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November 13, 2023
The Fair Labor Standards Act (FLSA) Exemption for
Executive, Administrative, and Professional (EAP) Employees:
2023 Proposed Rule
The Fair Labor Standards Act (FLSA) establishes a federal
minimum wage for most private and public sector
employees and generally requires overtime compensation at
a rate of one and one-half times an employee's regular
hourly rate for hours worked beyond a 40-hour workweek.
While broadly providing these employment protections to
most employees, the FLSA also includes exemptions for
certain specified employees. Section 13(a)(1) of the FLSA,
found at 29 U.S.C. § 213(a)(1), exempts from the statute's
minimum wage and overtime pay requirements any
employee employed in a bona fide executive,
administrative, and professional [EAP] capacity, and
authorizes the Secretary of Labor to define and delimit
this exemption, known as the EAP exemption, through
regulations. On September 8, 2023, the Department of
Labor (DOL) issued a proposed rule to update and revise
the agency's existing regulations implementing the EAP
exemption. This In Focus provides a brief overview of the
current and proposed rules.
The Current and Proposed Rules
In general, to qualify for the EAP exemption under current
regulations, an employee must (1) be paid on a salary basis,
(2) be paid a salary that is above an amount determined by
DOL regulations (i.e., salary threshold), and (3) perform
specified duties, which vary based on whether an individual
is an executive, administrative, or professional employee. A
discussion of past rules and the current rule is in CRS In
Focus IF 12480, The Fair Labor Standards Act (FLSA)
Exemption for Executive, Administrative, and Professional
Employees.
The Current Rule
The proposed rule would largely adjust the salary threshold
used to determine the EAP exemption. Under DOL's
current regulations:
* Standard Threshold: An employee must be
compensated on a salary basis at a rate of not less than
$684 per week ($35,568 annualized) for the EAP
exemption to apply. More specifically, $684 is equal to
the 20 percentile of earnings of the combined weekly
earnings distribution of full-time salaried workers in the
lowest-wage region (the South) and workers in the retail
industry nationally in July 2018 to July 2019.
* U.S. Territories: The weekly salary rate is lower-$455
per week-for employees (other than those employed by
the federal government) in the Commonwealth of the
Northern Mariana Islands (CNMI), Guam, Puerto Rico,
or the U.S. Virgin Islands. The weekly salary rate is
$380 for employees (other than those employed by the
federal government) in American Samoa.
* Motion Picture Producing Industry: Employees in the
motion picture producing industry need not be paid on a
salary basis as long as they are compensated at a base
rate of at least $1,043 per week (or a proportionate
amount based on the number of days worked) and the
EAP duties test requirements are met.
* Highly Compensated Employees (HCE): Certain
HCEs may be exempt from the FLSA's overtime pay
requirement even if they do not perform all of the
specified duties assigned to their occupation group.
Under DOL's current regulations, an employee paid on
a salary basis with total annual compensation of at least
$107,432 is exempt from the requirement if the
employee customarily and regularly performs any one
or more of these duties.
The Proposed Role
DOL proposes to set the standard salary threshold equal to
the 35th percentile of weekly earnings of full-time salaried
workers in the lowest-wage Census Region (currently the
South) and the HCE threshold equal to the 85th percentile of
full-time salaried workers nationally. The proposal sets
these levels at $1,059 per week ($55,068 annualized) and
$143,988 per year, respectively. These levels were
calculated based on earnings data for 2022; however, DOL
provides that in the final rule it will use the most recent data
available, which would likely change the dollar figures.
DOL proposes to set the weekly salary threshold for each
U.S. territory that is subject to the federal minimum wage to
be equal to the standard salary threshold. That is, the
proposed standard salary weekly threshold for CNMI,
Guam, Puerto Rico, and the U.S. Virgin Islands would be
the 35th percentile of weekly earnings of full-time salaried
workers in the lowest-wage Census Region ($1,059 per
week pending the final rule). The proposed standard salary
level for American Samoa would be 84% of the new
standard salary level ($890=$1,059 x 84%). DOL proposes
to increase the required base rate for motion picture
producing industry employees by the same percentage
increase in the standard salary level (i.e., by $1,059/$684 -
100% ~ 55%), resulting in a proposed $1,617 per week (=
$1,043 + (55%) ($1,043)).
In addition, DOL proposes to automatically update the
standard salary level and the HCE annual compensation
threshold every three years with current wage data. The
updated standard salary level would affect the salary level
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