The Fair Labor Standards Act (FLSA) Exemption for Executive

https://crsreports.congress.gov

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 IF12480, 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 Rule

DOL proposes to set the standard salary threshold equal to

the 35

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 85

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 35

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

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

Proposed Rule

https://crsreports.congress.gov

for American Samoa and the base rate for the motion

picture industry.

Table 1. Current and Proposed Salary Thresholds for

the FLSA EAP Exemption

Current Rule

Proposed Rule

Standard

$684/week

$1,059/week

HCE

$107,432 annually

$143,988 annually

U.S. Territories

$455/week

(American Samoa

$380/week)

$1,059/week

(American Samoa

$890/week)

Motion Picture

Producing Industry

$1,043/week

$1,617/week

Automatic Updates

Every three years

Source: 29 C.F.R. Part 541 and 88 Federal Register 62152 (September

8, 2023).

Notes: The salary thresholds in this table are as presented in the

proposed rule. DOL indicates that the salary thresholds will be

updated in the final rule using the most current data available.

Estimated Impacts

DOL estimates that 3.6 million workers who are currently

covered by the EAP exemption would no longer meet the

salary threshold after the final rule is implemented and

would become subject to the FLSA overtime pay and

minimum wage provisions. An estimated 24.7 million

workers would remain covered by the exemption.

DOL estimates that employers may collectively incur $1.2

billion in regulatory familiarization costs, adjustment costs,

and managerial costs during the first year of

implementation of the final rule. These direct costs are

expected to decrease over time. DOL also estimates that the

rule would result in the transfer of approximately $1.2

billion from employers to employees in the first year of

implementation. These transfer costs would include

overtime payments to newly covered workers and salary

increases for some workers.

Potential Court Challenge

The 2023 proposed rule has been criticized by the U.S.

Chamber of Commerce and other opponents of the rule

because of its anticipated financial impact on employers.

Arguing that employers have already been forced to raise

wages to attract new employees, the Chamber contends that

“[i]ncreasing the cost of labor even further through this

regulation will add to their burdens and will be felt

particularly severely among small businesses, and

charitable nonprofits.”

In 2016, the Chamber joined 21 states and a group of

business organizations to challenge a similar 2016 rule that

raised the salary threshold from $455 per week ($23,660

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

the overtime pay requirement. The 2016 rule also provided

for the automatic updating of the salary threshold every

three years.

In Nevada v. U.S. Dep’t of Labor, the U.S. District Court

for the Eastern District of Texas invalidated the 2016 rule,

concluding that the updated salary threshold was so high

that it contravened congressional intent, which was to focus

on an employee’s job duties when determining whether an

individual is an exempt EAP employee. The court

maintained that Congress’s use of the terms “executive,”

“administrative,” “professional,” and “capacity” in Section

13(a)(1) of the FLSA emphasized the duties performed by

an individual. In applying the updated salary threshold from

the 2016 rule, it was possible that some employees would

be deemed nonexempt from the overtime pay requirement

without any consideration of their job duties. According to

the court, DOL “fail[ed] to carry out Congress’s

unambiguous intent” and “create[d] a Final Rule that makes

overtime status depend predominately on a minimum salary

level, thereby supplanting an analysis of an employee’s job

duties.” DOL initially appealed the court’s decision to the

U.S. Court of Appeals for the Fifth Circuit, but later asked

the appellate court to hold the appeal in abeyance while it

undertook new rulemaking. DOL issued a new rule in 2019

that established the current salary threshold, and the case

was dismissed in 2020.

Some observers believe that the 2023 rule could face a

similar challenge if it is finalized with the current proposed

standard salary threshold of $1,059 per week. Challengers

of the rule may argue that the increased salary threshold

would result in many employees becoming eligible for

overtime without any consideration of their job duties.

Conversely, DOL could contend that the proposed 2023

rule would increase the standard salary threshold by only

55% from the 2019 rule, whereas the 2016 rule increased

that threshold by 104%. Following the court’s Nevada

decision, the Chamber indicated that it was not opposed to

adjusting the salary threshold, but insisted on “a more

appropriate update.” Unlike the 2016 rule, the 2019 rule,

which increased the salary threshold from $455 per week

established in the 2004 rule to $684 per week, was not

challenged.

Legislative Proposals

In March 2023, Senator Sherrod Brown and Representative

Mark Takano introduced legislation to amend the FLSA to

establish statutorily a minimum salary threshold for the

EAP exemption. If enacted, the Restoring Overtime Pay

Act of 2023 (S. 1041/H.R. 2395) would set the salary

threshold at $45,000 on the act’s effective date, with

$10,000 annual increases until January 1, 2027, when the

threshold would be an annualized amount equal to the rate

of the 55

percentile of weekly earnings of full-time

salaried workers nationally, as determined by the Bureau of

Labor Statistics based on data from the second quarter of

2026. After 2027, the threshold would be updated annually.

The act would also permit the Secretary of Labor to

establish higher salary thresholds based on a data set and

methodology established by the Secretary.

Sarah A. Donovan, Specialist in Labor Policy

Jon O. Shimabukuro, Legislative Attorney

IF12532

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

Proposed Rule

https://crsreports.congress.gov | IF12532 · VERSION 1 · NEW

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