On August 30, 2023, the Department of Labor (DOL) issued a notice of proposed rulemaking (NPRM), which was published in the Federal Register on September 8, 2023. The NPRM alerts the public of the DOL’s proposed changes to the exemptions from overtime pay requirements for executive, administrative, and professional employees as well as for “highly compensated employees” under the Fair Labor Standards Act (FLSA). Significantly, if the NPRM becomes a final rule, more than 3 million additional employees would then become eligible for overtime pay. The Biden Administration’s proposed rule would increase the standard salary level for salaried employees in these roles to qualify as exempt from the FLSA’s overtime mandate, making more people eligible for overtime, and includes provisions providing for automatic
updates to the salary threshold levels every 3 years.
The FLSA generally requires that employers pay employees at or above the federal minimum wage, as well as overtime pay at a rate of 1.5 times the regular rate of pay for all hours worked over 40 in a workweek. However, pursuant to Section 13(a)(1) of the FLSA, employees employed in a bona fide executive, administrative, or professional capacity are exempt from the overtime pay requirements. The exemption is known as the white collar/executive, administrative, professional (EAP) exemption. Employees are considered exempt under the white collar/EAP exemption if they meet the following three tests: 1) the employee’s salary meets a certain minimum amount (the salary level test); 2) the employee is
paid a predetermined and fixed salary that is not subject to reduction based on variations in the quality or quantity of work performed (the salary basis test); and 3) the employee’s job duties must primarily involve executive, administrative, or professional duties (the duties test).
The FLSA also authorizes a separate exemption for highly compensated employees, known as the HCE exemption, which applies to employees if: 1) the employee’s total annual compensation is $107,432 or more; 2) the employee’s primary duty includes performing office/non-manual work; and 3) the employee customarily and regularly performs at least one of the duties or responsibilities of exempt executive, administrative or professional employees.
The proposed rule would impact the salary level tests for both the white collar/EAP exemption and the HCE exemption. It would increase the standard salary level for white collar/EAP employees from $684 weekly ($35,568 annually) to $1,059 weekly ($55,068 annually). Thus, employees in these positions making less than $1,059 weekly ($55,068 annually) would become eligible for overtime pay. Furthermore, the proposed rule would increase the HCE total annual compensation threshold from $107,432 to $143,988. Additionally, the proposal would require automatic updates to the earning thresholds every 3 years. The other proposed changes are more limited and include increasing the standard salary levels in all
U.S. territories that are subject to the federal minimum wage, while maintaining a special salary level only for American Samoa, as well as changing certain special base rates for employees in the motion picture industry.
Employers should recognize that the proposed rule will likely face aggressive legal challenges. In 2016, the Obama Administration proposed a similar rule, but a federal court granted a motion for a preliminary injunction to prevent the proposed rule from becoming effective. The federal district court subsequently granted summary judgment to the challengers of the proposal, holding that the increase to the salary level exceeded the DOL’s authority because, by raising the salary level, the DOL effectively eliminated consideration of the white collar/EAP exemption’s duties test. See Nevada v. U.S. Department of Labor, 275 F.Supp.3d 795 (E.D. Tex. 2017). Although the Obama Administration appealed the decision, following the change in administration, the Trump Administration withdrew the appeal and rescinded the proposal.
The Obama Administration’s 2016 rule proposed to increase the salary level from $455 weekly ($23,660 annually) to $913 weekly ($47,476 annually) and to increase the HCE total annual compensation amount from $100,000 to $134,000 annually. It also proposed automatic updates to the earning thresholds every 3 years, as well as other less significant changes. Because the Obama Administration’s proposed rule is very similar to the Biden Administration’s proposed rule, opponents likely will rely on the previous ruling to challenge the new proposal. Thus it is by no means certain that the current proposed rule will become and remain effective and enforceable.
The public has 60 days to comment from the date the proposal was published in the Federal Register (September 8, 2023). Thus, comments must be submitted on or before November 7, 2023. Employers are welcome to exercise their opportunity to provide comments and feedback, although such comments rarely significantly impact a proposed rule as initially drafted.
Calfee’s Labor and Employment attorneys are available to answer questions relating to the proposed changes to the FLSA’s overtime exemptions and to assist employers with reassessing their employee classifications under federal wage and hour law.
PDF
