After repeated promises and repeated delays, the U.S. Department of Labor has released proposed regulations to revise the compensation requirements of the White Collar and Highly Compensated Employee exemptions of the Fair Labor Standards Act.
The White Collar exemptions are also known as the Executive-Administrative-Professional, or “EAP,” exemptions.
The DOL estimates that the change would affect 3.4 million employees who currently qualify for the White Collar exemptions and just under 250,000 employees who currently qualify for the HCE exemption.
White Collar exemption
Not surprisingly, the proposal, if it becomes final, would push the current weekly minimum salary to qualify for the White Collar exemptions from the current $684 to $1,059 (or, on an annualized basis, from the current $35,568 to $55,068).
The proposal would link the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
In establishing the proposed increases, the DOL relied on salary data for calendar year 2022. In the Final Rule, the DOL will use the most recent data available, which could mean that the final minimum salary levels may be even higher.
Highly Compensated Employee exemption
The Highly Compensated Employee exemption (which provides an abbreviated and less-complicated job duties test) would have its minimum annual compensation pushed from $107,432 to $143,988, of which at least $1,059 per week must meet the salary or fee basis requirements.
The HCE minimum is based on the 85th percentile of full-time salaried workers nationally.
The proposal also seeks to apply the newly-proposed standard test salary level in Puerto Rico, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands, and increase the current special salary levels for American Samoa and the motion picture industry.
Automatic increases every three years
The proposed regulations also include a mechanism that would automatically “index” the salary and compensation levels every three years, which would allow the salary minimums to be increased without the need for notice and comment rulemaking proceedings, which would otherwise be required under the Administrative Procedure Act. The Obama DOL attempted this in regulations that were issued in 2016, but a legal challenge ultimately derailed the regulations and ended that automatic indexing effort
No change to duties tests
Importantly, the proposal does not include changes to the job duties criteria of the exemptions. Many had expected the DOL to include such provisions, but the DOL said that it “favors keeping the current duties test and concludes that, paired with an appropriate salary level requirement, the test can appropriately distinguish bona fide [white-collar exempt] employees from nonexempt workers.”
The preview copy of the proposed regulations, which will be officially published in the Federal Register at a later date, is here. The DOL has also published a Frequently Asked Questions document, available here.
Once the proposed regulations are published in the Federal Register, there will be a 60-day comment period. The comment period could later be extended, which is often the case in rulemaking proceedings where the stakes are high. Once the comment period closes, the DOL will analyze and consider the comments, and then finalize the proposal with or without further changes and publish it as a final rule with an effective date.
After a final rule is issued, employer advocacy groups are likely to file legal challenges attempting to invalidate the rule, as they did successfully in 2016.
It is important to remember that the federal wage and hour laws do not preempt state and local wage and hour laws, and there are states with overtime requirements that already have more stringent White Collar Exemptions with minimum salary levels that are significantly higher than the current FLSA requirements. In some cases, the state minimum salary levels are already higher than what the USDOL is now proposing.
The rulemaking proceeding promises to be interesting, and so too will the likely legal challenges that follow. Stay tuned for further updates, and as always, feel free to direct questions to the Constangy lawyer of your choosing.