BREAKING NEWS: The Long-Awaited Proposed Changes to the FLSA EAP/White Collar Exemption Are Here

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Helena I. Poch Ciechanowski

August 31, 2023

On August 30, 2023, the U.S. Department of Labor (DOL) issued its Notice of Proposed Rulemaking (NPRM) describing proposed changes to the regulations promulgated under section 13(a)(1) of the Fair Labor Standards Act (FLSA), which covers the minimum wage and overtime pay exemption for executive, administrative, professional, outside sales, and computer employees, often referred to as the “EAP” or “White Collar” exemption (hereafter “EAP/White Collar Exemption”).  The NPRM is awaiting publication in the Federal Register, at which time the 60 day public comment period will begin.  We will provide a link to the published NPRM as soon as it becomes available.

Under the FLSA, covered employers must pay overtime (1.5 x the regular rate of pay) to employees who work more than 40 hours in a given week, unless the employees fall within a statutory exemption (commonly known as “exempt employees”).  Those falling within the EAP/White Collar Exemption are the most common category of exempt employees.  The three-part test for who qualifies under the EAP/White Collar Exemption has been fairly stagnant for the past 80 years:

• Salary Basis: workers must be paid a predetermined and fixed salary that is not subject to fluctuations for quality or quantity
• Salary Level: the amount of the salary paid to the worker must meet or exceed a specified minimum threshold (currently $35,568)
• Duties: the job performed by the worker must primarily entail executive, administrative, or professional duties, as defined by the DOL regulations

In general, employers bear the burden to demonstrate that a particular employee meets all three tests, and cannot rely upon job titles, job descriptions, or payment of a salary, alone. For highly compensated executive, administrative, and professional employees (those making at least $107,432 annually [the “HCE threshold”]), employers do not need to perform the third (duties) test and need to demonstrate only that the employee “customarily and regularly performs at least one of the exempt duties or responsibilities of an EAP employee.”

The NPRM would affect the salary level test, by raising the threshold to $55,068, which, according to the DOL, is the salary received by full-time salaried workers in the 35^th percentile of weekly earners in the lowest-wage Census Region of the U.S., and would also raise the HCE threshold to $143,988, which is the 85^th percentile of full-time salaried workers nationally.  Additionally, the NPRM increases the salary threshold levels for exempt employees in the U.S. Territories.  Finally, the NPRM recommends adoption of an automatic procedure for updating the salary thresholds every three years, going forward.

KEY TAKEAWAYS FOR EMPLOYERS

• If the proposed regulations go into effect, employers will no longer be able to classify employees as exempt if they are earning less than $55,068 per year.
• If the proposed regulations go into effect, employers will need to perform the standard “duties” test for employees earning between $55,068 and $143,988 per year.
• Employers should anticipate regular updates to each of these thresholds and make policy adjustments to monitor the thresholds and update exemption classifications on at least a tri-annual basis.

This newsletter is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice, nor does it establish an attorney-client relationship with any reader of the article where one does not exist.  Always consult an attorney with specific legal issues.