The Fair Labor Standards Act (FLSA) Exemption for Executive, Administrative, and Professional (EAP) Employees: 2023 Proposed Rule

The Fair Labor Standards Act (FLSA) Exemption for Executive, Administrative, and Professional (EAP) Employees: 2023 Proposed Rule

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
$380 for employees (other than those employed by the
minimum wage for most private and public sector
federal government) in American Samoa.
employees and generally requires overtime compensation at
• Motion Picture Producing Industry: Employees in the
a rate of one and one-half times an employee’s regular
motion picture producing industry need not be paid on a
hourly rate for hours worked beyond a 40-hour workweek.
salary basis as long as they are compensated at a base
While broadly providing these employment protections to
rate of at least $1,043 per week (or a proportionate
most employees, the FLSA also includes exemptions for
amount based on the number of days worked) and the
certain specified employees. Section 13(a)(1) of the FLSA,
EAP duties test requirements are met.
found at 29 U.S.C. § 213(a)(1), exempts from the statute’s
minimum wage and overtime pay requirements “any
• Highly Compensated Employees (HCE): Certain
employee employed in a bona fide executive,
HCEs may be exempt from the FLSA’s overtime pay
administrative, and professional [EAP] capacity,” and
requirement even if they do not perform all of the
authorizes the Secretary of Labor to “define and delimit”
specified duties assigned to their occupation group.
this exemption, known as the “EAP exemption,” through
Under DOL’s current regulations, an employee paid on
regulations. On September 8, 2023, the Department of
a salary basis with total annual compensation of at least
Labor (DOL) issued a proposed rule to update and revise
$107,432 is exempt from the requirement if the
the agency’s existing regulations implementing the EAP
employee “customarily and regularly” performs any one
exemption. This In Focus provides a brief overview of the
or more of these duties.
current and proposed rules.
The Proposed Rule
The Current and Proposed Rules
DOL proposes to set the standard salary threshold equal to
In general, to qualify for the EAP exemption under current
the 35th percentile of weekly earnings of full-time salaried
regulations, an employee must (1) be paid on a salary basis,
workers in the lowest-wage Census Region (currently the
(2) be paid a salary that is above an amount determined by
South) and the HCE threshold equal to the 85th percentile of
DOL regulations (i.e., salary threshold), and (3) perform
full-time salaried workers nationally. The proposal sets
specified duties, which vary based on whether an individual
these levels at $1,059 per week ($55,068 annualized) and
is an executive, administrative, or professional employee. A
$143,988 per year, respectively. These levels were
discussion of past rules and the current rule is in CRS In
calculated based on earnings data for 2022; however, DOL
Focus IF12480, The Fair Labor Standards Act (FLSA)
provides that in the final rule it will use the most recent data
Exemption for Executive, Administrative, and Professional
available, which would likely change the dollar figures.
Employees.
DOL proposes to set the weekly salary threshold for each
The Current Rule
U.S. territory that is subject to the federal minimum wage to
be equal to the standard salary threshold. That is, the
The proposed rule would largely adjust the salary threshold
proposed standard salary weekly threshold for CNMI,
used to determine the EAP exemption. Under DOL’s
Guam, Puerto Rico, and the U.S. Virgin Islands would be
current regulations:
the 35th percentile of weekly earnings of full-time salaried
• Standard Threshold: An employee must be
workers in the lowest-wage Census Region ($1,059 per
compensated on a salary basis at a rate of not less than
week pending the final rule). The proposed standard salary
$684 per week ($35,568 annualized) for the EAP
level for American Samoa would be 84% of the new
exemption to apply. More specifically, $684 is equal to
standard salary level ($890=$1,059 x 84%). DOL proposes
the 20 percentile of earnings of the combined weekly
to increase the required base rate for motion picture
earnings distribution of full-time salaried workers in the
producing industry employees by the same percentage
lowest-wage region (the South) and workers in the retail
increase in the standard salary level (i.e., by $1,059/$684 –
industry nationally in July 2018 to July 2019.
100% ≈ 55%), resulting in a proposed $1,617 per week (=
•
$1,043 + (55%) ($1,043)).
U.S. Territories: The weekly salary rate is lower—$455
per week—for employees (other than those employed by
In addition, DOL proposes to automatically update the
the federal government) in the Commonwealth of the
standard salary level and the HCE annual compensation
Northern Mariana Islands (CNMI), Guam, Puerto Rico,
threshold every three years with current wage data. The
or the U.S. Virgin Islands. The weekly salary rate is
updated standard salary level would affect the salary level
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The Fair Labor Standards Act (FLSA) Exemption for Executive, Administrative, and Professional (EAP) Employees: 2023
Proposed Rule
for American Samoa and the base rate for the motion
In Nevada v. U.S. Dep’t of Labor, the U.S. District Court
picture industry.
for the Eastern District of Texas invalidated the 2016 rule,
concluding that the updated salary threshold was so high
Table 1. Current and Proposed Salary Thresholds for
that it contravened congressional intent, which was to focus
the FLSA EAP Exemption
on an employee’s job duties when determining whether an
individual is an exempt EAP employee. The court

Current Rule
Proposed Rule
maintained that Congress’s use of the terms “executive,”
“administrative,” “professional,” and “capacity”
Standard
$684/week
$1,059/week
in Section
13(a)(1) of the FLSA emphasized the duties performed by
HCE
$107,432 annually $143,988 annually
an individual. In applying the updated salary threshold from
U.S. Territories
$455/week
$1,059/week
the 2016 rule, it was possible that some employees would
(American Samoa
(American Samoa
be deemed nonexempt from the overtime pay requirement
$380/week)
$890/week)
without any consideration of their job duties. According to
the court, DOL “fail[ed] to carry out Congress’s
Motion Picture
unambiguous intent” and “create[d] a Final Rule that makes
$1,043/week
$1,617/week
Producing Industry
overtime status depend predominately on a minimum salary
level, thereby supplanting an analysis of an employee’s job
Automatic Updates
No
Every three years
duties.” DOL initially appealed the court’s decision to the
Source: 29 C.F.R. Part 541 and 88 Federal Register 62152 (September
U.S. Court of Appeals for the Fifth Circuit, but later asked
8, 2023).
the appellate court to hold the appeal in abeyance while it
Notes: The salary thresholds in this table are as presented in the
undertook new rulemaking. DOL issued a new rule in 2019
proposed rule. DOL indicates that the salary thresholds will be
that established the current salary threshold, and the case
updated in the final rule using the most current data available.
was dismissed in 2020.

Estimated Impacts
Some observers believe that the 2023 rule could face a
similar challenge if it is finalized with the current proposed
DOL estimates that 3.6 million workers who are currently
standard salary threshold of $1,059 per week. Challengers
covered by the EAP exemption would no longer meet the
of the rule may argue that the increased salary threshold
salary threshold after the final rule is implemented and
would result in many employees becoming eligible for
would become subject to the FLSA overtime pay and
overtime without any consideration of their job duties.
minimum wage provisions. An estimated 24.7 million
Conversely, DOL could contend that the proposed 2023
workers would remain covered by the exemption.
rule would increase the standard salary threshold by only
DOL estimates that employers may collectively incur $1.2
55% from the 2019 rule, whereas the 2016 rule increased
billion in regulatory familiarization costs, adjustment costs,
that threshold by 104%. Following the court’s Nevada
and managerial costs during the first year of
decision, the Chamber indicated that it was not opposed to
implementation of the final rule. These direct costs are
adjusting the salary threshold, but insisted on “a more
appropriate update.”
expected to decrease over time. DOL also estimates that the
Unlike the 2016 rule, the 2019 rule,
rule would result in the transfer of approximately $1.2
which increased the salary threshold from $455 per week
billion from employers to employees in the first year of
established in the 2004 rule to $684 per week, was not
implementation. These transfer costs would include
challenged.
overtime payments to newly covered workers and salary
Legislative Proposals
increases for some workers.
In March 2023, Senator Sherrod Brown and Representative
Potential Court Challenge
Mark Takano introduced legislation to amend the FLSA to
The 2023 proposed rule has been criticized by the U.S.
establish statutorily a minimum salary threshold for the
Chamber of Commerce and other opponents of the rule
EAP exemption. If enacted, the Restoring Overtime Pay
because of its anticipated financial impact on employers.
Act of 2023 (S. 1041/H.R. 2395) would set the salary
Arguing that employers have already been forced to raise
threshold at $45,000 on the act’s effective date, with
wages to attract new employees, the Chamber contends that
$10,000 annual increases until January 1, 2027, when the
“[i]ncreasing the cost of labor even further through this
threshold would be an annualized amount equal to the rate
regulation will add to their burdens and will be felt
of the 55th percentile of weekly earnings of full-time
particularly severely among small businesses, and
salaried workers nationally, as determined by the Bureau of
charitable nonprofits.”
Labor Statistics based on data from the second quarter of
2026. After 2027, the threshold would be updated annually.
In 2016, the Chamber joined 21 states and a group of
The act would also permit the Secretary of Labor to
business organizations to challenge a similar 2016 rule that
establish higher salary thresholds based on a data set and
raised the salary threshold from $455 per week ($23,660
methodology established by the Secretary.
annualized) to $913 per week ($47,476 annualized). Like
the current proposed rule, the 2016 rule did not alter the
duties that an individual must perform to be exempt from
Sarah A. Donovan, Specialist in Labor Policy
the overtime pay requirement. The 2016 rule also provided
Jon O. Shimabukuro, Legislative Attorney
for the automatic updating of the salary threshold every
IF12532
three years.
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The Fair Labor Standards Act (FLSA) Exemption for Executive, Administrative, and Professional (EAP) Employees: 2023
Proposed Rule

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