methodology
($844 per week, an increase of $160 per week over the existing salary
level). These economic conditions have also impacted employees subject
to the HCE exemption. Applying current data to the 2019 HCE
compensation methodology would result in an annual compensation
threshold of $132,964 (an increase of $25,551 over the existing
compensation threshold).
At the same time, the Department is also mindful of the desire
expressed by multiple commenters to extend the effective date of the
new standard salary and annual compensation methodologies from the
proposed 60-day period to 6-to-12 months (or more). A longer effective
date for the new standard salary level and HCE compensation
methodologies would provide employers with more time to make
adjustments after they are informed of the exact levels of the
thresholds set in this final rule.
After considering the comments, the Department has determined that
the final rule will be effective on July 1, 2024, but the new standard
salary level methodology and the new HCE total annual compensation
methodology will not be applicable until January 1, 2025. The
Department is setting the effective date on July 1, 2024 rather than a
set number of days after publication in the Federal Register because it
will further administrability for employers to have the effective date
coincide with the first of a month and some employers' budget years
also begin on that date.\113\ While the rule will be effective on July
1, 2024, the Department is extending by an additional 6 months the time
for employers to comply with the new standard salary level methodology
and the HCE total annual compensation methodology. Accordingly, the
applicability date for Sec. 541.600(a)(2), which sets out the new
standard salary level of the 35th percentile of weekly earnings of
full-time nonhourly workers in the lowest-wage Census Region, and Sec.
541.601(a)(2), which sets out the new HCE total annual compensation
level of the annualized earnings amount of the 85th percentile of full-
time nonhourly workers nationally, will be January 1, 2025. The
Department decided to delay application of the new HCE total annual
compensation methodology so that the new methodologies for both the
standard salary level and the HCE compensation level take effect at the
same time. The delayed applicability date will allow employers 6
additional months beyond the proposed 60-day effective date in which to
evaluate employees who will be affected by the new standard salary
level methodology and the new HCE compensation level methodology and
make any adjustments.
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\113\ Future updates will occur every three years on July 1.
---------------------------------------------------------------------------
New Sec. 541.607, Regular updates to amounts of salary and
compensation required, will be applicable on the effective date July 1,
2024. Because the current standard salary and HCE annual compensation
levels have not been updated in more than 4 years, and economic
conditions have changed markedly during that time, the first update
will occur on that same date (Sec. 541.607(a)). Subsequent updates
will occur every 3 years after this date starting on July 1, 2027
(Sec. 541.607(b)). As discussed in section V.A, regular updating of
the standard salary and HCE annual compensation levels to reflect
current wage data is imperative to ensure that they continue to work
effectively in combination with the duties tests in defining bona fide
EAP employees. In light of the approximately 8-month delay in
applicability of the new standard salary and HCE total compensation
methodologies, the initial update will use the current methodologies
from the 2019 rule, which result in a salary level of $844 per week and
an HCE total annual compensation threshold of $132,964. Accordingly,
the requirement that an exempt employee be compensated on a salary
basis at a salary level of at least $844 per week, set forth in Sec.
541.600(a)(1), and that an employee receive total annual compensation
of at least $132,964 per year to qualify for the HCE exemption, set
forth in Sec. 541.601(a)(1), will apply on July 1, 2024. The
Department believes that this date for the initial update is
appropriate because it will use methodologies that employers are
familiar with. Subsequent triennial updates will apply the most recent
four quarters of data to the standard salary and HCE total annual
compensation levels in effect at the time of the updates. The
Department anticipates that at the time of the first triennial update,
the salary and compensation methodologies that are in effect will be
the methodologies described in Sec. Sec. 541.600(a)(2) and
541.601(a)(2) of this final rule. The Department notes that the
standard salary and HCE compensation levels need to be updated
regularly based on up-to-date earnings data to ensure that they
continue to function effectively regardless of the methodology used to
set the levels.
Except for the specific provisions discussed in this section that
will become applicable on January 1, 2025, all other provisions of this
final rule will be applicable on the effective date on July 1, 2024.
V. Discussion of Final Regulatory Revisions
Consistent with its statutory duty to define and delimit the EAP
exemption, the Department is making several changes to the earnings
thresholds provided in the part 541 regulations. As explained in
greater detail below, the Department is setting the standard salary
level at the 35th percentile of weekly earnings of full-time salaried
workers in the lowest-wage Census Region (currently the South). The
Department additionally is raising the HCE test's total annual
compensation requirement to the annualized equivalent of the 85th
percentile of weekly earnings of full-time salaried workers nationally.
Finally, the
[[Page 32853]]
Department is adopting a new mechanism to update the standard salary
level and the HCE total annual compensation threshold, initially on
July 1, 2024 and every 3 years thereafter to ensure that they remain
effective tests for exemption. The Department is not making substantive
changes to any provisions related to the salary basis or job duties
tests.
The primary changes to the existing regulations are in Sec. Sec.
541.5, 541.600, 541.601, and newly added Sec. 541.607. In addition,
the Department is making conforming changes throughout part 541 to
update references to the applicable salary level requirements.\114\ The
discussion below begins with the new updating provision (Sec.
541.607), which will make an initial update to the salary and
compensation thresholds on July 1, 2024, followed by discussion of
changes to the standard salary level methodology (Sec. 541.600(a)(2))
and HCE total annual compensation threshold methodology (Sec.
541.601(a)(2)), which will become applicable on January 1, 2025. As
noted in these sections, the Department intends for the changes in this
final rule to be severable. Severability is addressed more fully at the
end of the discussion of final revisions with a discussion of the new
severability provision (Sec. 541.5).
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\114\ The Department is also revising Sec. Sec. 541.100,
541.200, and 541.300 to reflect that an executive, administrative,
or professional employee must be compensated on a salary or fee
basis at not less than the level set forth in Sec. 541.600 (rather
than referencing a specific salary level amount). Similarly, it is
revising Sec. 541.204 and Sec. 541.400 to reflect that an employee
employed in a bona fide administrative capacity and a computer
employee may qualify for the section 13(a)(1) exemption if they are
compensated on a salary or fee basis at not less than the level set
forth in Sec. 541.600 (rather than referencing a specific salary
level amount). The Department is also updating cross-references to
Sec. 541.600(a) in Sec. Sec. 541.602 and 541.605 to reference
Sec. 541.600(a)-(c). Finally, the Department is revising Sec.
541.604, which explains the circumstances under which an employer
may provide an exempt employee with additional compensation without
violating the salary basis requirement, and Sec. 541.605, which
sets forth the conditions under which an administrative or
professional employee may be compensated on a fee basis, with
examples that reflect the new standard salary level amount of $1,128
per week.
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A. Updating the Standard Salary Level and Total Annual Compensation
Threshold
As the Department stated in the NPRM, it has long recognized the
need to regularly update the earnings thresholds to ensure that they
remain useful in helping differentiate between exempt and nonexempt
white-collar employees. In each of its part 541 rulemakings since 2004,
the Department has observed that a salary level that is not kept up to
date becomes obsolete as wages for nonexempt workers increase over
time.\115\ Long intervals between rulemakings have resulted in eroded
earnings thresholds based on outdated earnings data that were ill-
equipped to help identify bona fide executive, administrative, and
professional employees. This problem was most clearly illustrated by
the stagnant salary levels in the regulations from 1975 to 2004, during
which period increases in the federal minimum wage meant that by 1991,
earnings of a worker paid the federal minimum wage exceeded the long
test salary level for a 40-hour workweek and came close to equaling the
short test salary level.\116\
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\115\ 84 FR 51250-51; 81 FR 32430; 69 FR 22164. See also, 88 FR
62176.
\116\ See section II.B.1.
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The Department proposed in the NPRM a mechanism to regularly update
the earnings thresholds to maintain their effectiveness. In a new Sec.
[thinsp]541.607(a)(1) and (b)(1), the Department proposed to update the
standard salary level and the HCE total annual compensation requirement
every 3 years to reflect current earnings data. The Department proposed
in Sec. 541.607(a)(2) and (b)(2) to make the triennial updates using
the methodologies proposed to set the thresholds in the NPRM--i.e., the
35th percentile of weekly earnings of full-time nonhourly workers in
the lowest-wage Census Region (currently the South) for the standard
salary level and the annualized weekly earnings of the 85th percentile
of full-time nonhourly workers nationally for the HCE total annual
compensation requirement.\117\ The NPRM also outlined in proposed Sec.
541.607(c) the manner in which the Department would publish advance
notice of the updated thresholds and included a pause mechanism in
proposed Sec. 541.607(d) that could be triggered to delay a scheduled
update under certain circumstances.
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\117\ Observing that the proposed special salary level for
American Samoa and the base rate for the motion picture industry are
set in relation to the standard salary level, the Department also
proposed that those earnings thresholds reset at the time the
standard salary level was updated. The Department is not finalizing
its proposal to apply the standard salary level to the U.S.
territories subject to the federal minimum wage and to update the
special salary levels for American Samoa and the motion picture
industry. See supra note 9. Therefore, the updating mechanism
finalized in this rule will not apply to the special salary levels
at this time.
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The Department proposed to make the first update under its proposed
updating mechanism 3 years after the effective date of the final rule.
The effective date of the final rule was in turn proposed to be 60 days
after publication and to apply to all aspects of the proposed rule,
including the proposed methodologies for the standard salary level and
the HCE total annual compensation threshold. As discussed in section
IV, the Department specifically sought comments on whether the
effective date for the proposed change to the standard salary level
methodology (to the 35th percentile of weekly earnings of full-time
salaried workers in the lowest-wage Census Region) should be 60 days
after publication as proposed or if the change should be made effective
at some later date, such as 6 months or 1 year after publication of the
final rule.\118\ If the effective date were longer than 60 days, the
Department sought comments on ``whether it should initially adjust the
salary level to reflect recent wage growth (for example, making an
initial adjustment for wage growth 60 days after publication of a final
rule and having the final rule standard salary level be effective 6
months or a year after publication).'' \119\ The Department also sought
comments on what methodology to use for the initial update, were it to
follow such an approach. In particular, the Department invited comments
on ``whether to implement an initial update to the standard salary
level, effective 60 days after publication of a final rule, that uses
the current salary level methodology (the 20th percentile of weekly
earnings of full-time nonhourly workers in the lowest-wage Census
Region and retail nationally) and applies it to the most recent data
available ($822 per week based on current data).'' \120\
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\118\ 88 FR 62180
\119\ Id.
\120\ Id.
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The Department received numerous comments on its proposed updating
mechanism. Many organizations representing employee interests as well
as some employers generally supported the updating mechanism, while
most organizations representing employer interests opposed it. Many of
the commenters opposing the proposed updating mechanism asserted that
the Department lacked the authority to institute such a mechanism.
After considering the comments received, the Department is finalizing
the updating mechanism, with some modifications as discussed below, to
keep the salary and compensation thresholds up to date with current
data and maintain their effectiveness.
The first update under new Sec. 541.607 will occur on July 1,
2024. As discussed in section IV, the new standard salary level and HCE
total annual compensation threshold methodologies will not be
applicable until January 1, 2025 (a total of approximately 8 months
[[Page 32854]]
after publication of this final rule). Accordingly, Sec. 541.607(a)
establishes an initial update on July 1, 2024 to the standard salary
level and the HCE total annual compensation threshold using the
methodologies in place at that time (i.e., the 2019 rule
methodologies), which results in a $844 per week standard salary level
and a $132,964 HCE total annual compensation threshold. Section
541.607(b) further establishes future updates to the standard salary
level and HCE total annual compensation threshold with current earnings
data beginning 3 years after the date of the initial update, and every
3 years thereafter, using the methodologies in place at the time of the
updates. The Department anticipates that by the time the first
triennial update under the updating mechanism occurs on July 1, 2027,
assuming the Department has not engaged in further rulemaking, the new
methodologies for the standard salary level and HCE total annual
compensation requirement established by this final rule will be
effective and the triennial update would employ these new
methodologies. In response to commenter concerns, the Department is
also adding clarifying language from the NPRM preamble to the final
regulatory text of the delay provision.
1. The Department's Authority To Adopt a Salary Level Test
The updating mechanism in new Sec. 541.607 will maintain the
effectiveness of the salary and compensation thresholds set in
Sec. Sec. 541.600 and 541.601 by adjusting them regularly to reflect
current economic data. At the outset, a small number of commenters
contended the Department lacked authority under section 13(a)(1) to
even include a salary level test in the regulations, advocating for the
Department to withdraw this rulemaking. See, e.g., AFPI; Job Creators
Network Foundation; NFIB; Pacific Legal Foundation. These commenters
asserted that the express terms of section 13(a)(1) do not permit the
Department to include any compensation-based requirements.
The Department maintains its longstanding position that the
Secretary's express authority to ``define[ ]'' and ``delimit[ ]'' the
terms of the EAP exemption includes the authority to use a salary level
test as one criterion for identifying employees who are employed in a
``bona fide executive, administrative, or professional capacity.'' The
Department has used a salary level test since the first part 541
regulations in 1938. From the FLSA's earliest days, stakeholders have
generally favored the use of a salary test,\121\ and the Department's
authority to use a salary test has been repeatedly upheld,\122\
including recently in Mayfield v. U.S. Dept. of Labor.\123\ Despite
numerous amendments to the FLSA over the past 85 years, Congress has
not restricted the Department's use of the salary level tests in the
regulations. Significant regulatory changes involving the salary
requirements since 1938 include adding a separate salary level for
professional employees in 1940, adopting a two-test system with
separate short and long test salary levels in 1949, and creating a
single standard salary level test and establishing a new HCE exemption
test in 2004. These changes were all made through regulations issued
pursuant to the Secretary's authority to define and delimit the
exemption. Despite having amended the FLSA numerous times over the
years, Congress has not amended section 13(a)(1) to alter these
regulatory compensation requirements.
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\121\ See Stein Report at 5, 19. As discussed in section
V.B.4.i, the vast majority of employer commenters in this
rulemaking, whether favoring no increase or a smaller increase,
presumed the salary level test's continued existence and utility,
with some, such as the National Restaurant Association, expressly
referencing their support for the 2019 rule's salary level increase.
Many commenters acknowledged the salary level's longstanding
function of screening obviously nonexempt employees from the
exemption. See section V.B.4.ii. Other commenters that opposed the
proposal nonetheless cited benefits of having a salary level test,
including helping to ensure that the EAP exemption is not abused,
see, e.g., AASA/AESA/ASBO, Bellevue University, and ``sav[ing]
investigators and employers time by giving them a quick, short-hand
test[.]'' See National Restaurant Association.
\122\ See, e.g., Wirtz v. Miss. Publishers Corp., 364 F.2d 603,
608 (5th Cir. 1966); Fanelli v. U.S. Gypsum Co., 141 F.2d 216, 218
(2d Cir. 1944); Walling v. Yeakley, 140 F.2d 830, 832-33 (10th Cir.
1944).
\123\ 2023 WL 6168251 (W.D. Tex. Sept. 20, 2023), appeal
docketed, No. 23-50724 (5th Cir. Oct. 11, 2023).
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The FLSA gives the Secretary power to ``define[]'' and
``delimit[]'' the terms ``bona fide executive, administrative, or
professional capacity'' through regulation. Congress thus ``provided
that employees should be exempt who fell within certain general
classifications''--those employed in a bona fide executive,
administrative, or professional capacity--and authorized the Secretary
``to define and delimit those classifications by reasonable and
rational specific criteria.'' \124\ Therefore, the Department ``is
responsible not only for determining which employees are entitled to
the exemption, but also for drawing the line beyond which the exemption
is not applicable.'' \125\
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\124\ Walling, 140 F.2d at 831-32; see Ellis v. J.R.'s Country
Stores, Inc., 779 F.3d 1184, 1199 (10th Cir. 2015) (approvingly
quoting Walling); see also Auer v. Robins, 519 U.S. 452, 456 (1997)
(``The FLSA grants the Secretary broad authority to `defin[e] and
delimi[t]' the scope of the exemption for executive, administrative,
and professional employees.'').
\125\ Stein Report at 2.
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2. Initial Update to the Standard Salary Level and Total Annual
Compensation Threshold To Reflect the Change in Earnings Since the 2019
Rule
The Department received many comments regarding its proposed
regulatory mechanism for updating the standard salary level and the HCE
total annual compensation requirement to maintain their effectiveness.
While commenters disagreed on how and when the salary and total annual
compensation thresholds should be updated, commenters generally did not
dispute that the earnings thresholds need to be periodically updated to
reflect current economic conditions. Many commenters that opposed the
proposed updating mechanism nonetheless agreed that the thresholds in
the regulations need to be periodically updated. See, e.g., ASTA; FMI;
SBA Advocacy; SHRM; TechServe Alliance; World Floor Covering
Association (WFCA).
In the context of addressing the Department's proposed standard
salary level methodology, several commenters generally expressed
support for--or in opposing the salary level suggested in the
alternative--an increase to the salary level using the 2019
methodology. See, e.g., Bellevue University; Center for Workplace
Compliance (CWC); RILA; YMCA. CWC noted that the 2019 methodology is
well-established and already familiar to employees and employers, and
Bellevue University similarly stated that this methodology ``has been
previously field-tested on the U.S. economy[.]'' As noted in section
IV, commenters generally did not address applying the 2019 methodology
through the updating mechanism.
The Department remains convinced that effective salary and
compensation thresholds must use up-to-date earnings data. This
position is long-standing. When the Department updated its salary level
tests in 1949, for example, it explained that the ``relative
ineffectiveness of these tests in recent years is the result of changed
economic conditions rather than any inherent weakness in the tests[,]''
and that the ``increase in wage rates and salary levels gradually
weakened the effectiveness of the present salary tests as a dividing
line between exempt and nonexempt employees.'' \126\ The principle that
effective tests for exemption must use
[[Page 32855]]
up-to-date earnings data remains as true today as it was 75 years ago.
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\126\ Weiss Report at 8.
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The Department's need to update the standard salary level and HCE
total annual compensation requirement for current data in this
rulemaking is distinct from its decision to establish new methodologies
for setting those thresholds. The current salary and compensation
levels have been in place for more than 4 years and need to be updated
to reflect current wage data to maintain their effectiveness.\127\
Since the Department's last rulemaking in 2019, there has been
significant change in salaried worker earnings.\128\ The $684 standard
salary level is far below what constitutes the 20th percentile of
weekly earnings of full-time salaried workers in the South and/or in
the retail industry nationally using current data, which greatly
undermines the utility of the threshold as a means of helping
distinguish exempt from nonexempt employees. The same is true for the
HCE total annual compensation threshold. Updating the existing
thresholds to reflect current earnings data is consistent with the
intent the Department has expressed repeatedly in its past part 541
rulemakings, including in the 2019 rule, to periodically update the
thresholds.
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\127\ The standard salary level and HCE total annual
compensation threshold in the 2019 rule were set using pooled data
for July 2016 to June 2019, adjusted to reflect 2018/2019. 84 FR
51250.
\128\ See section VII.
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For these reasons, the Department is revising final Sec.
541.607(a) to provide for an initial update to the standard salary
level and HCE total annual compensation requirement with current
earnings data on July 1, 2024. Specifically, the standard salary level
will be updated to the 20th percentile of weekly earnings of full-time
salaried workers in the South and/or in the retail industry nationally
using the most recent data, resulting in a standard salary level of
$844 per week. The HCE total annual compensation threshold will be
updated to the 80th percentile of full-time salaried worker earnings
nationwide using the most recent data, resulting in an annual
compensation threshold of $132,964. The Department believes that the
July 1, 2024 effective date provides sufficient time for employers to
adjust to this initial update because the methodology used for the
initial update to the standard salary level has been used since 2004
and is familiar to the regulated community. The size of the initial
increase to the standard salary level, which is $160 per week, is also
less (in nominal terms) than the $229 per week change that resulted
from the 2019 rule.\129\
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\129\ Consistent with the 2019 rule, the Department used pooled
data for the most recent 3 years (2021, 2022, 2023), adjusting them
to reflect 2023, for the initial updates to both the standard salary
level and HCE total annual compensation threshold. See 84 FR 51250.
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The initial update on July 1, 2024 and the change in the standard
salary level and HCE total annual compensation methodologies on January
1, 2025 will result in two increases in the compensation thresholds
within a 12-month period. The Department recognizes that for some
employers both changes to the compensation thresholds may occur in the
same budget year. Because both the amount of the initial update and the
subsequent increase to the thresholds are set forth in this final rule,
some employers may choose to make a single adjustment at the first date
that encompasses both the initial update and the impending change to
the standard salary level and the HCE total annual compensation
threshold.\130\
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\130\ Although the Department's approach is not a phase-in, the
effect of increasing the salary level twice in 8 months is, from a
timing perspective, not altogether different from the request from
some commenters to phase in the salary level in more than one step.
See, e.g., Argentum & ASHA; Associated General Contractors; SBA
Advocacy.
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The Department intends for the initial update of the standard
salary level and the HCE total annual compensation requirement, using
current earnings data applied to the 2019 rule methodologies, to be
severable from future triennial updates to the thresholds under Sec.
541.607(b), as well as from the revision to the methodologies for the
standard salary level and the HCE total annual compensation threshold
discussed in section V.B and section V.C. In implementing the initial
update, the Department intends to account for changes in earnings since
the 2019 rule. In changing the methodology for the standard salary
level, the Department further intends to fully restore the salary
level's historic screening function and account for the shift in the
2004 rule from a two-test to a one-test system for defining and
delimiting the EAP exemption.\131\ Lastly, in changing the methodology
for the HCE total annual compensation threshold, the Department intends
to ensure the HCE threshold's role as a streamlined alternative for
those employees most likely to meet the standard duties test by
excluding all but those employees ``at the very top of [the] economic
ladder[.]'' \132\ These are independent objectives of this rulemaking
and the provisions implementing them can each stand alone. Therefore,
the Department intends for the initial update to remain in force even
if the methodologies for the standard salary level and/or the HCE total
annual compensation threshold established by this final rule are stayed
or do not take effect. Similarly, the Department intends for the
initial update to remain in effect even if future triennial updates
under Sec. 541.607(b) are stayed or do not take effect.
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\131\ See section V.B.
\132\ See section V.C.
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The initial update will take effect approximately 60 days after the
publication of the final rule, immediately coming out of this notice
and comment rulemaking. As such, the notice procedures set forth in
Sec. 541.607(b)(3) will not apply. As discussed below, future
triennial updates will be preceded by advance publication of a notice
of the updated salary level and HCE total annual compensation threshold
in the Federal Register. For the initial update, this final rule
provides notice of the updated salary and compensation levels.\133\
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\133\ The NPRM included updating the 2019 rule standard salary
level and HCE annual compensation threshold using 2022 data as a
regulatory alternative, stating that applying the methodologies
would result in a standard salary level of $822 per week and a HCE
annual compensation threshold of $125,268. See 88 FR 62218.
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3. Future Triennial Updates To Keep the Standard Salary Level and Total
Annual Compensation Threshold Up to Date
As the Department previously explained, the earnings thresholds are
only an effective indicator of exempt status if they are kept up to
date. Left unchanged, the thresholds become substantially less
effective in helping identify exempt EAP employees as wages for workers
increase over time. To that end, the Department proposed to triennially
update the standard salary level and HCE total annual compensation
threshold by applying the most recent earnings data to the
methodologies set forth in proposed Sec. 541.600(a)(1) and Sec.
541.601(a)(1), while any change to the methodologies used to set the
standard salary level and HCE annual compensation threshold would be
effectuated through future rulemaking.
The Department received many comments on its proposed triennial
updating mechanism for keeping the thresholds up to date in the future,
which are addressed below. The comments were sharply divided on this
aspect of the NPRM. After considering the comments received, the
Department concludes that establishing a mechanism for resetting the
standard salary level and HCE total annual compensation requirement
based on
[[Page 32856]]
current earnings data, and on a regular 3-year schedule, will ensure
that the thresholds remain effective into the future and thus better
serve to help define and delimit the EAP exemption.
i. The Department's Authority To Update the Standard Salary Level and
Total Annual Compensation Threshold With Current Data in the Future
The Department received many comments regarding its authority to
update the earnings thresholds through the proposed triennial updating
mechanism. A majority of the commenters opposing the updating mechanism
challenged the Department's authority to adopt such a provision. Most
commenters that supported the updating mechanism did not specifically
discuss the Department's authority to institute such a mechanism. As to
commenters supporting the proposed triennial updating mechanism that
addressed the issue, they supported the Department's authority.
Commenters favoring automatic updating, such as AFL-CIO and EPI,
agreed with the Department that just as the Department has authority to
set salary thresholds for the EAP exemption, it also has authority to
provide for regular updates to ensure the thresholds do not erode over
time. Some supportive commenters further emphasized that future updates
would make no change to the standard (i.e., methodology) by which the
Department implements the FLSA, but rather merely ensure that the
standard accounts for current economic conditions. See, e.g.,
Administrative Law Professors; Democracy Forward Foundation; EPI. The
Administrative Law Professors similarly asserted that automatic
adjustments to the earnings thresholds fall within the Secretary's
authority to define and delimit ``what it means to function in a `bona
fide executive, administrative, or professional capacity[.]' ''
Observing that even a so-called ``static'' salary threshold expressed
in ``non-indexed dollar terms'' is constantly changing as a matter of
economic value, the Administrative Law Professors asserted that ``if a
non-indexed salary threshold is lawful, as nobody seriously questions,
so too is a standard pegged to income percentile.'' The Administrative
Law Professors observed ``it is arguably more rational'' for the
Department to ``proffer a regulation that expressly accounts for the
inevitably dynamic nature of every salary threshold . . . rather than
to permit arbitrarily fluid macroeconomic conditions to dictate the
threshold's true economic worth.''
On the other hand, many commenters opposing the proposed updating
mechanism asserted that the Department lacks statutory authority to
update the thresholds in this manner. Some of these commenters
contended that since the FLSA does not expressly authorize the
Department to index the earnings thresholds unlike, for example, the
Social Security Act or the Patient Protection and Affordable Care Act,
it follows that the FLSA does not authorize the Department to
automatically update the thresholds.\134\ See, e.g., CUPA-HR;
International Dairy Foods Association (IDFA); PPWO; RILA; Seyfarth
Shaw. Several commenters pointed out that Congress did not provide for
automatic updating of any of the earnings requirements under the FLSA,
such as the minimum wage under section 6, the tip credit wage under
section 3(m), or the hourly wage for exempt computer employees under
section 13(a)(17). See, e.g., AFPI; FMI. Commenters including National
Restaurant Association and PPWO further asserted that Congress never
amended the FLSA to grant the Department explicit authority to index
the salary level despite knowing that the Department has updated the
salary level on an irregular schedule.
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\134\ In contrast, the Administrative Law Professors highlighted
that ``[a]utomatic updating is a common feature of regulations
pegged to monetary values, even when the relevant authorizing
statutes make no specific reference to indexing or automatic
adjustment.'' Some of the examples cited by the Administrative Law
Professors to illustrate this point include: 79 FR 63317 (2014)
(establishing automatic inflationary adjustments to the minimum
amount set by the regulation to define ``adverse credit history'');
76 FR 23110 (2011) (establishing automatic adjustments to the amount
of ``Denied Boarding Compensation'' airlines must pay affected
passengers); 88 FR 35150 (2023) (adopting once-every-five year
inflation adjustments to the revenue threshold for defining a
``small business''); and Amusement & Music Operators Ass'n v.
Copyright Royalty Tribunal, 676 F.2d 1144 (7th Cir. 1982), cert.
denied, 103 S. Ct. 210 (1982) (upholding a rule promulgated by the
Copyright Royalty Tribunal establishing a $50 compulsory royalty fee
to be paid by jukebox operators, and which would be subject to
future inflationary adjustments).
---------------------------------------------------------------------------
As the Department stated in the NPRM, the Department's authority to
update the salary level tests for the EAP exemption by regularly
resetting them based on existing methodologies is grounded in section
13(a)(1), which expressly gives the Secretary broad authority to define
and delimit the scope of the exemption. Using this broad authority, the
Department established the first salary level tests by regulation in
1938. Despite numerous amendments to the FLSA over the past 85 years,
Congress has not restricted the Department's use of the salary level
tests. As just discussed, significant changes involving the salary
requirements made through regulations issued pursuant to the
Secretary's authority to define and delimit the exemption include
adding a separate salary level for professional employees in 1940,
adopting the two-test system in 1949, and switching to the single
standard test and adding the new HCE test in 2004. Despite having
amended the FLSA numerous times over the years, Congress has not
amended section 13(a)(1) to alter these regulatory salary requirements.
Unlike the statutes some of the commenters referenced explicitly
providing for indexing, or the statutory FLSA wage rates--i.e., the
minimum wage under section 6, the tip credit wage under section 3(m),
or the hourly wage for exempt computer employees under section
13(a)(17)--the part 541 earnings thresholds are established in the
regulations. Therefore, it is not surprising that the FLSA contains no
specific reference to the indexing or automatic adjustments of these
thresholds. The Department agrees with the Administrative Law
Professors and other commenters that stated that the Department has the
authority to establish a mechanism to automatically adjust the earnings
thresholds to ensure their continued effectiveness, using a process
established through notice and comment rulemaking, just as it has the
authority to initially set them. The Department believes the updating
mechanism in this final rule fulfills its statutory obligation to
define and delimit the EAP exemptions by preventing the thresholds from
becoming obsolete and providing predictability and clarity for the
regulated community.
Many of the commenters opposed to the updating mechanism also
asserted that automatically updating the earnings thresholds would
violate the APA's rulemaking requirements expressly incorporated by
reference in section 13(a)(1). See, e.g., AFPI; FMI; National Club
Association; and Wage and Hour Defense Institute. These and other
commenters claimed that the Department cannot lawfully update the
salary level without engaging in notice and comment rulemaking for each
update. See, e.g., AASA/AESA/ASBO; Competitive Enterprise Institute;
CWC; RILA. IFDA, for example, asserted that notice and comment
rulemaking needs to precede each future update so that stakeholders
have the opportunity to comment on and adequately prepare for any
changes that will affect them. AHLA commented that the proposal to
update the thresholds triennially without a preceding opportunity for
comment is
[[Page 32857]]
``drastic and troublesome'' and that ``notice and comment will help
ensure that the knowledge, expertise, and vital input of interested
stakeholders will be considered before moving forward with increases.''
Relatedly, AFPI, NRF, and SBA Advocacy asserted that automatic
updating would violate the directive under section 13(a)(1) that the
Department define and delimit the EAP exemption ``from time to time''
by regulations. NRF, for example, noted that Congress asked the
Department to revisit the EAP exemptions from time to time ``expecting
the Department to use its deep knowledge of the U.S. economy in
general, and labor market in particular, to establish appropriate
parameters for the exemptions'' and contended that by implementing
automatic updates the Department evades that decision-making process.
AFPI similarly asserted that the ``directive, `from time to time,' does
not allow the Department to set it and forget it.''
The Department disagrees with the assertion that triennial updates
using the compensation methodologies adopted in the regulations
improperly bypass the APA's--and section 13(a)(1) by reference--
requirements for notice and comment rulemaking. The Department is
adopting an updating mechanism in this rulemaking after publishing a
notice of the proposed rule and providing opportunity for stakeholders
to comment in accordance with the APA's notice and comment
requirements. The Department has received and considered numerous
comments on the proposed updating mechanism. Future updates under the
triennial updating mechanism would simply reset the thresholds by
applying current data to a standard already established by notice and
comment regulation, providing clarity for the regulated community as to
future changes in the thresholds. Therefore, the Department disagrees
with commenters that claimed that notice and comment rulemaking must
precede each future update made through the updating mechanism even
where the methodology for setting the compensation levels and the
mechanism for updating those levels would remain unchanged.\135\ The
updating mechanism will not alter the Department's ability to engage in
future rulemaking to change the updating mechanism or any other aspect
of the part 541 regulations at any point.
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\135\ Some commenters, such as Independent Electrical
Contractors, RILA, and U-Haul, further asserted that automatic
updates improperly bypass the requirements of the Regulatory
Flexibility Act (``RFA'') and executive orders requiring the
Department to undertake a detailed economic and cost analysis. The
Department disagrees. Pursuant to the RFA, the Department has
included in this final rule as well as in the NPRM detailed
estimates for the future costs of updates under the updating
mechanism. See section VII and VIII; 88 FR 62224. Similarly, as
relevant here, Executive Order 13563 directs agencies to take
certain steps when promulgating regulations, including using the
``best available techniques to quantify anticipated present and
future benefits and costs as accurately as possible'' and adopting
regulations ``through a process that involves public
participation.'' 76 FR 3821 (Jan. 18, 2011). The current rulemaking
fully satisfies all aspects of Executive Order 13563. See section
VII; 88 FR 62182. The RFA and Executive Order 13563 do not require
notice and comment rulemaking to precede future triennial updates
made through the updating mechanism established in this rulemaking.
---------------------------------------------------------------------------
The Department also disagrees with commenters that claimed section
13(a)(1)'s ``time to time'' language precludes the Department from
adopting an updating mechanism. The updating mechanism would only
ensure the standard salary level and total annual compensation
threshold remain at the percentiles established through rulemaking.
This does not preclude the Department from engaging in future
rulemaking ``from time to time'' if it determines that there is a need
to change the underlying methodologies for setting the standard salary
level or HCE total annual compensation threshold, the updating
mechanism, or any other substantive change to part 541, as the
Department did, for instance, in 1940, 1949, 1958 1975, 2004, 2016, and
2019.
Many commenters opposing the updating mechanism referenced the
Department's prior statements to further support their assertion that
the Department lacks authority to implement automatic updating. In
particular, commenters pointed to the Department's decision not to
institute an automatic updating mechanism in the 2004 rule and its
statement that ``the Department finds nothing in the legislative or
regulatory history that would support indexing or automatic
increases.'' See, e.g., NAM; NFIB; SBA Advocacy. Others, like PPWO,
further asserted that automatic updates are contrary to the
Department's statement in the 2004 rule that ``[t]he salary levels
should be adjusted when wage survey data and other policy concerns
support such a change.''
As stated in the NPRM, the Department's decision not to institute
an automatic updating mechanism in the 2004 and 2019 rulemakings in no
way suggests that it lacks the authority to do so. In its 2004 rule,
the Department stated that it found nothing in the legislative or
regulatory history that would support indexing or automatic
increases.\136\ As the Department elaborated in its 2016 rulemaking,
there was likewise no such authority prohibiting automatic
updating.\137\ The 2004 rule did not discuss the Department's statutory
authority to promulgate an updating mechanism through notice and
comment rulemaking or explore in detail whether automatic updates to
the salary levels posed a viable solution to problems created by lapses
between rulemakings. As the Department explained in the 2016 rule, the
Department's reference in the 2004 rule to automatic updating simply
reflected the Department's conclusion at that time that an inflation-
based updating mechanism, such as one based on changes in the prices of
consumer goods, that unduly impacts low-wage regions and industries,
would be inappropriate. Such concerns are not implicated here, where
the mechanism will update the salary level to keep it at the same
percentile of earnings of full-time salaried workers. As for concerns
that the salary level should be updated only when wage data warrants
it, the updating mechanism does just that--as the earnings thresholds
will change only to the extent earnings data in the relevant data sets
have changed, whether upward or downward as conditions dictate.
---------------------------------------------------------------------------
\136\ 69 FR 22171.
\137\ See 81 FR 32432-33 (noting that ``instituting an automatic
updating mechanism . . . is an appropriate modernization and within
the Department's authority.'').
---------------------------------------------------------------------------
Similarly, the Department declined to adopt automatic updating in
the 2019 rule because it ``believe[d] that it is important to preserve
the Department's flexibility to adapt to different types of
circumstances,'' \138\ and not because it lacked authority to do so.
While the Department decided not to institute an updating mechanism in
its 2019 rule, it never said that it lacked the statutory authority to
do so. Upon further consideration, the Department concludes that the
best way to ensure the standard salary level and HCE total compensation
threshold remain up to date is a triennial updating mechanism that
maintains the Department's flexibility to adapt to different
circumstances and change course as necessary.
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\138\ 84 FR 51252.
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ii. Rationale for Continuing To Update the Standard Salary Level and
Total Annual Compensation Threshold With Current Data in the Future
The Department explained in the NPRM that its proposed updating
[[Page 32858]]
mechanism would allow for regular and more predictable updates to the
earnings thresholds, which would benefit both employers and employees
and would better fulfill the Department's statutory duty to define and
delimit the EAP exemption by preventing the erosion of those levels
over time. The Department noted that its regulatory history, marked in
many instances by lengthy gaps between rulemakings, underscored the
difficulty with updating the earnings thresholds as quickly and
regularly as necessary to keep pace with changing employee earnings and
to maintain the full effectiveness of the thresholds. Through the
proposed updating mechanism, the Department explained it would be able
to timely and efficiently update the standard salary level and the HCE
total annual compensation requirement by using the same methodologies
as initially proposed and adopted through notice and comment rulemaking
to set the thresholds. The Department noted that updating the
thresholds in this manner would prevent the more drastic and
unpredictable increases associated with less frequent updates and
ensure that future salary level increases occur at a known interval and
in more gradual increments. The Department received many comments on
the rationale for implementing the proposed triennial updating
mechanism.
Several organizations representing employee interests as well as a
handful of employers agreed with the Department that an updating
mechanism would ensure the thresholds keep pace with wages and retain
their usefulness. See, e.g., Coalition of Gender Justice and Civil
Rights Organizations; National Partnership; National Education
Association (NEA); National Employment Lawyers Association (NELA);
National Employment Law Project (NELP); Uncommon Goods; W.S. Badger
Company. Nichols Kaster, PLLP (Nichols Kaster) noted the updating
mechanism protects the thresholds from becoming outdated and
irrelevant, although it believed that annual updates would better
reflect the economy. NELA commented that ``indexing represents the only
simple and accurate'' way to preserve the real value of the standard
salary level and the HCE total compensation threshold through time,
although they contended that the proposed methodologies should be
higher earnings percentiles.
Many commenters supportive of the updating mechanism also asserted
that regular updates would provide greater predictability for employers
and employees alike. See, e.g., AFL-CIO; Center for WorkLife Law at
University of California Law and Partner Organizations (Family
Caregiving Coalition); Justice at Work; NEA. Small Business Majority
expressed support for the proposed updating mechanism noting that
smaller, predictable increases that are known well in advance--as
opposed to ``large and sudden'' increases--would allow small business
owners to be better prepared for any staffing or compensation changes
they need to make. Nineteen Democratic Senators commented that an
updating mechanism is the most effective way to provide consistency and
stability for both workers and businesses. See also, e.g., EPI;
Washington State Department of Labor and Industries. CLASP similarly
noted the proposed updating provision would enable employers to know
exactly what to expect and when to expect it.
In contrast, many organizations representing employer interests
disagreed with the Department's rationale for the proposed updating
mechanism. Several of these commenters criticized the Department for
stating that the updating mechanism is a more ``viable and efficient''
means of updating the thresholds by asserting that the Department is
trying to avoid its obligation to engage in notice and comment
rulemaking simply because such rulemaking is resource-intensive. See,
e.g., IDFA; National Restaurant Association; PPWO. The Chamber
similarly commented that the Department's history of long gaps in
rulemaking is not an adequate justification for adopting what it
characterized as ``a historically unprecedented change.''
Commenters including AHLA, FMI, the National Beer Wholesalers
Association, and Seyfarth Shaw, asserted automatic updating would lead
to uncertainty that would pose administrative and compliance burdens on
employers. Some commenters, such as HR Policy Association and PPWO,
asserted the proposed mechanism would make it difficult to ascertain
exactly what the threshold will be every 3 years. Other commenters,
including CUPA-HR, FMI, IDFA, and SHRM, asserted triennial updates
would have a significant financial impact on employers as they would
need to account for the cost of salaries or potential overtime as well
as the cost of conducting reclassification analysis and implementing
the necessary changes every 3 years. Some nonprofit organizations and
providers of home and community-based health services expressed concern
that future updates would be difficult for the nonprofit sector because
of their funding sources. See, e.g., Allegheny Children's Initiative;
ANCOR.
Some commenters opposing the updating mechanism claimed automatic
updates would hinder the Department from considering economic
circumstances when making updates. Ten Republican Senators asserted
automatic updates ``blind the administration to critical considerations
about the state of the economy and the workforce, including the
unemployment rate, inflation, job vacancies, or whether employers are
in a position to adjust to the increases without shedding jobs.'' Some
commenters, including Illinois College, ISSA, and the Society of
Independent Gasoline Marketers of America, expressed concern that the
proposed mechanism could lead to updates happening at a time of
economic downturn or a recession and could further exacerbate those
economic conditions. Others expressed concern that the updating
mechanism would hinder future rulemaking to change the earnings
thresholds. See, e.g., Chamber; National Association of Convenience
Stores.
The Department continues to believe that the updating mechanism
will ensure the earnings thresholds keep pace with changes in earnings
and remain useful in the future in helping to delineate EAP employees
from non-EAP employees. Whereas a fixed salary level threshold becomes
less effective over time as the data used to set it grows outdated, a
fixed methodology remains relevant if applied to contemporaneous data.
The Department agrees with the commenters that stated that the updating
mechanism's triennial updates would provide greater certainty and
predictability for the regulated community. Unlike irregular updates to
the earnings thresholds, which may result in drastic changes to the
thresholds, regular updates on a pre-determined interval and using an
established methodology will produce more predictable and incremental
changes. For this reason, the Department disagrees with the assertion
by some commenters that regular updates will lead to unpredictable
adjustments and ongoing uncertainty. The Department also disagrees with
commenters like HR Policy Association that claimed the proposed
mechanism will make it difficult to ascertain what exactly the
threshold will be every 3 years. Through the updating mechanism, the
Department will reset the standard salary level and total annual
compensation threshold using the most recent, publicly available, U.S.
Bureau of Labor Statistics (BLS) data on earnings for salaried workers.
Therefore,
[[Page 32859]]
stakeholders will be able to track where the thresholds would fall on a
quarterly basis by looking at the BLS data \139\ and can estimate the
changes in the thresholds even before the Department publishes the
notice with the adjusted thresholds in the Federal Register. The
Department believes that, compared to the irregular updates of the
past, stakeholders will be better positioned to anticipate and prepare
for future updates under the updating mechanism.
---------------------------------------------------------------------------
\139\ See <a href="https://www.bls.gov/cps/research/nonhourly/earnings-nonhourly-workers.htm">https://www.bls.gov/cps/research/nonhourly/earnings-nonhourly-workers.htm</a>.
---------------------------------------------------------------------------
Moreover, the Department does not agree with the assertion that
routine updates would lead to undue increases at a time of economic
downturn or recession. If anything, the Department's new updating
mechanism will ensure that the thresholds match the earnings data as
they exist at the time of the update, whether by increasing or
decreasing the earnings thresholds as warranted by the data. As
discussed below, the Department's decision to deviate from the 2016
rule by adopting a mechanism for pausing future updates further guards
against such concerns. Similarly, nothing about the updating mechanism
precludes the Department from revisiting the standard salary level and
HCE total annual compensation methodologies in the future when
conditions warrant. Having considered the comments received, the
Department remains convinced that an updating mechanism providing for
regular updates on a triennial basis is the best means of ensuring that
the salary and compensation tests continue to provide an effective
means, in tandem with the duties tests, to distinguish between EAP and
non-EAP employees.
iii. Specific Features of the Updating Mechanism
The Department received many comments regarding the various aspects
of the proposed updating mechanism, including the updating frequency,
methodology, notice period, and pause mechanism. The Department
proposed in Sec. 541.607(a) and (b) to update the earnings thresholds
every 3 years by using the same methodology used in the regulations to
set the thresholds. Specifically, proposed Sec. 541.607(a)(2) and
(b)(2) stated that the methodologies for setting the standard salary
level and HCE annual compensation threshold in the NPRM would be used
for future updates.
Many commenters that supported the proposed updating mechanism
expressed a preference for more frequent updates. See, e.g., Coalition
of State AGs; Jobs to Move America; NEA; NELP. Commenters including
AFL-CIO, National Partnership, and Nichols Kaster asserted annual
updates, compared to triennial updates, offered better predictability
and would ensure that the salary threshold keeps pace with the changes
in wages. EPI similarly observed that annual updates would ensure that
the salary threshold more closely adheres to the chosen percentile
``rather than slipping further and further behind in between triennial
updates[.]''
Most commenters that opposed updating did not separately comment on
the updating frequency, but some addressed it in the context of
discussing the impact of the updating mechanism on employers. Many of
these commenters claimed triennial updates would impose substantial
financial and compliance burdens on employers as they would need to
engage in reclassification analysis and implement necessary changes to
adjust to the updated thresholds every 3 years. See, e.g., ABC; CUPA-
HR; HR Policy Association; NAM. Most of the commenters opposing the
updating mechanism did not suggest an alternative updating frequency.
Notwithstanding their objection to automatic updating, however, a few
commenters, including AHLA, ASTA, WFCA, and YMCA, suggested a longer
updating frequency ranging from 4 to 6 years.
The Department agrees with the commenters that stated annual
updates would keep the salary level more up to date given that employee
earnings are constantly changing. However, as stated in the NPRM, the
Department is also mindful of the potential burden that possible
changes to the tests for exemption on an annual basis would impose on
employers, including costs associated with evaluating the exemption
status of employees on an annual basis. Conversely, the Department is
not convinced by commenter claims that triennial updates would impose
an undue financial and compliance burden on employers. Many of these
commenters did not address the fact that the alternative to automatic
updating is not a permanent fixed earnings threshold, but instead
larger changes to the threshold that could occur during irregular
future updates. Since the updating mechanism will change the thresholds
regularly and incrementally, and based on actual earnings of salaried
workers, the Department predicts that employers will be in a better
position to be able to adjust to the changes resulting from triennial
updates. The Department remains persuaded that triennial updates are
frequent enough to ensure that the part 541 earnings thresholds are
kept up to date--and continue to serve the purpose of helping to
identify exempt employees--while not being overly burdensome for
employers. The final rule, therefore, adopts an updating frequency of 3
years as proposed.
The comments regarding the method through which the Department's
proposed updating mechanism would reset the salary and compensation
thresholds were also divided. Commenters favoring routine updates also
supported the proposal to update the thresholds using the fixed
percentile approach--to keep the thresholds at the same percentile of
earnings of full-time salaried worker as established by the
regulations. NELA, for example, asserted that updating the thresholds
using a fixed percentile of earnings ``is the fairest way to maintain
consistency in workers' FLSA eligibility in light of inevitable
economic change.'' EPI similarly noted updating the thresholds through
the proposed methodology ensures that the standard under the
Department's rule ``is simply preserved--neither strengthened nor
weakened.''
Commenters that opposed automatic updating opposed the proposed
updating methodology. Several of these commenters reiterated an
assertion from comments on the 2016 rulemaking that the proposed
updating mechanism--tied to a fixed percentile--would result in the
salary level being ``ratcheted'' upward over time due to the resulting
actions of employers. See, e.g., Chamber; NAM; NRF (including a report
by Oxford Economics); SBA Advocacy. The commenters contended that in
response to each automatic update, most employers would either
reclassify employees earning below the new salary level to hourly
status or raise the salaries of those employees to keep their exempt
status. These responses, the commenters claimed, would skew the
relevant data for future updates in favor of substantial increases
because those employees who were reclassified as hourly would fall out
of the data pool causing the data pool to be smaller and skew towards
higher-paid workers. See, e.g., Chamber; National Association of
Convenience Stores; National Restaurant Association; NRF. While
expressing a strong preference that automatic updates be abandoned
altogether, some of the commenters concerned about this possible effect
suggested that the Department adopt an updating mechanism tied to an
inflation-related index. See Seyfarth Shaw; SHRM.
The Department notes that very similar comments concerning an
alleged
[[Page 32860]]
``ratcheting'' effect were received during the 2016 rulemaking, which
also proposed an updating mechanism based on earnings percentiles. In
response to those comments, the Department examined historical data to
determine the impact of its previous salary increase.\140\
Specifically, the Department looked at the share of full-time white-
collar workers paid on an hourly basis before and after the 2004 rule
(January-March 2004; January-March 2005) both below and above the
standard salary level. The Department found that following the 2004
rule, the share of full-time white-collar workers being paid hourly
actually decreased marginally in the group below the standard salary
level and increased slightly in the group above the standard salary
level.\141\
---------------------------------------------------------------------------
\140\ 81 FR 32441.
\141\ See id. at 32441, 32507-08.
---------------------------------------------------------------------------
The Department finds the claim that updating with a fixed
percentile methodology would lead to the ``ratcheting'' upward of the
thresholds to be unsubstantiated. The ``ratcheting'' claim is almost
entirely based on the assumption that employers will respond to an
automatically updated salary level by converting all or a large number
of newly nonexempt workers to hourly status, thus removing them from
the data set of full-time salaried workers. Yet none of the commenters
advancing this claim presented any tangible data or evidence to support
their assumption. Even those few commenters that provided economic
analyses rested their views on the same unsubstantiated assumption that
employers will generally reclassify newly nonexempt employees as
hourly. See, e.g., NRF (including a report by Oxford Economics); PPWO
(quoting a study by Edgeworth Economics).\142\ The results of the
Department's close examination of the impact of the 2004 salary level
increase provide no evidence that salary level increases due to regular
triennial updating will result in employers converting significant
numbers of affected EAP workers to hourly pay status and thus raising
potential concerns about skewing future updates. Although many
commenters made nearly identical ratcheting claims in this rulemaking,
none of the commenters addressed the Department's analysis in response
to those same claims in the 2016 rule.
---------------------------------------------------------------------------
\142\ The Edgeworth Economic study that was quoted by PPWO and a
few other commenters seemed to assume, without any support, that all
affected workers or newly nonexempt workers who earn between $684
and $1,059 per week will be reclassified as hourly employees.
---------------------------------------------------------------------------
Having found no merit in the ``ratcheting'' claim, the Department
declines to adopt the alternative methodologies suggested such as an
updating mechanism tied to an inflation-related index. As noted in the
NPRM, the fixed percentile approach, as opposed to other methods such
as indexing the thresholds for inflation, eliminates the risk that
future levels will deviate from the underlying salary setting
methodology established through rulemaking. During the 2016 rule, the
Department extensively considered whether to update the thresholds
based on changes in the Consumer Price Index for All Urban Consumers
(CPI-U)--a commonly used economic indicator for measuring
inflation.\143\ The Department chose to update the thresholds using the
same methodology used to initially set them in that rulemaking (i.e., a
fixed percentile of weekly earnings of full-time salaried workers in
the lowest-wage Census Region), observing that the objectives that
justify setting the salary level using a fixed percentile methodology
also supported updating the thresholds using the same methodology.\144\
The Department is persuaded that updating the earnings thresholds by
applying the same methodology used to originally set the levels instead
of indexing them for inflation best ensures that the earnings
thresholds continue to fulfill their objective of helping effectively
differentiate between bona fide EAP employees and those who are
entitled to overtime pay and work appropriately with the duties test.
---------------------------------------------------------------------------
\143\ See 81 FR 32438-41.
\144\ See id. at 32440.
---------------------------------------------------------------------------
New Sec. 541.607 therefore establishes triennial updates of the
standard salary level and the HCE total compensation threshold using
the same methodologies used to set those thresholds. Assuming the
Department has not engaged in further rulemaking, the Department
anticipates the second update under the updating mechanism--which will
occur 3 years after the date of the initial update discussed in section
V.A--will use the methodologies established by this final rule as those
will become effective before the second update. Accordingly, the second
update will reset the standard salary level to the 35th percentile of
weekly earnings of full-time workers in the lowest-wage Census Region
and will reset the HCE total annual compensation threshold to the
annualized weekly earnings of the 85th percentile of full-time salaried
workers nationally based on contemporaneous data at that time.
The Department further proposed to publish in the Federal Register
a notice with the adjusted standard salary level and the HCE total
annual compensation threshold at least 150 days before the date the
adjusted thresholds are set to take effect and to publish the updated
thresholds on WHD's website no later than their effective date. The
Department proposed to update both thresholds using the most recent
available 4 quarters of data, as published by BLS, preceding the
publication of the Department's notice with the adjusted levels. The
Department received fewer comments regarding these aspects of the
proposal than on the updating mechanism itself.
Most commenters supporting the proposed updating mechanism did not
separately comment on the 150-day notice period. Some commenters
opposing automatic updates asserted that the 150-day notice period
would not be adequate time to prepare for compliance with the new
updated thresholds. See, e.g., Association of Public and Land-grant
Universities (APLU) (suggesting 180-day advance notice); Chamber
(suggesting at least 1 year notice); National Association of
Convenience Stores (same); The American Association of Advertising
Agencies (The 4As) (same). Regarding the data set, EPI suggested the
Department use the most recent quarter of data asserting that the
salary threshold would be ``suppressed'' for 2 out of every 3 years if
the Department adopts triennial updates. On the other hand, the
National Association of Convenience Stores, while opposing automatic
updating, recommended the Department use the most recent 6 quarters of
data, or those quarters minus the 2 most recent, to account for changes
it claimed employers may make preemptively to adjust to an upcoming
update for budgetary reasons.
After considering the comments received, the Department is
persuaded that a notice period of not less than 150 days provides
sufficient time for employers to make the necessary adjustments to
comply with the updated thresholds. This is especially true given that
employers will be able to access the data set that will be used to make
the adjustments as published by BLS and anticipate the extent of the
adjustment even before the Department publishes the notice. A period
substantially longer than 150 days would hinder the Department's
ability to ensure that the thresholds that take effect are based on the
most up-to-date data. Similarly, the Department believes that using the
most recent available 4 quarters of data will account for the
Department's goal that
[[Page 32861]]
the thresholds reflect prevailing economic conditions while balancing
the concerns of commenters that wanted a longer or shorter period for
the data set. Therefore, the final rule establishes that for future
updates under the updating mechanism, the Department will publish in
the Federal Register a notice with the adjusted thresholds not fewer
than 150 days before the date the new adjusted thresholds are set to
take effect and will publish the updated thresholds on the WHD website
no later than their effective date. The updates will be based on the
most recent available 4 quarters of data as published by BLS.
Lastly, the Department's proposal included a provision providing
for the delay of a scheduled update under the updating mechanism while
the Department engages in notice and comment rulemaking to change the
earnings requirements and/or updating mechanism, where economic or
other conditions merit. The Department explained that the delay would
be triggered if the Department publishes an NPRM proposing to change
the salary level methodology and/or modify the updating mechanism by
the date on which it publishes the notice of the revised salary and
compensation thresholds. In that instance, the notice with the adjusted
thresholds must state that the scheduled update will be paused for 120
days from the day the update was set to occur while the Department
engages in rulemaking, and that the pause will be lifted on the 121st
day unless the Department finalizes a rule changing the salary level
methodology and/or automatic updating mechanism by that time. In the
event the Department does not issue a final rule by the prescribed
deadline, the pause on the scheduled update will be lifted and the new
thresholds will take effect on the 121st day after they were originally
scheduled to take effect. The Department also explained the 120-day
pause would not affect the date for the next scheduled triennial update
given the relative shortness of the delay and so as not to disrupt the
updating schedule. The next update, therefore, would occur 3 years from
the date on which the delayed update would have originally been
effective.
The Department received somewhat mixed comments regarding its
proposed pausing mechanism. For example, notwithstanding their
objection to automatic updating (and in some cases, certain aspects of
the pause mechanism), some employer organizations such as CUNA, AHLA,
and the National Association of Professional Insurance Agents commended
the Department for recognizing that there may be circumstances that may
require temporarily delaying a scheduled update. Some commenters that
supported the updating proposal agreed. For example, the Coalition of
State AGs described the delay provision as ``a fail-safe mechanism''
that would provide the Department flexibility to adjust to changed
circumstances as necessary. On the other hand, Sanford Heisler Sharp,
while otherwise favoring the updating mechanism, objected to the pause
feature asserting that it would ``inject uncertainty into the
administration of the threshold, undermining the stated purpose of the
NPRM to simplify enforcement of overtime and minimum wage
protections.''
Some commenters took issue with the phrase ``unforeseen economic or
other conditions'' in the NPRM's preamble which generally described the
circumstances in which the Department may trigger the pause mechanism.
AHLA, CUNA, and NAIS/NBOA asserted it is not clear what circumstances
would constitute ``unforeseen economic or other conditions.'' AFPI
similarly pointed out the phrase was found only in the preamble and not
in the proposed Sec. 541.607. American Council of Engineering
Companies expressed concern that the proposed pause mechanism does not
provide sufficient flexibility for the Department to respond to
unexpected economic conditions and recommended that the provision be
modified to allow the Secretary ``to suspend automatic updates if
economic conditions warrant.'' RILA asserted the pause feature is an
inflexible process asserting that if a catastrophic event were to occur
within 150 days of the date of a scheduled update, the Department would
have no flexibility or ability to delay or stop the update. A few
commenters claimed that the 120-day pause period is not sufficient time
to provide the Department the flexibility it needs to adjust to
unforeseen circumstances or complete a rulemaking. See, e.g., National
Association of Convenience Stores; NRF.
Most of the comments objecting to or otherwise criticizing the
pause mechanism seem to assume the only way the Department can alter a
scheduled update or change any other aspect of the rule is through the
updating mechanism's pause provision. That is not correct. Nothing in
the proposed updating mechanism limits the Department's ability to
engage in future rulemaking to change any aspect of the part 541
regulations at any time. The pause mechanism offers the Department
added flexibility--in addition to its ability to engage in rulemaking
at any time to change the rule--by allowing it the ability to delay a
scheduled update as it engages in rulemaking. As the Department noted
in the NPRM, the pause mechanism offers the Department 270 days--150
days before, and 120 days after, the effective date for the scheduled
update--to complete the rulemaking process. The Department can still
engage in rulemaking outside of this period and through that rulemaking
can stop or delay a scheduled update or change any other aspect of the
part 541 regulations. This is true regardless of whether the Department
adopts the delay provision. The Department believes that the pause
provision will provide additional flexibility in the context of the
triennial updates and will not impact the Department's normal
rulemaking powers.
The Department recognizes that the phrase ``unforeseen economic or
other conditions'' was not in proposed Sec. 541.607 and agrees that
the lack of this language in the regulatory text creates ambiguity
about the standard for pausing a triennial update. Therefore, the
Department is revising Sec. 541.607(d) to include similar language.
The Department believes this revision clarifies the standard for when
the pause mechanism may be triggered but does not impinge on the
Department's normal authority to engage in rulemaking for other
reasons. The Department is disinclined to further define what
circumstances would trigger the pause mechanism, as some commenters
suggested. In proposing the pause mechanism, the Department was mindful
of previous statements from stakeholders, and the Department's own
prior statements, about the need to preserve flexibility to adapt to
unanticipated circumstances. As an example, the Department referenced
the COVID pandemic and its widespread impact on workplaces. However, it
is not feasible for the Department to outline every possible
circumstance that could warrant a delay of a scheduled update. Doing so
would unduly limit the Department's flexibility to adjust to truly
unanticipated circumstances.
For these reasons, the Department has concluded that the proposed
pause mechanism, with the modification noted above, provides the
Department sufficient flexibility to adopt to unforeseen circumstances
where necessary. Therefore, the new Sec. 541.607(b)(4) establishes
that the Department can trigger the pause, where unforeseen economic or
other
[[Page 32862]]
conditions warrant, by issuing an NPRM proposing to change the salary
level methodology and/or modify the updating mechanism by the date on
which it publishes the notice with the adjusted salary and compensation
thresholds. Section 541.607(b)(4) further clarifies that the notice
with the adjusted thresholds must state that the scheduled update will
be paused for 120 days from the day the update was set to occur while
the Department engages in rulemaking, and that the pause will be lifted
on the 121st day unless the Department finalizes a rule changing the
salary level methodology and/or automatic updating mechanism by that
time.
Lastly, as discussed in more detail in section V.D, the Department
intends for the triennial updates of the standard salary level and the
HCE total annual compensation threshold using current earnings data to
be severable from the revision to those methodologies discussed in
section V.B and section V.C. In implementing routine triennial updates,
the Department intends to ensure that the salary and compensation
thresholds set in the regulations reflect changes in earnings data and
continue to function effectively in helping identify exempt white-
collar employees. As already noted, the Department has different
objectives for changing the methodologies for setting the standard
salary level and HCE total annual compensation threshold. Specifically,
in changing the methodology for the standard salary level, the
Department intends to fully restore the salary level's historic
screening function and account for the shift in the 2004 rule from a
two-test to a one-test system for defining and delimiting the EAP
exemption.\145\ In changing the methodology for the HCE total annual
compensation threshold, the Department intends to ensure the HCE
threshold's role as a streamlined alternative for those employees most
likely to meet the standard duties test by excluding all but those
employees ``at the very top of [the] economic ladder[.]'' \146\ These
are independent objectives of this rulemaking and the provisions
implementing them can each stand alone. Therefore, the Department
intends for the triennial updates to remain in force even if the
methodologies for the standard salary level and the HCE total annual
compensation threshold established by this final rule are stayed or do
not take effect. Similarly, the Department intends for the triennial
updates under Sec. 541.607(b) to remain in force even if the initial
update for wage growth in Sec. 541.607(a) is stayed or does not take
effect.
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\145\ See section V.B.
\146\ See section V.C.
---------------------------------------------------------------------------
B. Standard Salary Level
In its NPRM, the Department proposed to update the salary level by
setting it equal to the 35th percentile of earnings of full-time
salaried workers in the lowest-wage Census Region (the South),
resulting in a proposed salary level of $1,059 per week ($55,068 for a
full-year worker). The proposed salary level methodology built on
lessons learned in the Department's most recent rulemakings to more
effectively define and delimit employees employed in a bona fide EAP
capacity. Specifically, the Department's intent in the NPRM was to
fully restore the salary level's screening function and account for the
switch in the 2004 rule from a two-test system to a one-test system for
defining the EAP exemption, while also updating the standard salary
level for earnings growth since the 2019 rule.
The Department is finalizing the proposed standard salary level
methodology and applying it to the most recent available earnings data,
resulting in a salary level of $1,128 per week ($58,656 for a full-year
worker). Setting the standard salary level at the 35th percentile of
weekly earnings of full-time salaried workers in the lowest-wage Census
Region will, in combination with the standard duties test, better
define and delimit which employees are employed in a bona fide EAP
capacity in a one-test system. Because the salary level is above the
equivalent of the long test salary level, the final rule will (unlike
the 2004 and 2019 rules) ensure that lower-paid white-collar employees
who perform significant amounts of nonexempt work, and were
historically considered by the Department not to be employed in a bona
fide EAP capacity because they failed the long duties test, are not all
included in the exemption. At the same time, by setting the salary
level well below the equivalent of the short test salary level, the
final rule will address potential concerns that the salary level test
should not be determinative of EAP exemption status for too many white-
collar employees. The combined result will be a more effective test for
exemption. The final salary level will also reasonably distribute
between employees and their employers what the Department now
understands to be the impact of the 2004 shift from a two-test to a
one-test system on employees earning between the long and short test
salary levels.
1. History of the Salary Level
The FLSA became law in 1938 and the first version of the part 541
regulations, issued later that year, set a minimum compensation
requirement of $30 per week for executive and administrative
employees.\147\ Since then, the Department has increased the salary
levels eight times--in 1940, 1949, 1958, 1963, 1970, 1975, 2004, and
2019.
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\147\ 3 FR 2518.
---------------------------------------------------------------------------
In 1940, the Department maintained the $30 per week salary level
for executive employees but established a higher $200 per month salary
level test for administrative and professional employees. In selecting
these thresholds, the Department used salary surveys from Federal and
state government agencies, experience gained under the National
Industrial Recovery Act, and Federal government salaries to determine
the salary level that was a reasonable ``dividing line'' between
employees performing exempt and nonexempt work.\148\
---------------------------------------------------------------------------
\148\ See Stein Report at 20-21, 31-32.
---------------------------------------------------------------------------
In 1949, recognizing that the ``increase in wage rates and salary
levels'' since 1940 had ``gradually weakened the effectiveness of the
present salary tests as a dividing line between exempt and nonexempt
employees,'' the Department calculated the percentage increase in
weekly earnings from 1940 to 1949, and then adopted new salary levels
at a ``figure slightly lower than might be indicated by the data'' to
protect small businesses.\149\ In 1949, the Department also established
a short test for exemption, which paired a higher salary level with a
less rigorous duties test. The justification for this short test was
that employees who met the higher salary level were more likely to meet
all the requirements of the exemption (including the 20 percent limit
on nonexempt work), and thus a ``short-cut test of exemption . . .
would facilitate the administration of the regulations without
defeating the purposes of section 13(a)(1).'' \150\ Employees who met
only the lower long test salary level, and not the higher short test
salary level, were required to satisfy the long duties test, which
included a limit on the amount of nonexempt work that an exempt
employee could perform. The two-test system remained part of the
Department's regulations until 2004. In 1958, the Department reiterated
that salary is a ``mark of [the] status'' of an exempt employee and
reinforced the importance of salary as an enforcement tool, adding that
the Department had
[[Page 32863]]
``found no satisfactory substitute for the salary tests.'' \151\ To set
the salary levels, the Department considered data collected during 1955
WHD investigations on the ``actual salaries paid'' to employees who
``qualified for exemption'' (i.e., met the applicable salary and duties
tests in place at the time) and set the salary levels at $80 per week
for executives and $95 per week for administrative and professional
employees.\152\ The Department set the long test salary levels so that
only a limited number of employees performing EAP duties (about 10
percent) in the lowest-wage regions and industries would fail to meet
the new salary level and therefore become entitled to overtime
pay.\153\ In laying out this methodology, often referred to as the
``Kantor'' methodology and generally referenced in this rule as the
``long test'' methodology, the Department echoed its prior comments
stating that the salary tests ``simplify enforcement by providing a
ready method of screening out the obviously nonexempt employees.''
\154\
---------------------------------------------------------------------------
\149\ Weiss Report at 8, 14.
\150\ Id. at 22-23.
\151\ Kantor Report at 2-3.
\152\ Id. at 6, 9.
\153\ Id. at 6-7.
\154\ Id. at 2-3; see Weiss Report at 8.
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The Department followed a similar methodology when determining the
appropriate long test salary level in 1963, using data regarding
salaries paid to exempt workers collected in a 1961 WHD survey.\155\
The salary level for executive and administrative employees was
increased to $100 per week, and the professional exemption salary level
was increased to $115 per week.\156\ The Department noted that these
salary levels approximated the methodology used in 1958 to set the long
test salary levels.\157\
---------------------------------------------------------------------------
\155\ 28 FR 7002 (July 9, 1963).
\156\ Id. at 7004.
\157\ Id.
---------------------------------------------------------------------------
The Department continued to use a similar methodology when it
updated the salary levels in 1970. After examining data from 1968 WHD
investigations, 1969 BLS wage data, and information provided in a
report issued by the Department in 1969 that included salary data for
executive, administrative, and professional employees,\158\ the
Department increased the long test salary level for executive and
administrative employees to $125 per week and increased the long test
salary level for professional employees to $140 per week.\159\
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\158\ See 34 FR 9934, 9935 (June 24, 1969).
\159\ 35 FR 885.
---------------------------------------------------------------------------
In 1975, instead of following the previous long test methodology,
the Department set the long test salary levels ``slightly below'' the
amount suggested by adjusting the 1970 salary levels for inflation
based on increases in the Consumer Price Index.\160\ The long test
salary level for executive and administrative employees was set at
$155, while the professional level was set at $170. The salary levels
adopted were intended to be interim levels ``pending the completion and
analysis of a study by [BLS] covering a six-month period in 1975[,]''
and were not meant to set a precedent for future salary level
increases.\161\ The envisioned process was never completed, however,
and the ``interim'' salary levels remained unchanged for the next 29
years.
---------------------------------------------------------------------------
\160\ 40 FR 7091.
\161\ Id. at 7091-92.
---------------------------------------------------------------------------
The short test salary level increased in tandem with the long test
level throughout the various rulemakings between 1949 and 2004. Because
the short test was designed to capture only those white-collar
employees whose salary was high enough to indicate a stronger
likelihood of being employed in a bona fide EAP capacity and thus
warrant a less stringent duties requirement, the short test salary
level was always set significantly higher than the long test salary
level (approximately 130 percent to 180 percent of the long test
level).
When the Department updated the part 541 regulations in 2004, it
created a single standard test for exemption instead of retaining the
two-test system from prior rulemakings. The Department set the new
standard salary level at $455 per week and paired it with a duties test
that was substantially equivalent to the less rigorous short duties
test. The Department set a salary level that would exclude from
exemption roughly the bottom 20 percent of full-time salaried employees
in each of two subpopulations: (1) the South and (2) the retail
industry nationally. In setting the salary level the Department looked
to earnings data for all white-collar workers--exempt and nonexempt--
and looked to a higher percentile than the long test methodology (10th
percentile of exempt workers in low-wage industries and areas). The
Department acknowledged, however, that the salary arrived at by this
method was, at the time, equivalent to the salary derived from the long
test method using contemporaneous data.\162\
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\162\ See 69 FR 22168. The 2004 rule looked to the 20th
percentile of a data set of all full-time salaried workers and the
long test methodology looked to the lowest paid 10 percent of exempt
salaried workers. The two methodologies resulted in equivalent
salary levels because exempt salaried workers generally have higher
earnings than nonexempt salaried workers.
---------------------------------------------------------------------------
In the 2016 rule, the Department set the standard salary level
equal to the 40th percentile of weekly earnings of full-time salaried
workers in the lowest-wage Census Region (the South). This resulted in
a standard salary level of $913 per week, which was at the low end of
the historic range of short test salary levels. The Department
explained that the increase in the standard salary level was needed
because, in moving from a two-test to a one-test system, the 2004 rule
exempted lower-salaried employees performing large amounts of nonexempt
work who had historically been, and should continue to be, covered by
the overtime compensation requirement.\163\ Since the standard duties
test was equivalent to the short duties test, the Department asserted
that a salary level in the short test salary range--traditionally 130
to 180 percent of the long test salary level--was necessary to address
this effect of the 2004 rule. As explained earlier, the U.S. District
Court for the Eastern District of Texas held the 2016 rule invalid.
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\163\ 81 FR 32405.
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In the 2019 rule, the Department reapplied the methodology for
setting the standard salary threshold from the 2004 rule, setting the
salary level equal to the 20th percentile of weekly earnings of full-
time salaried workers in the South and/or in the retail sector
nationwide.\164\ This methodology addressed concerns that had been
raised that the 2016 methodology excluded too many employees from the
exemption based on their salary alone and produced the current standard
salary level of $684 per week (equivalent to $35,568 per year).\165\
Unlike in 2004, however, where the 20th percentile of weekly earnings
of full-time salaried workers in the South and retail nationally was
essentially the same as the long test, in 2019 this methodology now
produced a salary level amount that was lower than the equivalent of
the long test salary level using contemporaneous data ($724 per week,
$37,648 per year). Put another way, the salary level set in the 2019
rule was $40 per week below the long test level (used to validate the
salary level in the 2004 rule) and $292 per week below the low end of
the short test range (used to set the salary level in the 2016 rule).
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\164\ See 84 FR 51260 (Table 4).
\165\ Id. at 51238.
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2. Standard Salary Level Proposal
In its NPRM, the Department proposed to update the salary level by
setting it equal to the 35th percentile of earnings of full-time
salaried workers in the lowest-wage Census Region (the
[[Page 32864]]
South), resulting in a proposed salary level of $1,059 per week
($55,068 for a full-year worker). The Department's proposal explained
that fully restoring the salary level's screening function required
setting a salary level at least equal to the long test salary level.
The Department elaborated that prior to the 2019 rule (when the
Department set the salary level $40 per week below the long test
level), employees who earned below the long test salary level were
screened from the EAP exemption by virtue of their pay--either by the
long test salary level itself or, in the case of the 2004 rule, a
standard salary level set equal to the long test salary level. The
Department stated that the long test salary level provided what it
believed should be the lowest boundary of the new salary level
methodology because it would ensure the salary level's historic
screening function was restored.
In selecting the proposed salary level methodology, the Department
also considered the impact of its switch in 2004 to a one-test system
for determining exemption status. The Department explained that a
single-test system cannot fully replicate both the two-test system's
heightened protection for employees performing substantial amounts of
nonexempt work and its increased efficiency for determining exemption
status for employees who are highly likely to perform EAP duties.
Rather than reinstate the long duties test with its limitation on
nonexempt work, the Department examined earnings ventiles that would
produce a salary level between the long and short test salary levels
(which were, respectively, equivalent to between the 26th and 27th
percentiles, and the 53rd percentile, of full-time salaried worker
earnings in the lowest-wage Census Region). The Department explained
that the long and short tests had served as the foundation for nearly
all the Department's prior rulemakings, either directly under the two-
test system, or indirectly as a means of evaluating the Department's
salary level methodology under the one-test system, and therefore were
useful parameters. The Department concluded that setting the salary
level equal to the 35th percentile would, in combination with the
standard duties test, more effectively identify in a one-test system
who is employed in a bona fide EAP capacity in a manner that reasonably
distributes among employees earning between the long and short test
salary levels and their employers the impact of the Department's move
to a one-test system.
After reviewing the comments received, the Department is finalizing
its proposal to set the standard salary level equal to the 35th
percentile of full-time salaried worker earnings in the lowest-wage
Census Region (the South), which is below the midpoint of the long and
short test salary levels. Applying this methodology to data for
calendar year 2023 results in a salary level of $1,128 per week
($58,656 annually for a full-year worker). This approach will fully
restore the salary level's function of screening obviously nonexempt
workers from the EAP exemption, and account for the switch in the 2004
rule to a one-test system in a way that reasonably distributes the
impact of this shift among employees earning between the long and short
test salary levels and their employers. The resulting salary level will
work effectively with the standard duties test to better define who is
employed in a bona fide EAP capacity.
3. Salary Level Test Function and Effects
For 85 years, the Department's regulations have consistently looked
at both the duties performed by the employee and the salary paid by the
employer in defining and delimiting who is a bona fide executive,
administrative, or professional employee exempt from the FLSA's minimum
wage and overtime protections. From 1949 to 2004, the Department
determined EAP exemption status using a two-test system comprised of a
long test (a lower salary level paired with a more rigorous duties test
that limited performance of nonexempt work to no more than 20 percent
for most employees) and a short test (a higher salary level paired with
a less rigorous duties test that looked to the employee's primary duty
and did not have a numerical limit on the amount of nonexempt work).
The two-test system facilitated the determination of whether white-
collar workers across the income spectrum were employed in a bona fide
EAP capacity, and employees who met either test could be classified as
EAP exempt.
In a two-test system, the long test salary level screens from the
exemption the lowest-paid white-collar employees, thereby ensuring
their right to overtime compensation. The Department has often referred
to many of the employees who are screened from the exemption by virtue
of their earning below the lower long test salary level as ```obviously
nonexempt employees[.]' '' \166\ The long test salary level helped
distinguish employees who were not employed in a bona fide EAP capacity
because the Department found that employees who were screened from
exemption by the long test salary level generally did not meet the
other requirements for exemption.\167\ Since 1958, the long test salary
level was generally set to exclude from exemption approximately the
lowest-paid 10 percent of salaried white-collar employees who performed
EAP duties in the lowest-wage regions and industries.\168\ The long
test salary level also served as a line delimiting the population of
white-collar employees for whom the duties test determined their
exemption status. In the two-test system, this duties analysis included
an examination of the amount of nonexempt work performed by lower-
salaried employees, which ensured that these employees were employed in
an EAP capacity by limiting the amount of time they could spend on
nonexempt work. The duties and salary level tests worked in tandem to
properly define and delimit the exemption: lower-paid workers had to
satisfy a more rigorous duties test with strict limits on nonexempt
work, and higher-paid employees were subject to a less rigorous duties
test because they were more likely to satisfy all the requirements of
the exemption (including the limit on nonexempt work).\169\
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\166\ See id. at 51237 (quoting Kantor Report at 2-3).
\167\ See Kantor Report at 2-3; Weiss Report at 8 (``In an
overwhelming majority of cases, it has been found by careful
inspection that personnel who did not meet the salary requirements
would also not qualify under other sections of the
regulations[.]'').
\168\ See 84 FR 51236.
\169\ Weiss Report at 22-23.
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Because employees who met the short test salary level were paid
well above the long test salary level, the short test salary level did
not perform the same function as the long test salary level of
screening obviously nonexempt employees. Instead, the short test salary
level was used to determine whether the full duties test or the short-
cut duties test would be applied to determine EAP exemption status. The
exemption status of employees paid more than the long and less than the
short test salary levels was determined by applying the more rigorous
long duties test that ensured overtime protections for employees who
performed substantial amounts of nonexempt work. The exemption status
of employees paid at or above the higher short test salary level was
determined by the less rigorous short duties test that looked to the
employee's primary duty and did not cap the amount of nonexempt work an
employee could perform. The short test thus provided a faster and more
efficient duties test based on the Department's experience
[[Page 32865]]
that employees paid at the higher short test salary level ``almost
invariably'' met the more rigorous long duties test, including its 20
percent limit on nonexempt work, and therefore a shortened analysis of
duties was a more efficient test for exemption status.\170\
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\170\ Id.
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In 2004, rather than updating the two-test system, the Department
chose to establish a new, single-test system for determining exemption
status. The new single standard test for exemption used a duties test
that was substantially equivalent to the less rigorous short duties
test in the two-test system.\171\ Since the creation of the standard
test, the Department has taken two different approaches to set the
standard salary level that pairs with the standard duties test.
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\171\ 69 FR 22214.
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In 2004, as noted above, the Department set the new salary level
roughly equivalent to the 20th percentile of weekly earnings of full-
time salaried workers in the South and in the retail industry
nationwide.\172\ The Department acknowledged that the salary level
($455 per week) was, in fact, equivalent to the lower long test salary
level amount under the two-test system using contemporaneous data.\173\
Because it was equivalent to the long test salary level, the standard
salary test continued to perform the same initial screening function as
the long test salary level: employees who historically were entitled to
overtime compensation because they earned below the long test salary
level remained nonexempt under the new standard test.
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\172\ See id. at 22168-69.
\173\ See id.
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Without a higher salary short test, however, all employees who met
the standard salary level were subject to the same duties test. Since
the single standard duties test was equivalent to the short duties
test, some employees who previously did not meet the long duties test
met the standard duties test. As a result, the shift from a two-test to
a one-test system significantly broadened the EAP exemption because
employees who historically had not been considered bona fide EAP
employees were now defined as falling within the exemption and would
not be eligible for overtime compensation. This broadening specifically
impacted lower-paid, salaried white-collar employees who earned between
the long and short test salary levels and performed substantial amounts
of nonexempt work. Under the two-test system, these employees had been
entitled to overtime compensation if their nonexempt duties exceeded
the long test's strict 20 percent limit on such work. Under the 2004
standard test, these employees became exempt because they met both the
low standard salary level and the less rigorous standard duties test,
which does not have a numerical limit on the amount of nonexempt work.
The Department's discussion of the elimination of the long duties
test in the 2004 rule focused primarily on the minimal role played by
the long test at that time due to the erosion of the long salary level,
and on the difficulties employers would face if they were again
required to track time spent on nonexempt work when the dormancy of the
long duties test meant that they had generally not been performing such
tracking for many years.\174\ While asserting that employees who were
then subject to the long test would be better protected under the
higher salary level of the new standard test, the Department in the
2004 rule did not compare the protection lower salaried employees would
receive under the standard test with the protection they would have
received under an updated long test with a salary level based on
contemporaneous data and the existing long duties test.
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\174\ See 69 FR 22126-27.
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To address the concern that lower-salaried employees performing
large amounts of nonexempt work historically were not considered bona
fide EAP employees and thus should be entitled to overtime
compensation, in 2016 the Department set the standard salary level at
the 40th percentile of weekly earnings of full-time salaried workers in
the lowest-wage Census Region (the South). This methodology produced a
salary level ($913 per week) that was at the low end of the historical
range of short test salary levels, which had traditionally been paired
with the short duties test, and above the midpoint between the long and
short test salary levels.\175\ This approach restored overtime
protection for employees performing substantial amounts of nonexempt
work who earned between the long and short test salary levels, as they
failed the new salary level test. However, this approach generated
potential concerns that the salary level test should not be
determinative of exemption status for too many individuals.
Specifically, the 2016 rule's narrowing of the exemption prevented
employers from using the exemption for employees who earned between the
long test salary level and the low end of the short test salary range
and would have met the more rigorous long duties test. Prior to 2004,
employers could use the long test to exempt these employees, and under
the 2004 rule these employees remained exempt under the one-test
system. Thus, while the 2016 rule accounted for the absence of the long
duties test by restoring overtime protections to employees earning
between the long test salary level and the low end of the short test
salary range who perform significant amounts of nonexempt work, it also
made a group of employees who had been exempt under the two-test system
newly nonexempt under the one-test system: employees earning between
the long test level and the short test salary range who perform only
limited nonexempt work.
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\175\ 81 FR 32405, 32467.
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In its 2019 rule, the Department determined that the 2016 rule had
not sufficiently considered the impact of the increased standard salary
level on employers' ability to use the exemption for this group of
lower-paid employees who performed only limited amounts of nonexempt
work.\176\ The Department emphasized that ``[f]or most . . . employees
the exemption should turn on an analysis of their actual functions, not
their salaries,'' and that the 2016 rule's effect of making nonexempt
lower-paid, white-collar employees who traditionally were exempt under
the long test ``deviated from the Department's longstanding policy of
setting a salary level that does not `disqualify[] any substantial
number of' bona fide executive, administrative, and professional
employees from exemption.'' \177\ To address these concerns, the
Department simply returned to the 2004 rule's methodology for setting
the salary threshold. Applying the 2004 method to the earnings data
available in 2019 produced a standard salary level of $684 per week,
which was below the equivalent of what the long test salary level would
have been using contemporaneous data ($724 per week).\178\ The 2019
rule was the first time the Department paired the standard duties test
with a salary level that was not at least equivalent to the long test
level.
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\176\ 84 FR 10908.
\177\ Id. (quoting Kantor Report at 5).
\178\ 84 FR 51260.
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The 2019 rule, like the 2004 rule, exempted all
[…truncated; see source link]Indexed from Federal Register on April 26, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.