Disclaimer: This final rule has been approved by the Office of

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

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review process. Only the version published in the Federal Register is the official version.

BILLING CODE: 4510-27-P

DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 541

RIN 1235-AA39

Defining and Delimiting the Exemptions for Executive, Administrative, Professional,

Outside Sales, and Computer Employees

AGENCY: Wage and Hour Division, Department of Labor.

ACTION: Final rule.

SUMMARY: The Department of Labor (Department) is updating and revising the regulations

issued under the Fair Labor Standards Act implementing the exemptions from minimum wage

and overtime pay requirements for executive, administrative, professional, outside sales, and

computer employees. Significant revisions include increasing the standard salary level,

increasing the highly compensated employee total annual compensation threshold, and adding to

the regulations a mechanism that will allow for the timely and efficient updating of the salary

and compensation thresholds, including an initial update on July 1, 2024, to reflect earnings

growth. The Department is not finalizing in this rule its proposal to apply the standard salary

level to the U.S. territories subject to the Federal minimum wage and to update the special salary

levels for American Samoa and the motion picture industry.

DATES: The effective date for this final rule is July 1, 2024. Sections 541.600(a)(2) and

541.601(a)(2) are applicable beginning January 1, 2025.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

FOR FURTHER INFORMATION CONTACT: Daniel Navarrete, Acting Director, Division

of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of

Labor, Room S-3502, 200 Constitution Avenue, NW, Washington, DC 20210; telephone: (202)

693-0406 (this is not a toll-free number). Alternative formats are available upon request by

calling 1-866-487-9243. If you are deaf, hard of hearing, or have a speech disability, please dial

7-1-1 to access telecommunications relay services.

Questions of interpretation or enforcement of the agency’s existing regulations may be

directed to the nearest Wage and Hour Division (WHD) district office. Locate the nearest office

by calling the WHD’s toll-free help line at (866) 4US–WAGE ((866) 487-9243) between 8 a.m.

and 5 p.m. in your local time zone, or log onto WHD’s website at

https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district

and area offices.

SUPPLEMENTARY INFORMATION

I. Executive Summary

The Fair Labor Standards Act (FLSA or Act) requires covered employers to pay

employees a minimum wage and, for employees who work more than 40 hours in a week,

overtime premium pay of at least 1.5 times the employee’s regular rate of pay. Section 13(a)(1)

of the FLSA, which was included in the original Act in 1938, exempts from the minimum wage

and overtime pay requirements “any employee employed in a bona fide executive,

administrative, or professional capacity[.]”

The exemption is commonly referred to as the

“white-collar” or executive, administrative, or professional (EAP) exemption. The statute

29 U.S.C. 213(a)(1).

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review process. Only the version published in the Federal Register is the official version.

expressly gives the Secretary of Labor (Secretary) authority to define and delimit the terms of the

exemption. Since 1940, the regulations implementing the EAP exemption have generally

required that each of the following three tests must be met: (1) the employee must be paid a

predetermined and fixed salary that is not subject to reduction because of variations in the quality

or quantity of work performed (the salary basis test); (2) the amount of salary paid must meet a

minimum specified amount (the salary level test); and (3) the employee’s job duties must

primarily involve executive, administrative, or professional duties as defined by the regulations

(the duties test). The employer bears the burden of establishing the applicability of the

exemption.

Job titles and job descriptions do not determine EAP exemption status, nor does

merely paying an employee a salary.

Consistent with its broad authority under the Act, in this final rule the Department is

setting compensation thresholds for the standard test and the highly compensated employee test

that will work effectively with the respective duties tests to better identify who is employed in a

bona fide EAP capacity for purposes of determining exemption status under the Act.

Specifically, the Department is setting the standard salary level at the 35th percentile of weekly

earnings of full-time salaried workers in the lowest-wage Census Region ($1,128 per week or

$58,656 annually for a full-year worker)

and the highly compensated employee total annual

See, e.g., Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 209 (1966); Walling v. Gen.

Indus. Co., 330 U.S. 545, 547-48 (1947).

In determining earnings percentiles in its part 541 rulemakings since 2004, the Department has

consistently looked at nonhourly earnings for full-time workers from the Current Population

Survey (CPS) Merged Outgoing Rotation Group (MORG) data collected by the U.S. Bureau of

Labor Statistics (BLS). As explained in section VII.B.5.i, the Department considers data

representing compensation paid to nonhourly workers to be an appropriate proxy for

compensation paid to salaried workers, although for simplicity the Department uses the terms

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

compensation threshold at the annualized weekly earnings of the 85th percentile of full-time

salaried workers nationally ($151,164). These compensation thresholds are firmly grounded in

the authority that the FLSA grants to the Secretary to define and delimit the EAP exemption, a

power the Secretary has exercised for 85 years.

The increase in the standard salary level to the 35th percentile of weekly earnings of full-

time salaried workers in the lowest-wage Census Region better fulfills the Department’s

obligation under the statute to define and delimit who is employed in a bona fide EAP capacity.

Upon reflection, the Department has determined that its rulemakings over the past 20 years, since

the Department simplified the test for the EAP exemption in 2004 by replacing the historic two-

test system for determining exemption status with the single standard test, have vacillated

between two distinct approaches: One used in rules in 2004

and 2019,

that exempted lower-

paid workers who historically had been entitled to overtime because they did not meet the more

detailed duties requirements of the test that was in place from 1949 to 2004; and one used in a

rule in 2016,

that restored overtime protection to lower-paid white-collar workers who

performed significant amounts of nonexempt work but also removed from the exemption other

lower-paid workers who historically were exempt because they met the prior more detailed

salaried and nonhourly interchangeably in this rule. The Department relied on CPS MORG data

for calendar year 2022 to develop the NPRM, including to determine the proposed salary level.

The Department is using the most recent full-year data available for this final rule, which is CPS

MORG data for calendar year 2023. The new standard salary level of $1,128 per week is $12 to

$30 less than the Department estimated in the NPRM. 88 FR 62152, 62152–53 n.3 (Sept. 8,

2023).

69 FR 22122 (April 23, 2004).

84 FR 51230 (Sept. 27, 2019).

81 FR 32391 (May 23, 2016).

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of Information and Regulatory Affairs and has been submitted to the Office of the Federal

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duties test, an approach that received unfavorable treatment in litigation.

Having grappled with

these different approaches to setting the standard salary level, this final rule retains the simplified

standard test, the benefits of which were recognized in the Department’s 2004, 2016, and 2019

rulemakings,

while, through a revised methodology, fully restoring the salary level’s screening

function and accounting for the switch from a two-test to a one-test system for defining the EAP

exemption, and also separately updating the standard salary level to account for earnings growth

since the 2019 rule.

The new standard salary level will, in combination with the standard duties test, better

define and delimit which employees are employed in a bona fide EAP capacity. By setting a

salary level above what the methodology used in 2004 and 2019 would produce using current

data, the new standard salary level will ensure that, consistent with the Department’s historical

approach to the exemption, fewer lower-paid white-collar employees who perform significant

amounts of nonexempt work are included in the exemption. At the same time, by setting the

salary level below what the methodology used in 2016 would produce using current data, the

new standard salary level will allow employers to continue to use the exemption for many lower-

paid white-collar employees who were made exempt under the 2004 standard duties test. The

combined result will be a more effective test for determining who is employed in a bona fide

EAP capacity. The applicability date of the new standard salary level will be January 1, 2025.

The Department is not finalizing its proposal to apply the standard salary level to the U.S.

The Department never enforced the 2016 rule because it was invalidated by the U.S. District

Court for the Eastern District of Texas. See Nevada v. U.S. Department of Labor, 275 F.Supp.3d

795 (E.D. Tex. 2017).

See 84 FR 51243–45; 81 FR 32414, 32444–45; 69 FR 22126–28.

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territories subject to the federal minimum wage and to update the special salary levels for

American Samoa and the motion picture industry.

The Department is also increasing the earnings threshold for the highly compensated

employee (HCE) exemption, which was added to the regulations in 2004 and applies to certain

highly compensated employees and combines a much higher annual compensation requirement

with a minimal duties test. The HCE test’s primary purpose is to serve as a streamlined

alternative for very highly compensated employees because a very high level of compensation is

a strong indicator of an employee’s exempt status, thus eliminating the need for a detailed duties

analysis.

The Department is increasing the HCE total annual compensation threshold to the

annualized weekly earnings amount of the 85th percentile of full-time salaried workers

nationally ($151,164). The new HCE threshold is high enough to reserve the test for those

employees who are “at the very top of [the] economic ladder”

and will guard against the

unintended exemption of workers who are not bona fide EAP employees, including those in

high-income regions and industries. The applicability date of the new HCE total annual

compensation threshold will be January 1, 2025.

In each of its part 541 rulemakings since 2004, the Department recognized the need to

regularly update the earnings thresholds to ensure that they remain effective in helping

The Department proposed in sections IV.B.1 and B.2 of the NPRM to apply the updated

standard salary level to the four U.S. territories that are subject to the federal minimum wage—

Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana

Islands (CNMI)—and to update the special salary levels for American Samoa and the motion

picture industry in relation to the new standard salary level. The Department will address these

aspects of its proposal in a future final rule.

See 69 FR 22172–73.

Id. at 22174.

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differentiate between exempt and nonexempt employees. As the Department observed in these

rulemakings, even a well-calibrated salary level that is not kept up to date becomes obsolete as

wages for nonexempt workers increase over time.

Long intervals between rulemakings have

resulted in eroded earnings thresholds based on outdated earnings data that were ill-equipped to

help identify bona fide EAP employees.

To address this problem, in the 2004 and 2019 rules the Department expressed its

commitment to regularly updating the salary levels.

In the 2016 rule, it included a regulatory

provision to automatically update the salary levels.

Based on its long experience with updating

the salary levels, the Department has determined that adopting a regulatory provision for

updating the salary levels to reflect current earnings data, with an exception for pausing future

updates under certain conditions, is the most viable and efficient way to ensure the EAP

exemption earnings thresholds keep pace with changes in employee pay and thus remain

effective in helping determine exemption status. This rule establishes a new updating

mechanism. The initial update to the standard salary level and the HCE total annual

compensation threshold will take place on July 1, 2024, and will use the methodologies in place

at that time (i.e., the 2019 rule methodologies), resulting in a $844 per week standard salary level

and a $132,964 HCE total annual compensation threshold. Future updates to the standard salary

level and HCE total annual compensation threshold with current earnings data will begin 3 years

after the date of the initial update (July 1, 2027), and every 3 years thereafter, using the

methodologies in place at the time of the updates. The Department anticipates that, by the time

84 FR 51250–51; 81 FR 32430; see also 69 FR 22164.

69 FR 22171; 84 FR 51251–52.

81 FR 32430.

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the first triennial update under the updating mechanism occurs, assuming the Department has not

engaged in further rulemaking, the new methodologies for the standard salary level and HCE

total annual compensation requirement established by this final rule will have become effective

and the triennial update will employ these new methodologies. The new updating mechanism

will allow for the timely, predictable, and efficient updating of the earnings thresholds.

The Department estimates that in Year 1, approximately 1 million employees who earn at

least $684 per week but less than $844 per week will be impacted by the initial update applying

current wage data to the standard salary level methodology from the 2019 rule, and

approximately 3 million employees who earn at least $844 per week but less than the new

standard salary level of $1,128 per week will be impacted by the subsequent application of the

new standard salary level. See Table 25. As explained in section V.B.4.ii, for 1.8 million of the

affected employees (including the 1 million impacted by the initial update), this rule will restore

overtime protections that they would have been entitled to under every rule prior to the 2019

rule. The Department also estimates that 292,900 employees who are currently exempt under the

HCE test, but do not meet the standard test for exemption, will be affected by the proposed

increase in the HCE total annual compensation level. Absent an employer increasing these

employees’ pay to at or above the new HCE level, the exemption status of these employees will

turn on the standard duties test (which these employees do not meet) rather than the minimal

duties test that applies to employees earning at or above the HCE threshold. The economic

analysis quantifies the direct costs resulting from this rule: (1) regulatory familiarization costs;

(2) adjustment costs; and (3) managerial costs. The Department estimates that total annualized

direct employer costs over the first 10 years will be $803 million with a 7 percent discount rate.

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This rule will also give employees higher earnings in the form of transfers of income from

employers to employees. The Department estimates annualized transfers will be $1.5 billion,

with a 7 percent discount rate.

II. Background

A. The FLSA

The FLSA generally requires covered employers to pay employees at least the federal

minimum wage (currently $7.25 an hour) for all hours worked and overtime premium pay of at

least one and one-half times the employee’s regular rate of pay for all hours worked over 40 in a

workweek.

However, section 13(a)(1) of the FLSA, codified at 29 U.S.C. 213(a)(1), provides

an exemption from both minimum wage and overtime pay for “any employee employed in a

bona fide executive, administrative, or professional capacity . . . or in the capacity of [an] outside

salesman (as such terms are defined and delimited from time to time by regulations of the

Secretary [of Labor], subject to the provisions of [the Administrative Procedure Act] . . . ).” The

FLSA does not define the terms “executive,” “administrative,” “professional,” or “outside

salesman,” but rather directs the Secretary to define those terms through rulemaking. Pursuant to

Congress’s grant of rulemaking authority, since 1938 the Department has issued regulations at 29

CFR part 541 to define and delimit the scope of the section 13(a)(1) exemption.

Because

Congress explicitly gave the Secretary authority to define and delimit the specific terms of the

exemption, the regulations so issued have the binding effect of law.

See 29 U.S.C. 206(a), 207(a).

See Helix Energy Solutions Group, Inc. v. Hewitt, 143 S.Ct. 677, 682 (2023) (“Under [section

13(a)(1)], the Secretary sets out a standard for determining when an employee is a ‘bona fide

executive.’”).

See Batterton v. Francis, 432 U.S. 416, 425 n.9 (1977).

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The exemption for executive, administrative, or professional employees was included in

the original FLSA legislation passed in 1938.

It was modeled after similar provisions contained

in the earlier National Industrial Recovery Act of 1933 and state law precedents.

As the

Department has explained in prior rules, the EAP exemption is premised on two policy

considerations. First, the type of work exempt employees perform is difficult to standardize to

any time frame and cannot be easily spread to other workers after 40 hours in a week, making

enforcement of the overtime provisions difficult and generally precluding the potential job

expansion intended by the FLSA’s time-and-a-half overtime premium.

Second, exempt

workers typically earn salaries well above the minimum wage and are presumed to enjoy other

privileges to compensate them for their long hours of work. These include, for example, above-

average fringe benefits and better opportunities for advancement, setting them apart from

nonexempt workers entitled to overtime pay.

Section 13(a)(1) exempts covered EAP employees from both the FLSA’s minimum wage

and overtime requirements. However, because of their long hours of work, its most significant

impact is its exemption of these employees from the Act’s overtime protections, as discussed in

section VII.C.4. An employer may employ such exempt employees for any number of hours in

the workweek without paying an overtime premium. Some state laws have stricter standards to

be exempt from state minimum wage and overtime protections than those which exist under

See Fair Labor Standards Act of 1938, Pub. L. 75-718, 13(a)(1), 52 Stat. 1060, 1067 (June 25,

1938).

See National Industrial Recovery Act, Pub. L. 73-67, ch. 90, title II, 206(2), 48 Stat 195, 204-5

(June 16, 1933).

See Report of the Minimum Wage Study Commission, Volume IV, pp. 236 and 240 (June

1981).

See id.

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federal law, such as higher salary levels or more stringent duties tests. The FLSA does not

preempt any such stricter state standards.

If a state establishes a higher standard than the

provisions of the FLSA, the higher standard applies in that state.

B. Regulatory History

The Department’s part 541 regulations have consistently looked to the duties performed

by the employee and the salary paid by the employer in determining whether an individual is

employed in a bona fide executive, administrative, or professional capacity. Since 1940, the

Department’s implementing regulations have generally required each of the following three

prongs to be satisfied for the exemption to apply: (1) the employee must be paid a predetermined

and fixed salary that is not subject to reduction because of variations in the quality or quantity of

work performed (the salary basis test); (2) the amount of salary paid must meet a minimum

specified amount (the salary level test); and (3) the employee’s job duties must primarily involve

executive, administrative, or professional duties as defined by the regulations (the duties test).

1. The Part 541 Regulations from 1938 to 2004

The Department’s part 541 regulations have always included earnings criteria. From the

first Part 541 regulations, there has been “wide agreement” that the amount paid to an employee

is “a valuable and easily applied index to the ‘bona fide’ character of the employment for which

[the] exemption is claimed[.]”

Because EAP employees “are denied the protection of the

[A]ct[,]” they are “assumed [to] enjoy compensatory privileges” which distinguish them from

See 29 U.S.C. 218(a).

“Executive, Administrative, Professional . . . Outside Salesman” Redefined, Wage and Hour

Division, U.S. Department of Labor, Report and Recommendations of the Presiding Officer

[Harold Stein] at Hearings Preliminary to Redefinition (Oct. 10, 1940) (Stein Report) at 19.

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nonexempt employees, including substantially higher pay.

Additionally, the Department has

long recognized that the salary level test is a useful criterion for helping identify bona fide EAP

employees and provides a practical guide for employers and employees, thus tending to reduce

litigation and ensure that nonexempt employees receive the overtime protection to which they

are entitled.

These benefits accrue to employees and employers alike, which is why, despite

disagreement over the appropriate magnitude of the part 541 earnings thresholds, an

“overwhelming majority” of stakeholders have supported the retention of such thresholds in prior

part 541 rulemakings.

The Department issued the first version of the part 541 regulations in October 1938.

The Department’s initial regulations included a $30 per week compensation requirement for

executive and administrative employees. It also included a duties test that prohibited employers

from claiming the EAP exemption for employees who performed “[a] substantial amount of

work of the same nature as that performed by nonexempt employees of the employer.”

The Department issued the first update to its part 541 regulations in October 1940,

following extensive public hearings.

Among other changes, the 1940 update newly applied the

Id.; see Report of the Minimum Wage Study Commission, Volume IV, p. 236 (“Higher base

pay, greater fringe benefits, improved promotion potential and greater job security have

traditionally been considered as normal compensatory benefits received by EAP employees,

which set them apart from non-EAP employees.”).

See 84 FR 51237; see also Report and Recommendations on Proposed Revisions of

Regulations, Part 541, by Harry Weiss, Presiding Officer, Wage and Hour and Public Contracts

Divisions, U.S. Department of Labor (June 30, 1949) (Weiss Report) at 8.

84 FR 51235; see also Stein Report at 5, 19; Weiss Report at 9.

3 FR 2518 (Oct. 20, 1938).

Id.

5 FR 4077 (Oct. 15, 1940).

See Stein Report.

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salary level requirement to professional employees; added the salary basis requirement to the

tests for executive, administrative, and professional employees; and introduced a 20 percent cap

on the amount of nonexempt work that executive and professional employees could perform

each workweek, replacing language which prohibited the performance of a “substantial amount”

of nonexempt work.

The Department conducted further hearings on the part 541 regulations in 1947

and

issued revised regulations in December 1949.

The 1949 rulemaking updated the salary levels

set in 1940 and introduced a second, less stringent duties test for higher paid executive,

administrative, and professional employees.

Thus, beginning in 1949, the part 541 regulations

contained two tests for the EAP exemption. These tests became known as the “long” test and the

“short” test. The long test paired a lower earnings threshold with a more rigorous duties test that

generally limited the performance of nonexempt work to no more than 20 percent of an

employee’s hours worked in a workweek. The short test paired a higher salary level and a less

rigorous duties test, with no specified limit on the performance of nonexempt work. From 1958

until 2004, the regulations in place generally set the long test salary level at a level designed to

exclude from exemption approximately the lowest-paid 10 percent of salaried white-collar

employees who performed EAP duties in lower-wage areas and industries and set the short test

salary level significantly higher.

The salary and duties components of each test complemented

5 FR 4077.

See Weiss Report.

See 14 FR 7705 (Dec. 24, 1949).

Id. at 7706.

See Report and Recommendations on Proposed Revision of Regulations, Part 541, Under the

Fair Labor Standards Act, by Harry S. Kantor, Assistant Administrator, Office of Regulations

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each other, and the two tests worked in combination to determine whether an individual was

employed in a bona fide EAP capacity. Lower-paid employees who met the long test salary level

but did not meet the higher short test salary level were subject to the long duties test which

ensured that these employees were employed in an EAP capacity by limiting the amount of time

they could spend on nonexempt work. Employees who met the higher short test salary level were

considered to be more likely to meet the requirements of the long duties test and thus were

subject to a short-cut duties test for determining exemption status.

Additional changes to the regulations, including salary level updates, were made in

1954,

1958,

1961,

1963,

1967,

1970,

1973,

and 1975.

The Department revised the

part 541 regulations twice in 1992 but did not update the salary thresholds at that time.

None of

these updates changed the basic structure of the long and short tests.

The Department described the salary levels adopted in the 1975 rule as “interim rates,”

intended to “be in effect for an interim period pending the completion of a study [of worker

and Research, Wage and Hour and Public Contracts Divisions, U.S. Department of Labor (Mar.

3, 1958) (Kantor Report) at 6-7. Under the two-test system, the ratio of the short test salary level

to the long test salary levels ranged from approximately 130 percent to 180 percent. See 81 FR

32403.

19 FR 4405 (July 17, 1954).

23 FR 8962 (Nov. 18, 1958).

26 FR 8635 (Sept. 15, 1961).

28 FR 9505 (Aug. 30, 1963).

32 FR 7823 (May 30, 1967).

35 FR 883 (Jan. 22, 1970).

38 FR 11390 (May 7, 1973).

40 FR 7091 (Feb. 19, 1975).

The Department first created a limited exception from the salary basis test for public

employees. 57 FR 37677 (Aug. 19, 1992). The Department also implemented a 1990 law

requiring it to promulgate regulations permitting employees in certain computer-related

occupations to qualify as exempt under section 13(a)(1) of the FLSA. 57 FR 46744 (Oct. 9,

1992); see Pub. L. 101-583, sec. 2, 104 Stat. 2871 (Nov. 15, 1990).

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earnings] by the Bureau of Labor Statistics . . . in 1975.”

However, those salary levels

remained in effect until 2004. The utility of the salary levels in helping to define the EAP

exemption decreased as wages rose during this period. In 1991, the federal minimum wage rose

to $4.25 per hour,

which for a 40-hour workweek exceeded the lower long test salary level of

$155 per week for executive and administrative employees and equaled the long test salary level

of $170 per week for professional employees. In 1997, the federal minimum wage rose to $5.15

per hour,

which for a 40-hour workweek not only exceeded the long test salary levels, but also

was close to the higher short test salary level of $250 per week.

2. Part 541 Regulations from 2004 to 2019

The Department published a final rule in April 2004 (the 2004 rule)

that updated the

part 541 salary levels for the first time since 1975 and made several significant changes to the

regulations. Most significantly, the Department eliminated the separate long and short tests and

replaced them with a single standard test. The Department set the standard salary level at $455

per week, which was equivalent to the 20th percentile of weekly earnings of full-time salaried

workers in the lowest-wage Census Region (the South) and in the retail industry nationally. The

Department paired the new standard salary level test with a new standard duties test for

executive, administrative, and professional employees, respectively, which was substantially

equivalent to the short duties test used in the two-test system.

40 FR 7091.

See Pub. L. 101-157, sec. 2, 103 Stat. 938 (Nov. 17, 1989).

See Pub. L. 104-188, sec. 2104(b), 110 Stat 1755 (Aug. 20, 1996).

69 FR 22122.

See id. at 22192–93 (acknowledging “de minimis differences in the standard duties tests

compared to the . . . short duties tests”).

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In the 2004 rule, the Department acknowledged that the switch to the single standard test

for exemption was a significant change in the regulatory structure,

and noted that the shift to

setting the salary level based on “the lowest 20 percent of salaried employees in the South, rather

than the lowest 10 percent” of EAP employees was made, in part, “because of the proposed

change from the ‘short’ and ‘long’ test structure[.]”

The Department asserted that elimination

of the long duties test was warranted because “the relatively small number of employees

currently earning from $155 to $250 per week, and thus tested for exemption under the ‘long’

duties test, will gain stronger protections under the increased minimum salary level which . . .

guarantees overtime protection for all employees earning less than $455 per week[.]”

The

Department acknowledged, however, that the new standard salary level was comparable to the

lower long test salary level used in the two-test system (i.e., if the Department’s long test salary

level methodology had been applied to contemporaneous data).

Thus, employees who would

have been subject to the long duties test with its limit on the amount of time spent on nonexempt

work if the two-test system had been updated were subject to the equivalent of the short duties

test under the new standard test. For example, under the 2004 rule’s standard test, an employee

See id. at 22126–28.

Id. at 22167.

Id. at 22126.

Id. at 22171. The Department last set the long and short test salary levels in 1975. Throughout

this preamble, when the Department refers to the relationship of salary levels set in this rule and

the 2004, 2016, and 2019 rules to equivalent long or short test salary levels, it is referring to

salary levels based on contemporaneous (at the relevant point in time) data that, in the case of the

long test salary level, would exclude the lowest-paid 10 percent of exempt EAP employees in

low-wage industries and areas and, in the case of the short test salary level, would be 149 percent

of a contemporaneous long test salary level. The short test salary ratio of 149 percent is the

simple average of the 15 historical ratios of the short test salary level to the long test salary level.

See 81 FR 32467 & n.149.

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who earned just over the rule’s standard salary threshold of $455 in weekly salary, and who met

the standard duties test, was exempt even if they would not have met the previous long duties test

because they spent more than 20 percent of their time performing nonexempt work. If the

Department had instead retained the two-test system and updated the long test salary level to

$455, that same employee would have been nonexempt because they would have been subject to

the long test’s more rigorous duties analysis due to their lower salary.

In the 2004 rule, the Department also created a new test for exemption for certain highly

compensated employees.

The HCE test paired a minimal duties requirement—customarily and

regularly performing at least one of the exempt duties or responsibilities of an EAP employee—

with a high total annual compensation requirement of $100,000, a threshold that exceeded the

annual earnings of approximately 93.7 percent of salaried workers nationwide.

The Department

also ended the use of special salary levels for Puerto Rico and the U.S. Virgin Islands, as they

had become subject to the federal minimum wage since the Department last updated the part 541

salary levels in 1975, and set a special salary level only for American Samoa, which remained

not subject to the federal minimum wage.

The Department also expressed its intent “in the

future to update the salary levels on a more regular basis, as it did prior to 1975.”

In May 2016, the Department issued a final rule (the 2016 rule) that retained the single-

test system introduced in 2004 but increased the standard salary level and provided for regular

updating. Specifically, the 2016 rule (1) increased the standard salary level from the 2004 salary

69 FR 22172.

See id. at 22169 (Table 3).

Id. at 22172.

Id. at 22171.

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level of $455 to $913 per week, the 40th percentile of weekly earnings of full-time salaried

workers in the lowest-wage Census Region (the South);

(2) increased the HCE test total annual

compensation amount from $100,000 to $134,004 per year;

(3) increased the special salary

level for EAP workers in American Samoa;

(4) allowed employers, for the first time, to credit

nondiscretionary bonuses, incentive payments, and commissions paid at least quarterly towards

up to 10 percent of the standard salary level;

and (5) added a mechanism to automatically

update the part 541 earnings thresholds every 3 years.

The Department did not change any of

the standard duties test criteria in the 2016 rule,

opting instead to adopt a standard salary level

set at the low end of the historical range of short test salary levels used in the pre-2004 two-test

system.

The 2016 rule was scheduled to take effect on December 1, 2016.

On November 22, 2016, the U.S. District Court for the Eastern District of Texas issued

an order preliminarily enjoining the Department from implementing and enforcing the 2016

rule.

On August 31, 2017, the district court granted summary judgment to the plaintiff

challengers, holding that the 2016 rule’s salary level exceeded the Department’s authority and

invalidating the rule.

On October 30, 2017, the Department of Justice appealed to the U.S.

Court of Appeals for the Fifth Circuit, which subsequently granted the Department’s motion to

81 FR 32404–05.

Id. at 32428.

Id. at 32422.

See id. at 32425–26.

See id. at 32430.

Id. at 32444.

In the 2016 rule, the Department estimated the historical range of short test salary levels as

from $889 to $1,231 (based on contemporaneous earnings data). Id. at 32405.

See Nevada v. U.S. Department of Labor, 218 F. Supp. 3d 520 (E.D. Tex. 2016).

See Nevada, 275 F.Supp.3d 795.

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hold that appeal in abeyance while the Department undertook further rulemaking. Following an

NPRM published on March 22, 2019,

the Department published a final rule on September 27,

2019 (the 2019 rule),

which formally rescinded and replaced the 2016 rule.

The 2019 rule (1) raised the standard salary level from the 2004 salary level of $455 to

$684 per week, the equivalent of the 20th percentile of weekly earnings of full-time salaried

workers in the lowest-wage Census Region (the South) and/or in the retail industry nationally;

(2) increased the HCE total annual compensation threshold from $100,000 to $107,432, the

equivalent of the 80th percentile of annual earnings of full-time salaried workers nationwide; (3)

allowed employers to credit nondiscretionary bonuses and incentive payments (including

commissions) paid at least annually to satisfy up to 10 percent of the standard salary level; and

(4) established special salary levels for all U.S. territories.

The 2019 rule did not make changes

to the standard duties test.

While using the same methodology used in the 2004 rule to set the

salary threshold, the Department did not assert that this methodology constituted the outer limit

for defining and delimiting the salary threshold. Rather, the Department reasoned the 2004

methodology was well-established, reasonable, would minimize uncertainty and potential legal

challenge, and would address the concerns of the district court that the 2016 rule over-

emphasized the salary level.

The Department acknowledged that the new standard salary level

See 84 FR 10900 (March 22, 2019).

See 84 FR 51230.

The Department established special salary levels of $455 per week for Puerto Rico, Guam, the

U.S. Virgin Islands, and the CNMI (effectively continuing the 2004 salary level); it also

maintained the 2004 rule’s $380 per week special salary level for employees in American

Samoa. Id. at 51246.

See id. at 51241–43.

See id. at 51242.

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was, unlike the salary level set in the 2004 rule, below the long test salary level used in the pre-

2004 two-test system.

As in its 2004 rule, the Department “reaffirm[ed] its intent to update the

standard salary level and HCE total annual compensation threshold more regularly in the future

using notice-and-comment rulemaking.”

The 2019 rule took effect on January 1, 2020.

C. Overview of Existing Regulatory Requirements

The part 541 regulations contain specific criteria that define each category of exemption

provided for in section 13(a)(1) for bona fide executive, administrative, professional, and outside

sales employees, as well as teachers and academic administrative personnel. The regulations also

define exempt computer employees under sections 13(a)(1) and 13(a)(17). The employer bears

the burden of establishing the applicability of any exemption.

Job titles and job descriptions do

not determine exemption status, nor does merely paying an employee a salary rather than an

hourly rate.

As previously indicated, to satisfy the EAP exemption, employees must meet certain tests

regarding their job duties

and generally must be paid on a salary basis at least the amount

Id. at 51244.

Id. at 51251.

A lawsuit challenging the 2019 rule was filed in August 2022. The district court upheld the

rule and an appeal of that decision was pending at the time the Department issued this final rule.

See Mayfield v. U.S. Department of Labor, 2023 WL 6168251 (W.D. Tex. Sept. 20, 2023),

appeal docketed, No. 23-50724 (5th Cir. Oct. 11, 2023).

See, e.g., Idaho Sheet Metal Works, 383 U.S. at 209; Walling, 330 U.S. at 547–48.

For a description of the duties that are required to be performed under the EAP exemption, see

§§ 541.100 (executive employees); 541.200 (administrative employees); 541.300, 541.303–.304

(teachers and professional employees); 541.400 (computer employees); 541.500 (outside sales

employees).

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specified in the regulations.

Some employees, such as doctors, lawyers, teachers, and outside

sales employees, are not subject to salary tests.

Others, such as academic administrative

personnel and computer employees, are subject to special, contingent earning thresholds.

The

standard salary level for the EAP exemption is currently $684 per week (equivalent to $35,568

per year), and the total annual compensation level for highly compensated employees under the

HCE test is currently $107,432.

A special salary level of $455 per week currently applies to

employees in Puerto Rico, Guam, the U.S. Virgin Islands, and the CNMI;

a special salary level

of $380 per week applies to employees in American Samoa;

and employers can pay a special

weekly “base rate” of $1,043 per week to employees in the motion picture producing industry.

Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or

more frequent basis may be used to satisfy up to 10 percent of the standard or special salary

levels.

Under the HCE test, employees who currently receive at least $107,432 in total annual

compensation are exempt from the FLSA’s overtime requirements if they customarily and

regularly perform at least one of the exempt duties or responsibilities of an executive,

Alternatively, administrative and professional employees may be paid on a fee basis for a

single job regardless of the time required for its completion as long as the hourly rate for work

performed (i.e., the fee payment divided by the number of hours worked) would total at least the

weekly amount specified in the regulation if the employee worked 40 hours. See § 541.605.

See §§ 541.303(d); 541.304(d); 541.500(c); 541.600(e). Such employees are also not subject to

a fee basis test.

See § 541.600(c)–(d).

See §§ 541.600(a); 541.601(a)(1).

See §§ 541.100; 541.200; 541.300.

See § 541.709.

§ 541.602(a)(3).

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administrative, or professional employee identified in the standard tests for exemption.

The

HCE test applies only to employees whose primary duty includes performing office or non-

manual work.

Employees considered exempt under the HCE test must currently receive at least

the $684 per week standard salary portion of their pay on a salary or fee basis without regard to

the payment of nondiscretionary bonuses and incentive payments.

D. The Department’s Proposal

On September 8, 2023, consistent with its statutory authority to define and delimit the

EAP exemption, the Department published a Notice of Proposed Rulemaking (NPRM) to revise

the part 541 regulations.

The Department proposed to increase the standard salary level to the

35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census

Region (currently the South), equivalent to $1,059 per week based on earnings data used in the

NPRM.

The Department also proposed to apply this updated standard salary level to the four

U.S. territories that are subject to the federal minimum wage—Puerto Rico, Guam, the U.S.

Virgin Islands, and the CNMI—and to update the special salary levels for American Samoa and

the motion picture industry in relation to the new standard salary level.

The Department

§ 541.601.

§ 541.601(d).

See § 541.601(b)(1); see also 84 FR 51249.

See 88 FR 62152.

The Department noted that the final rule would use the most recent earnings data available to

set the standard salary level, which would change the dollar amount of the resulting threshold.

See 88 FR 62152-53 n. 3.

In this final rule the Department is not finalizing its proposal in section IV.B.1 and B.2 of the

NPRM to apply the standard salary level to the U.S. territories subject to the federal minimum

wage and to update the special salary levels for American Samoa and the motion picture

industry. The Department will address these aspects of its proposal in a future final rule. While

the Department is not finalizing its proposal, it is making nonsubstantive changes in provisions

addressing the territories as a result of other changes in this final rule.

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additionally proposed raising the HCE test’s total annual compensation requirement to the annual

equivalent of the 85th percentile of weekly earnings of full-time salaried workers nationally,

equivalent to $143,988 per year based on earnings data used in the NPRM. Finally, the

Department proposed a new mechanism to update the standard salary level and the HCE total

annual compensation threshold every 3 years to ensure that they remain effective tests for

exemption.

The public comment period for the NPRM concluded on November 7, 2023. The

Department received approximately 33,300 comments in response to the NPRM during the 60-

day comment period.

Comments came from a diverse array of stakeholders, including

employees, employers, trade associations, small business owners, labor unions, advocacy groups,

nonprofit organizations, law firms, academics, educational organizations and representatives,

religious organizations, economists, members of Congress, state and local government officials,

tribal representatives, and other interested members of the public. All timely received comments

may be viewed on the https://www.regulations.gov website, docket ID WHD-2023-0001.

Commenter views on the merits of the NPRM varied widely. Some of the comments the

Department received were general statements of support or opposition, while many others

addressed the Department’s proposal in considerable detail. As with previous part 541

rulemakings, a majority of the total comments came from comment campaigns using similar or

identical template language. Such campaign comments expressed support or opposition to the

proposed salary level, and sometimes addressed other issues including applying the salary level

In regulations.gov, the number of comments received is listed as 33,310 and the number of

posted comments is 26,280. This difference is because one commenter, WorkMoney, attached

thousands of comments to their one submission.

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to teachers,

and concerns from nonprofit agencies. However, the Department also received

thousands of unique comments. Significant issues raised in the comments are discussed in this

final rule. Comments germane to the need for this rulemaking are discussed in section III,

comments about the NPRM’s proposals are discussed in section V, and comments about the

potential costs, benefits, and other impacts of this rulemaking are discussed in section VII. The

Department has carefully considered the timely submitted comments about the Department’s

proposal.

The Department received a number of comments on topics that are beyond the scope of

this rulemaking. A significant number of commenters (including a large comment campaign)

urged the Department to newly apply the part 541 salary criteria to teachers. The Department did

not solicit comment about the exemption criteria for teachers in the NPRM and, as many

commenters on this issue recognized, addressing this issue would require a separate rulemaking.

Other topics outside the scope of this rulemaking include, for example, a request that the

Department extend the right to overtime pay to medical residents, create exemptions from the

salary level test, allow employers to credit the value of board and lodging towards the salary

level, clarify issues related to the fluctuating workweek method of calculating overtime pay, or

create a “safe harbor” provision for restaurant franchisors. The Department is not addressing

these issues in its final rule.

Several stakeholders such as Catholic Charities USA and the National Council of

Nonprofits expressed concern about funding and reimbursement rates to meet potential new

As noted above, teachers are among the employees for whom there is no salary level

requirement under the part 541 regulations. See § 541.303(d).

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overtime expenses. The Department appreciates the concerns conveyed in these comments and

the challenges of adjusting public funding. As discussed in section V.B.4.iv, however, the

Department’s EAP regulations have never had special rules for nonprofit or charitable

organizations and employees of these organizations are subject to the EAP exemption if they

satisfy the same salary level, salary basis, and duties tests as other employees.

III. Need for Rulemaking

The goal of this rulemaking is to set effective earnings thresholds to help define and

delimit the FLSA’s EAP exemption. To achieve this goal, the Department is not only updating

the single standard salary level to account for earnings growth since the 2019 rule, but also to

build on the lessons learned in its most recent rulemakings to more effectively define and delimit

employees employed in a bona fide EAP capacity. To this end, the Department is finalizing its

proposed changes to the standard salary level and the HCE test’s total annual compensation

requirement methodologies. Additionally, to maintain the effectiveness of these tests, the

Department is finalizing an updating mechanism that will update these earnings thresholds to

reflect current wage data, initially on July 1, 2024 and every 3 years thereafter. The

Department’s response to commenter feedback on the specific proposals included in the NPRM

is provided in section V. This section explains the need for the Department to update the part 541

earnings thresholds and addresses commenter feedback on whether the earnings thresholds

established in the 2019 rule should be increased.

As the Department explained in the NPRM, there is a need for the Department to update

the salary level to fully restore the salary level’s screening function and to account for the shift to

a one-test system in the 2004 rule, which broadened the exemption by placing the entire burden

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of this shift on employees who historically were entitled to the FLSA’s overtime protection

because they performed substantial amounts of nonexempt work and earned between the long

and short test salary levels, but became exempt because they passed the more lenient standard

duties test. Since switching from a two-test to a one-test system for defining and delimiting the

EAP exemption in 2004, the Department has followed different approaches to set the standard

salary level. In 2004, the Department used a methodology that produced a salary level amount

that was equivalent to the lower long test salary level under the two-test system.

This approach

continued to perform the historical screening function of the long salary test—providing

overtime protection to employees who earned less than the long test salary level. But it

broadened the exemption to include employees earning between the long and short test salary

levels who historically had not met the long duties test (and therefore were not considered bona

fide EAP employees) and now became exempt if they met the less rigorous standard duties test.

The Department followed this same methodology to set the standard salary level in 2019, but

applying the 2004 rule’s methodology to contemporaneous data in 2019 resulted in a salary level

that was lower than what would have been the equivalent of the long test salary level and thus

did not fulfill the historical screening function for low-paid employees.

This broadened the

EAP exemption even further by, for the first time, exempting a group of white-collar employees

earning below the equivalent of the long test salary level.

See 69 FR 22168–69.

Id. at 22214.

See 84 FR 51260 (Table 4) (showing that the salary level derived from the Department’s long

test methodology would have been $724 per week rather than the finalized $684 per week

amount).

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To address the concern that the 2004 rule did not provide overtime compensation for

lower-salaried white-collar employees performing large amounts of nonexempt work, in 2016

the Department set the standard salary level using a methodology that produced a salary at the

low end of the historical range of short test salary levels.

This approach restored overtime

protection to lower-salaried white-collar employees who performed substantial amounts of

nonexempt work, but it also made nonexempt some employees paid below the new salary level

who performed only a limited amount of nonexempt work and would have been exempt under

the long duties test.

In the challenge to the 2016 rule, the district court expressed concern that

the 2016 rule conferred overtime eligibility based on salary level alone to a substantial number of

employees who would otherwise be exempt.

As explained in greater detail in section V.B, setting the standard salary level at the 35th

percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region

($1,128 per week, $58,656 annually), which is below the midpoint between the long and short

tests, will work effectively with the standard duties test to better define and delimit the EAP

exemption, in part by more effectively accounting for the switch from a two-test to a one-test

system, and will reasonably distribute the impact of the shift by ensuring overtime protection for

some lower-salaried employees without excluding from exemption too many white-collar

employees solely based on their salary level.

The new standard salary level will also account

for earnings growth since the 2019 rule and fully restore the historical screening function of the

81 FR 32405.

See 84 FR 10908; 84 FR 51242.

See Nevada, 275 F.Supp.3d. at 806.

See section V.A.3.

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salary level test. At the same time, the duties test will continue to determine exemption status for

a large majority of all salaried white-collar employees subject to the part 541 regulations.

As the Department has explained,

100

earnings thresholds in the part 541 regulations

gradually lose their effectiveness as the salaries paid to nonexempt employees rise over time.

These impacts grow in the absence of increases to the salary threshold that keep pace with wage

growth. Moreover, the longer it takes for the Department to implement such increases, the larger

the increases must be to restore earning thresholds to maintain their effectiveness. More than 4

years have passed since the 2019 final rule established the current earnings thresholds. In the

intervening years, salaried workers in the U.S. economy have experienced a rapid growth in their

nominal wages, such that the current $684 per week salary level now corresponds to

approximately the 12th percentile of earnings of full-time salaried workers in the lowest-wage

Census Region and retail nationally. The longer the Department waits to update these earnings

thresholds, the less effective they become in helping define and delimit the EAP exemption. For

example, applying the 2019 standard salary level methodology to current earnings data will

result in a new threshold of $844 per week—a 23 percent ($160 per week) increase over the

current $684 salary level. Earnings for full-time wage and salary workers nationally have

increased even more rapidly, rising by 24 percent during this period.

101

The Department is also increasing the HCE total annual compensation threshold to the

annualized weekly earnings amount of the 85th percentile of full-time salaried workers

100

See, e.g., 84 FR 51250–51.

101

Estimate based on the change in median usual weekly earnings of full-time wage and salary

workers from Q3 2019 to Q4 2023. BLS, Median usual weekly earnings of full-time wage and

salary workers by sex, quarterly averages, seasonally adjusted.

https://www.bls.gov/news.release/wkyeng.t01.htm.

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nationally ($151,164). Similar to the standard salary level, nominal wage growth among higher-

wage workers has eroded the effectiveness of the HCE threshold; data shows that the $107,432

threshold now corresponds to the 70th percentile of annual earnings of full-time salaried workers

nationwide. Reapplying the 2019 methodology (annualized weekly earnings of the 80th

percentile of full-time salaried workers nationally) to current earnings data would result in a

threshold of $132,964 per year—a 24 percent increase over the current threshold of $107,432.

Increasing the HCE test’s total annual compensation threshold equivalent to the 85th percentile

of salaried worker earnings nationwide will result in an HCE threshold reserved for employees at

the top of today’s economic ladder and, unlike a lower threshold, not risk the unintended

exemption of large numbers of employees in high-wage regions.

Finally, the Department is adopting a mechanism to regularly update the thresholds for

earnings growth, which will ensure that the thresholds continue to work effectively to help

identify EAP employees. As noted above, the history of the part 541 regulations shows multiple,

significant gaps during which the salary levels were not updated and their effectiveness in

helping to define the EAP exemption decreased as wages increased. While the Department has

generally increased its part 541 earnings thresholds every 5 to 9 years in the 37 years between

1938 and 1975, more recent decades have included long periods without raising the salary level,

resulting in significant erosion of the real value of the threshold levels followed by unpredictable

increases. Routine updates of the earnings thresholds to reflect wage growth will bring certainty

and stability to employers and employees alike.

The Department received many comments addressing the adequacy of the current salary

and compensation thresholds set in the 2019 rule and the need for this rulemaking. Generally,

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employees and affiliated commenters, including labor unions, worker advocacy groups, plaintiff-

side law firms, and others, supported the rulemaking as an overdue effort to restore FLSA

protections that have eroded in recent decades, though a number of commenters urged the

Department to adopt higher threshold increases than those proposed in the NPRM. By contrast,

most employers and affiliated stakeholders opposed the main aspects of the proposal, with many

urging the Department to withdraw the NPRM altogether. Some employers supported the

proposal, or stated that they would support, or not oppose, some change to the current thresholds.

Many commenters agreed with the Department’s assessment that the current salary level

is too low.

102

See, e.g., Coalition of Gender Justice and Civil Rights Organizations; Coalition of

State Attorneys General; Economic Policy Institute (EPI); Schuck Law LLC; Texas RioGrande

Legal Aid; United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial

and Service Workers International Union (United Steelworkers). Several commenters asserted

that the current standard salary level “fails to provide a true incentive for employers to balance

the additional hours they ask of their workers with the costs of . . . overtime pay[,]” which they

stated in turn undermines the FLSA’s policy goals of providing “extra pay for extra work . . .

[and] spreading employment.” See, e.g., Center for Law and Social Policy (CLASP); Caring

Across Generations; Family Values @ Work; Jobs to Move America; North Carolina Justice

Center; Workplace Justice Project. Opining that the standard salary level “has been increased too

infrequently – and by too little[,]” Business for a Fair Minimum Wage asserted that the “current

outdated overtime threshold is ripe for abuse and fosters unfair pay, worker burnout, poorer

102

Commenter views on the adequacy of the current HCE threshold are addressed in section

V.C.

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health and safety, and increased employee turnover.” American Federation of Labor and

Congress of Industrial Organizations (AFL-CIO) asserted that the $684 per week salary level is

“so low that it risks becoming irrelevant[.]”

Finally, some supportive commenters provided reasons why, in their opinion, this

rulemaking is timely. A joint comment submitted by 10 Democratic members of the House of

Representatives asserted that “[o]vertime standards are long overdue for a meaningful update.”

See also AFL-CIO (asserting that setting the salary level below the long test level in the 2019

rule “led to the faster irrelevance of the current level”). The Coalition of State AGs commented

that “[r]egardless of whether [the $684 per week standard salary] level was appropriate in 2019,

economic trends in the intervening years have rendered that level obsolete . . . [as] $684 in

January 2020 has the same buying power as $816.90 in September 2023.” Sanford Heisler Sharp

LLP (Sanford Heisler Sharp) invoked “the explosion of remote work since 2020” as support for

the rulemaking, asserting that the significant increase in telework since 2020 has meant that

employers are “no longer constrained by the practical limitation of the worker leaving the

workplace.”

Many employer trade associations that were neutral or opposed to the NPRM’s specific

proposals for increasing the compensation levels expressed openness or support for a rulemaking

to change the existing part 541 earnings thresholds. See, e.g., Alliance for Chemical Distribution;

Growmark Comment Campaign (GROWMARK); National Cotton Ginners Association;

National Golf Course Owners Association. Reporting on the results of a survey taken of its

members, Society for Human Resource Management (SHRM) stated that its members “support a

reasonable increase to the rule’s minimum salary threshold . . . as only 4% of the total number of

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respondents indicated that they would not support any increase.” Independent Sector remarked

that “a healthy and equitable nonprofit workforce requires an increase in the salary threshold

beyond $35,568.” See also North Carolina Center for Nonprofits (“The Center recognizes that a

higher salary level threshold would benefit people served by nonprofits and many nonprofit

employees, and we encourage the Department to move forward with a final rule that increases

the [current] salary level threshold[.]”). National Association of Convenience Stores commented

that it “acknowledges that the minimum salary level should be revisited occasionally, and it

support[s] USDOL’s approach in 2019 of doing so approximately every four years[.]” See also

Retail Industry Leaders Association (RILA) (“We recognize that the DOL committed itself in

2019 to engage in more regular reviews of the salary threshold level for the [EAP] exemptions

and that the DOL now is following up on that commitment.”).

Other employer stakeholders disputed the need for this rulemaking. Many of these

commenters, including the American Bus Association, Americans for Prosperity Foundation,

Construction Industry Round Table, and National Restaurant Association, asserted that increases

to the part 541 earnings thresholds were unnecessary at this time because the last update took

effect on January 1, 2020. A number of commenters stated that prior salary level updates have

occurred less frequently. See, e.g., National Association of Manufacturers (NAM) (never less

than 5 years); National Demolition Association (on average every 9 to 10 years); National

Association of Wholesale Distributors (NAW) (historically 7 to 9 years). National Retail

Federation (NRF) commented that “[t]here has been no increase of the federal minimum wage

since 2019, and therefore, there is no need to adjust the minimum salary threshold.” NRF further

asserted that there was no need to increase the part 541 earnings thresholds because “market

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forces have already increased the compensation of lower-level exempt employees” since 2019,

echoing the sentiment from several individual employers that markets should determine

employee wages rather than government regulation. See also, e.g., Casa Del Mar Beachfront

Suites (opposing changes to the regulations and stating that the wages it pays “are based on free

enterprise and competitive business plans”); Individual Small Business Commenter (asking the

Department to “let the market take care of the situation”). Numerous commenters also asserted

that the Department should refrain from amending the part 541 regulations at this time due to

current conditions in specific industries or the broader economy. See, e.g., Asian American Hotel

Owners Association, Inc.; American Hotel and Lodging Association (AHLA); College and

University Professional Association for Human Resources (CUPA-HR); Food Marketing

Institute (FMI); Indiana Chamber of Commerce; National Association of Home Builders

(NAHB).

Finally, a small number of commenters opposed this rulemaking on the grounds that the

Department lacks the legal authority to use any salary criteria to define and delimit the EAP

exemption. See, e.g., America First Policy Institute (AFPI); National Federation of Independent

Business (NFIB); Pacific Legal Foundation.

103

However, the overwhelming majority of

commenters did not oppose the use of salary criteria in the part 541 regulations or address the

Department’s authority, and a number of employer representatives expressed general support for

the use of earnings thresholds. See, e.g., AHLA (“[M]oving to a duties-only test would

undoubtedly result in a more rigid duties test . . . [and] likely result in excessive burdens on the

hospitality industry, including new and onerous recordkeeping requirements and increased

103

See discussion in section V.A.

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litigation costs.”); National Restaurant Association (“[S]alary levels save investigators and

employers time by giving them a quick, short-hand test[.]”); Transportation Intermediaries

Association (“Implementing a duties-only test without considering salary would be overly

complex[.]”). This sentiment is consistent with stakeholder feedback provided in earlier part 541

rulemakings.

104

Having reviewed the comments received, the Department remains of the view that the

earnings criteria in the part 541 regulations must be increased and disagrees with commenters

that urged the Department to withdraw its proposal. In addition to updating the salary level to

account for wage growth since 2019, an update is needed in part because the current standard

salary level is too low to fully perform its screening role, as it is now significantly below the

contemporary equivalent of the historical long test salary level ($942 per week).

105

Moreover, as

the Department explained in the NPRM, there is a need for the Department to update the salary

level to account for the shift to a one-test system in the 2004 rule, which broadened the

exemption by placing the entire burden of this shift on employees who historically were entitled

to the FLSA’s overtime protection because they performed substantial amounts of nonexempt

work and earned between the long and short test salary levels, but are now exempt because they

pass the more lenient standard duties test. This effect would continue to grow over time in the

absence of an increase to the current $684 per week standard salary level.

The Department disagrees with the criticism from some commenters that this rulemaking

is premature due to the relative recency of the 2019 rule. In that rule, the Department

104

See supra note 23.

105

See sections V.B. and VII.C.8.

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“reaffirm[ed] its intent to update the standard salary level and HCE total annual compensation

threshold more regularly in the future” than it has in the past, noting that “long periods without

updates . . . diminish the usefulness of the salary level test and cause future increases to be larger

and more challenging for businesses to absorb.”

106

Notably, the Department initially proposed in

the 2019 NPRM to codify a commitment to update the part 541 earnings thresholds on a

quadrennial basis (i.e., once every 4 years) through notice and comment rulemaking.

107

While

that proposed commitment was not adopted in the 2019 final rule, the Department reaffirmed the

importance of, and its commitment to, regular updates in its 2019 final rule. The Department’s

2019 final rule in no way suggested that increases to the part 541 earnings thresholds should

occur only after some longer period of time.

Relatedly, the fact that employee salaries have grown substantially since 2019

underscores the need for this rulemaking. Commenter assertions to the contrary, including that

the federal minimum wage has not increased since the salary level was last updated,

misunderstand the purpose of the part 541 earnings thresholds, which are intended to assist in the

identification of EAP employees based on the wages employees presently receive.

108

To the

extent that employers have already been providing raises to exempt EAP workers since January

1, 2020 (the effective date of the 2019 final rule), as some commenters contended, those

increases should be appropriately reflected in the earnings thresholds to ensure their

effectiveness.

106

84 FR 51251–52.

107

84 FR 10914–15.

108

The Department “is not authorized to set wages or salaries for executive, administrative, and

professional employees . . . [and] improving the conditions of such employees is not the

objective of the [part 541] regulations.” Weiss Report at 11.

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review process. Only the version published in the Federal Register is the official version.

The Department is sensitive to commenter concerns about the potential impact of this

rulemaking on affected employers. However, as discussed in greater detail in the regulatory

impact analysis in section VII, the costs of this rule, while significant, are a necessary byproduct

of ensuring a salary level that works effectively with the duties tests both now and in the future.

IV. Effective Date

The Department proposed that all aspects of the proposed rule would become effective 60

days after publication of the final rule. This proposed effective date was consistent with the 60

days mandated for a “major rule” under the Congressional Review Act and exceeded the 30-day

minimum required under the Administrative Procedure Act (APA).

109

The Department

recognized that the 60-day proposed effective date was shorter than the effective dates for the

2004, 2016, and 2019 rules, which were between approximately 90 and 180 days. The

Department stated that a 60-day effective date was appropriate, however, in part because

employers and employees are familiar with the procedures in the current regulations from the

2019 rulemaking and changed economic circumstances have caused a strong need to update the

standard salary level. The Department also sought comments on whether to apply different

effective dates to different provisions of the proposed rule. The Department is finalizing an

effective date of July 1, 2024. The change to the standard salary level methodology and the

change to the HCE total annual compensation methodology will have a delayed applicability

date of January 1, 2025.

110

Accordingly, the standard salary level and HCE total annual

compensation requirement will increase at the initial update on the effective date July 1, 2024 (to

109

See 5 U.S.C. 801(a)(3)(A); 5 U.S.C. 553(d).

110

The January 1, 2025 applicability date is six months after the effective date of the rule.

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$844 and $132,964, respectively), again on the applicability date for the new methodologies on

January 1, 2025 (to $1,128 and $151,164, respectively), and then every 3 years after the initial

update on July 1 (using the methodology in effect at the time of each update).

The Department specifically asked for comments on whether the effective date for the

increase of the standard salary level should be 60 days after publication as proposed or instead if

the increase should be made effective at a later date, such as 6 months or 1 year after publication

of the final rule. If the effective date were longer than 60 days, the Department sought comments

on “whether it should initially adjust the salary level to reflect recent wage growth (for example,

making an initial adjustment for wage growth 60 days after publication of a final rule and having

the final rule standard salary level be effective 6 months or a year after publication).”

111

Were it

to follow such an approach, the Department sought comments on the methodology it should use

for an initial update, specifically “whether to implement an initial update to the standard salary

level, effective 60 days after publication of a final rule, that uses the current salary level

methodology (the 20th percentile of weekly earnings of full-time nonhourly workers in the

lowest-wage Census Region and retail nationally) and applies it to the most recent data

available[.]”

112

111

88 FR 62180.

112

Id. Commenters generally did not address the Department’s suggestion that a delay in the

effective date for the proposed standard salary level increase be combined with an initial update

to the existing salary level to reflect wage growth. An individual commenter acknowledged the

Department’s suggestion but “defer[ed] to the economists and statisticians to comment as to

whether, if the effective date is later than 60 days, the Department should initially adjust the

salary level to reflect recent wage growth, and if so, the methodology for doing so.” See also Ho-

Chunk, Inc., a subsidiary of the Winnebago Tribe of Nebraska.

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review process. Only the version published in the Federal Register is the official version.

The Department did not specifically request comment on delaying the effective date of

the proposed HCE compensation threshold beyond 60 days or on making an initial update using

current data and the existing HCE compensation methodology if it were to delay the effective

date of the new total annual compensation threshold. The Department stated that it believed a 60-

day effective date was appropriate for the proposed increase to the HCE compensation threshold

because only a relatively small number of employees earning between the current and proposed

HCE compensation thresholds would not meet the standard duties test and be affected by the

proposed change. The Department sought comment on the proposed effective date for the HCE

compensation threshold.

Lastly, the Department proposed that the first automatic update to the new compensation

levels be effective 3 years after the proposed 60-day effective date. The Department sought

comments on whether the date for the first automatic update should be adjusted if it were to

make an initial adjustment to any of the compensation levels.

Many commenters that objected to the proposed rule also objected to the proposed 60-

day effective date should the Department go forward with a final rule. Commenters addressed

their comments to the single 60-day effective date and generally did not suggest different

effective dates for different provisions. Several commenters suggested effective dates between

90 and 180 days, which the NPRM noted was the range for recent rules. See, e.g., HR Policy

Association (minimum of 90 days); International Foodservice Distributors Association (IFDA)

(minimum of 90 days); American Society of Travel Advisors (ASTA) (90 to 180 days); RILA (at

least 120 days); NAIS/NBOA (at least 120 days). Several commenters suggested a 180-day

effective date. See, e.g., AASA/AESA/ASBO; CUPA-HR; LeadingAge; NRF. The National

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Council of Young Men’s Christian Associations of the United States of America (YMCA)

suggested an effective date of at least 6 to 9 months. The United States Chamber of Commerce

(Chamber), National Association of Convenience Stores, and NAFCU suggested an effective

date of 12 months. Commenters including the U.S. Small Business Administration Office of

Advocacy (SBA Advocacy), National Automobile Dealers Association, and Partnership to

Protect Workplace Opportunity (PPWO) suggested an effective date of 12 to 18 months.

Commenters including Seyfarth Shaw LLP (Seyfarth Shaw) and Credit Union National

Association (CUNA) suggested an effective date of 150 days to align with the proposed notice

period for future update amounts. A number of commenters suggested tying the effective date to

the beginning of the next calendar year (January 1, 2025). See, e.g., Seyfarth Shaw; SHRM;

RILA; YMCA. Some commenters suggested a longer time period between the publication and

effective date of the final rule for specific industries or types of employers. See, e.g., Boy Scouts

of America (requesting at least 12 months of lead time for nonprofit employers); Small Business

Majority (180 days for small businesses with fewer than 50 employees). A few commenters

linked the need for a longer effective date with what they asserted was uncertainty as to the final

salary amount caused by the Department’s projections in footnote 3 of the NPRM, with NRF

asserting that “[t]he brevity of the implementation period is particularly problematic given the

Department’s . . . lack of clarity about the dollar value of the proposed threshold.” See also HR

Policy Association; RILA.

Several commenters suggested phasing in any increase in the salary level, often in

addition to an initial extension of the proposed effective date. Commenters advocating for a

phase-in suggested a range of steps or timeframes. See, e.g., ASTA (not less than 3 years);

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Chamber (3 years in even or incrementally larger steps); North Carolina Center for Nonprofits

(“multiple years”); National Council of Nonprofits (two or more steps); PPWO (a period of

years), Safe Journeys (6 years); Washington Farm Labor Association (“multi-year”); YMCA

(proportional increases over 5 years).

Most commenters supporting the Department’s proposal did not specifically address the

effective date for the Department’s proposed changes. Commenters including American

Federation of Teachers (AFT), National Partnership for Women & Families (National

Partnership), and National Women’s Law Center (NWLC) urged the Department to finalize the

rule “without delay.” American Federation of State, County, and Municipal Employees

(AFSCME) specifically supported the 60-day effective date as proposed. A number of

commenters in the home and community-based health services sector, that were generally

supportive of the Department’s intent but expressed concerns with its proposal, advocated for a

longer effective date. ANCOR suggested a 2-year delayed effective date followed by a 3-to-5-

year phase-in of the new salary level. See also Advancing States (18-month to 2-year effective

date); National Association of State Directors of Developmental Disabilities Services

(NASDDDS) (18- to 24-month effective date for providers of services to individuals with

intellectual and developmental disabilities); United Cerebral Palsy (phase-in or transition period

for the Department to work with the Centers for Medicare and Medicaid Services and the

Administration for Community Living to minimize impact on access to services). BrightSpring

Health Services urged the Department to delay the effective date for 2 years and to consider an

enforcement delay for the sector as it did in 2016.

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review process. Only the version published in the Federal Register is the official version.

As discussed below, the Department believes it is important to update the standard salary

level in part to account for substantial earnings growth since the Department last updated the

salary level in the 2019 rule. It has been more than 4 years since the Department updated the

salary level, and economic conditions have changed significantly since then as evidenced by the

salary increase that would result by applying current data to the 2019 salary level methodology

($844 per week, an increase of $160 per week over the existing salary level). These economic

conditions have also impacted employees subject to the HCE exemption. Applying current data

to the 2019 HCE compensation methodology would result in an annual compensation threshold

of $132,964 (an increase of $25,551 over the existing compensation threshold).

At the same time, the Department is also mindful of the desire expressed by multiple

commenters to extend the effective date of the new standard salary and annual compensation

methodologies from the proposed 60-day period to 6-to-12 months (or more). A longer effective

date for the new standard salary level and HCE compensation methodologies would provide

employers with more time to make adjustments after they are informed of the exact levels of the

thresholds set in this final rule.

After considering the comments, the Department has determined that the final rule will be

effective on July 1, 2024, but the new standard salary level methodology and the new HCE total

annual compensation methodology will not be applicable until January 1, 2025. The Department

is setting the effective date on July 1, 2024 rather than a set number of days after publication in

the Federal Register because it will further administrability for employers to have the effective

date coincide with the first of a month and some employers’ budget years also begin on that

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date.

113

While the rule will be effective on July 1, 2024, the Department is extending by an

additional 6 months the time for employers to comply with the new standard salary level

methodology and the HCE total annual compensation methodology. Accordingly, the

applicability date for § 541.600(a)(2), which sets out the new standard salary level of the 35th

percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census Region,

and § 541.601(a)(2), which sets out the new HCE total annual compensation level of the

annualized earnings amount of the 85th percentile of full-time nonhourly workers nationally, will

be January 1, 2025. The Department decided to delay application of the new HCE total annual

compensation methodology so that the new methodologies for both the standard salary level and

the HCE compensation level take effect at the same time. The delayed applicability date will

allow employers 6 additional months beyond the proposed 60-day effective date in which to

evaluate employees who will be affected by the new standard salary level methodology and the

new HCE compensation level methodology and make any adjustments.

New § 541.607, Regular updates to amounts of salary and compensation required, will be

applicable on the effective date July 1, 2024. Because the current standard salary and HCE

annual compensation levels have not been updated in more than 4 years, and economic

conditions have changed markedly during that time, the first update will occur on that same date

(§ 541.607(a)). Subsequent updates will occur every 3 years after this date starting on July 1,

2027 (§ 541.607(b)). As discussed in section V.A, regular updating of the standard salary and

HCE annual compensation levels to reflect current wage data is imperative to ensure that they

continue to work effectively in combination with the duties tests in defining bona fide EAP

113

Future updates will occur every three years on July 1.

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employees. In light of the approximately 8-month delay in applicability of the new standard

salary and HCE total compensation methodologies, the initial update will use the current

methodologies from the 2019 rule, which result in a salary level of $844 per week and an HCE

total annual compensation threshold of $132,964. Accordingly, the requirement that an exempt

employee be compensated on a salary basis at a salary level of at least $844 per week, set forth in

§ 541.600(a)(1), and that an employee receive total annual compensation of at least $132,964 per

year to qualify for the HCE exemption, set forth in § 541.601(a)(1), will apply on July 1, 2024.

The Department believes that this date for the initial update is appropriate because it will use

methodologies that employers are familiar with. Subsequent triennial updates will apply the most

recent four quarters of data to the standard salary and HCE total annual compensation levels in

effect at the time of the updates. The Department anticipates that at the time of the first triennial

update, the salary and compensation methodologies that are in effect will be the methodologies

described in §§ 541.600(a)(2) and 541.601(a)(2) of this final rule. The Department notes that the

standard salary and HCE compensation levels need to be updated regularly based on up-to-date

earnings data to ensure that they continue to function effectively regardless of the methodology

used to set the levels.

Except for the specific provisions discussed in this section that will become applicable on

January 1, 2025, all other provisions of this final rule will be applicable on the effective date on

July 1, 2024.

V. Discussion of Final Regulatory Revisions

Consistent with its statutory duty to define and delimit the EAP exemption, the

Department is making several changes to the earnings thresholds provided in the part 541

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regulations. As explained in greater detail below, the Department is setting 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). The Department additionally is raising the HCE test’s total

annual compensation requirement to the annualized equivalent of the 85th percentile of weekly

earnings of full-time salaried workers nationally. Finally, the Department is adopting a new

mechanism to update the standard salary level and the HCE total annual compensation threshold,

initially on July 1, 2024 and every 3 years thereafter to ensure that they remain effective tests for

exemption. The Department is not making substantive changes to any provisions related to the

salary basis or job duties tests.

The primary changes to the existing regulations are in §§ 541.5, 541.600, 541.601, and

newly added § 541.607. In addition, the Department is making conforming changes throughout

part 541 to update references to the applicable salary level requirements.

114

The discussion below

begins with the new updating provision (§ 541.607), which will make an initial update to the

salary and compensation thresholds on July 1, 2024, followed by discussion of changes to the

standard salary level methodology (§ 541.600(a)(2)) and HCE total annual compensation

114

The Department is also revising §§ 541.100, 541.200, and 541.300 to reflect that an

executive, administrative, or professional employee must be compensated on a salary or fee basis

at not less than the level set forth in § 541.600 (rather than referencing a specific salary level

amount). Similarly, it is revising § 541.204 and § 541.400 to reflect that an employee employed

in a bona fide administrative capacity and a computer employee may qualify for the section

13(a)(1) exemption if they are compensated on a salary or fee basis at not less than the level set

forth in § 541.600 (rather than referencing a specific salary level amount). The Department is

also updating cross-references to § 541.600(a) in §§ 541.602 and 541.605 to reference §

541.600(a)-(c). Finally, the Department is revising § 541.604, which explains the circumstances

under which an employer may provide an exempt employee with additional compensation

without violating the salary basis requirement, and § 541.605, which sets forth the conditions

under which an administrative or professional employee may be compensated on a fee basis,

with examples that reflect the new standard salary level amount of $1,128 per week.

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threshold methodology (§ 541.601(a)(2)), which will become applicable on January 1, 2025. As

noted in these sections, the Department intends for the changes in this final rule to be severable.

Severability is addressed more fully at the end of the discussion of final revisions with a

discussion of the new severability provision (§ 541.5).

A. Updating the Standard Salary Level and Total Annual Compensation Threshold

As the Department stated in the NPRM, it has long recognized the need to regularly

update the earnings thresholds to ensure that they remain useful in helping differentiate between

exempt and nonexempt white-collar employees. In each of its part 541 rulemakings since 2004,

the Department has observed that a salary level that is not kept up to date becomes obsolete as

wages for nonexempt workers increase over time.

115

Long intervals between rulemakings have

resulted in eroded earnings thresholds based on outdated earnings data that were ill-equipped to

help identify bona fide executive, administrative, and professional employees. This problem was

most clearly illustrated by the stagnant salary levels in the regulations from 1975 to 2004, during

which period increases in the federal minimum wage meant that by 1991, earnings of a worker

paid the federal minimum wage exceeded the long test salary level for a 40-hour workweek and

came close to equaling the short test salary level.

116

The Department proposed in the NPRM a mechanism to regularly update the earnings

thresholds to maintain their effectiveness. In a new § 541.607(a)(1) and (b)(1), the Department

proposed to update the standard salary level and the HCE total annual compensation requirement

every 3 years to reflect current earnings data. The Department proposed in § 541.607(a)(2) and

115

84 FR 51250–51; 81 FR 32430; 69 FR 22164. See also, 88 FR 62176.

116

See section II.B.1.

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(b)(2) to make the triennial updates using the methodologies proposed to set the thresholds in the

NPRM—i.e., the 35th percentile of weekly earnings of full-time nonhourly workers in the

lowest-wage Census Region (currently the South) for the standard salary level and the

annualized weekly earnings of the 85th percentile of full-time nonhourly workers nationally for

the HCE total annual compensation requirement.

117

The NPRM also outlined in proposed

§ 541.607(c) the manner in which the Department would publish advance notice of the updated

thresholds and included a pause mechanism in proposed § 541.607(d) that could be triggered to

delay a scheduled update under certain circumstances.

The Department proposed to make the first update under its proposed updating

mechanism 3 years after the effective date of the final rule. The effective date of the final rule

was in turn proposed to be 60 days after publication and to apply to all aspects of the proposed

rule, including the proposed methodologies for the standard salary level and the HCE total

annual compensation threshold. As discussed in section IV, the Department specifically sought

comments on whether the effective date for the proposed change to the standard salary level

methodology (to the 35th percentile of weekly earnings of full-time salaried workers in the

lowest-wage Census Region) should be 60 days after publication as proposed or if the change

should be made effective at some later date, such as 6 months or 1 year after publication of the

117

Observing that the proposed special salary level for American Samoa and the base rate for the

motion picture industry are set in relation to the standard salary level, the Department also

proposed that those earnings thresholds reset at the time the standard salary level was updated.

The Department is not finalizing its proposal to apply the standard salary level to the U.S.

territories subject to the federal minimum wage and to update the special salary levels for

American Samoa and the motion picture industry. See supra note 9. Therefore, the updating

mechanism finalized in this rule will not apply to the special salary levels at this time.

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final rule.

118

If the effective date were longer than 60 days, the Department sought comments on

“whether it should initially adjust the salary level to reflect recent wage growth (for example,

making an initial adjustment for wage growth 60 days after publication of a final rule and having

the final rule standard salary level be effective 6 months or a year after publication).”

119

The

Department also sought comments on what methodology to use for the initial update, were it to

follow such an approach. In particular, the Department invited comments on “whether to

implement an initial update to the standard salary level, effective 60 days after publication of a

final rule, that uses the current salary level methodology (the 20th percentile of weekly earnings

of full-time nonhourly workers in the lowest-wage Census Region and retail nationally) and

applies it to the most recent data available ($822 per week based on current data).”

120

The Department received numerous comments on its proposed updating mechanism.

Many organizations representing employee interests as well as some employers generally

supported the updating mechanism, while most organizations representing employer interests

opposed it. Many of the commenters opposing the proposed updating mechanism asserted that

the Department lacked the authority to institute such a mechanism. After considering the

comments received, the Department is finalizing the updating mechanism, with some

modifications as discussed below, to keep the salary and compensation thresholds up to date with

current data and maintain their effectiveness.

The first update under new § 541.607 will occur on July 1, 2024. As discussed in section

IV, the new standard salary level and HCE total annual compensation threshold methodologies

118

88 FR 62180

119

Id.

120

Id.

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will not be applicable until January 1, 2025 (a total of approximately 8 months after publication

of this final rule). Accordingly, § 541.607(a) establishes an initial update on July 1, 2024 to the

standard salary level and the HCE total annual compensation threshold using the methodologies

in place at that time (i.e., the 2019 rule methodologies), which results in a $844 per week

standard salary level and a $132,964 HCE total annual compensation threshold. Section

541.607(b) further establishes future updates to the standard salary level and HCE total annual

compensation threshold with current earnings data beginning 3 years after the date of the initial

update, and every 3 years thereafter, using the methodologies in place at the time of the updates.

The Department anticipates that by the time the first triennial update under the updating

mechanism occurs on July 1, 2027, assuming the Department has not engaged in further

rulemaking, the new methodologies for the standard salary level and HCE total annual

compensation requirement established by this final rule will be effective and the triennial update

would employ these new methodologies. In response to commenter concerns, the Department is

also adding clarifying language from the NPRM preamble to the final regulatory text of the delay

provision.

1. The Department’s Authority to Adopt a Salary Level Test

The updating mechanism in new § 541.607 will maintain the effectiveness of the salary

and compensation thresholds set in §§ 541.600 and 541.601 by adjusting them regularly to

reflect current economic data. At the outset, a small number of commenters contended the

Department lacked authority under section 13(a)(1) to even include a salary level test in the

regulations, advocating for the Department to withdraw this rulemaking. See, e.g., AFPI; Job

Creators Network Foundation; NFIB; Pacific Legal Foundation. These commenters asserted that

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

the express terms of section 13(a)(1) do not permit the Department to include any compensation-

based requirements.

The Department maintains its longstanding position that the Secretary’s express authority

to “define[]” and “delimit[]” the terms of the EAP exemption includes the authority to use a

salary level test as one criterion for identifying employees who are employed in a “bona fide

executive, administrative, or professional capacity.” The Department has used a salary level test

since the first part 541 regulations in 1938. From the FLSA’s earliest days, stakeholders have

generally favored the use of a salary test,

121

and the Department’s authority to use a salary test

has been repeatedly upheld,

122

including recently in Mayfield v. U.S. Dept. of Labor.

123

Despite

numerous amendments to the FLSA over the past 85 years, Congress has not restricted the

Department’s use of the salary level tests in the regulations. Significant regulatory changes

involving the salary requirements since 1938 include adding a separate salary level for

professional employees in 1940, adopting a two-test system with separate short and long test

salary levels in 1949, and creating a single standard salary level test and establishing a new HCE

121

See Stein Report at 5, 19. As discussed in section V.B.4.i, the vast majority of employer

commenters in this rulemaking, whether favoring no increase or a smaller increase, presumed the

salary level test’s continued existence and utility, with some, such as the National Restaurant

Association, expressly referencing their support for the 2019 rule’s salary level increase. Many

commenters acknowledged the salary level’s longstanding function of screening obviously

nonexempt employees from the exemption. See section V.B.4.ii. Other commenters that opposed

the proposal nonetheless cited benefits of having a salary level test, including helping to ensure

that the EAP exemption is not abused, see, e.g., AASA/AESA/ASBO, Bellevue University, and

“sav[ing] investigators and employers time by giving them a quick, short-hand test[.]” See

National Restaurant Association.

122

See, e.g., Wirtz v. Miss. Publishers Corp., 364 F.2d 603, 608 (5th Cir. 1966); Fanelli v. U.S.

Gypsum Co., 141 F.2d 216, 218 (2d Cir. 1944); Walling v. Yeakley, 140 F.2d 830, 832–33 (10th

Cir. 1944).

123

2023 WL 6168251 (W.D. Tex. Sept. 20, 2023), appeal docketed, No. 23-50724 (5th Cir. Oct.

11, 2023).

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

exemption test in 2004. These changes were all made through regulations issued pursuant to the

Secretary’s authority to define and delimit the exemption. Despite having amended the FLSA

numerous times over the years, Congress has not amended section 13(a)(1) to alter these

regulatory compensation requirements.

The FLSA gives the Secretary power to “define[]” and “delimit[]” the terms “bona fide

executive, administrative, or professional capacity” through regulation. Congress thus “provided

that employees should be exempt who fell within certain general classifications”—those

employed in a bona fide executive, administrative, or professional capacity—and authorized the

Secretary “to define and delimit those classifications by reasonable and rational specific criteria.”

124

Therefore, the Department “is responsible not only for determining which employees are

entitled to the exemption, but also for drawing the line beyond which the exemption is not

applicable.”

125

2. Initial Update to the Standard Salary Level and Total Annual Compensation Threshold to

Reflect the Change in Earnings Since the 2019 Rule

The Department received many comments regarding its proposed regulatory mechanism

for updating the standard salary level and the HCE total annual compensation requirement to

maintain their effectiveness. While commenters disagreed on how and when the salary and total

annual compensation thresholds should be updated, commenters generally did not dispute that

the earnings thresholds need to be periodically updated to reflect current economic conditions.

124

Walling, 140 F.2d at 831-32; see Ellis v. J.R.’s Country Stores, Inc., 779 F.3d 1184, 1199 (10th

Cir. 2015) (approvingly quoting Walling); see also Auer v. Robins, 519 U.S. 452, 456 (1997)

(“The FLSA grants the Secretary broad authority to ‘defin[e] and delimi[t]’ the scope of the

exemption for executive, administrative, and professional employees.”).

125

Stein Report at 2.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Many commenters that opposed the proposed updating mechanism nonetheless agreed that the

thresholds in the regulations need to be periodically updated. See, e.g., ASTA; FMI; SBA

Advocacy; SHRM; TechServe Alliance; World Floor Covering Association (WFCA).

In the context of addressing the Department’s proposed standard salary level

methodology, several commenters generally expressed support for—or in opposing the salary

level suggested in the alternative—an increase to the salary level using the 2019 methodology.

See, e.g., Bellevue University; Center for Workplace Compliance (CWC); RILA; YMCA. CWC

noted that the 2019 methodology is well-established and already familiar to employees and

employers, and Bellevue University similarly stated that this methodology “has been previously

field-tested on the U.S. economy[.]” As noted in section IV, commenters generally did not

address applying the 2019 methodology through the updating mechanism.

The Department remains convinced that effective salary and compensation thresholds

must use up-to-date earnings data. This position is long-standing. When the Department updated

its salary level tests in 1949, for example, it explained that the “relative ineffectiveness of these

tests in recent years is the result of changed economic conditions rather than any inherent

weakness in the tests[,]” and that the “increase in wage rates and salary levels gradually

weakened the effectiveness of the present salary tests as a dividing line between exempt and

nonexempt employees.”

126

The principle that effective tests for exemption must use up-to-date

earnings data remains as true today as it was 75 years ago.

The Department’s need to update the standard salary level and HCE total annual

compensation requirement for current data in this rulemaking is distinct from its decision to

126

Weiss Report at 8.

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establish new methodologies for setting those thresholds. The current salary and compensation

levels have been in place for more than 4 years and need to be updated to reflect current wage

data to maintain their effectiveness.

127

Since the Department’s last rulemaking in 2019, there has

been significant change in salaried worker earnings.

128

The $684 standard salary level is far

below what constitutes the 20th percentile of weekly earnings of full-time salaried workers in the

South and/or in the retail industry nationally using current data, which greatly undermines the

utility of the threshold as a means of helping distinguish exempt from nonexempt employees.

The same is true for the HCE total annual compensation threshold. Updating the existing

thresholds to reflect current earnings data is consistent with the intent the Department has

expressed repeatedly in its past part 541 rulemakings, including in the 2019 rule, to periodically

update the thresholds.

For these reasons, the Department is revising final § 541.607(a) to provide for an initial

update to the standard salary level and HCE total annual compensation requirement with current

earnings data on July 1, 2024. Specifically, the standard salary level will be updated to the 20th

percentile of weekly earnings of full-time salaried workers in the South and/or in the retail

industry nationally using the most recent data, resulting in a standard salary level of $844 per

week. The HCE total annual compensation threshold will be updated to the 80th percentile of

full-time salaried worker earnings nationwide using the most recent data, resulting in an annual

compensation threshold of $132,964. The Department believes that the July 1, 2024 effective

date provides sufficient time for employers to adjust to this initial update because the

127

The standard salary level and HCE total annual compensation threshold in the 2019 rule were

set using pooled data for July 2016 to June 2019, adjusted to reflect 2018/2019. 84 FR 51250.

128

See section VII.

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review process. Only the version published in the Federal Register is the official version.

methodology used for the initial update to the standard salary level has been used since 2004 and

is familiar to the regulated community. The size of the initial increase to the standard salary

level, which is $160 per week, is also less (in nominal terms) than the $229 per week change that

resulted from the 2019 rule.

129

The initial update on July 1, 2024 and the change in the standard salary level and HCE

total annual compensation methodologies on January 1, 2025 will result in two increases in the

compensation thresholds within a 12-month period. The Department recognizes that for some

employers both changes to the compensation thresholds may occur in the same budget year.

Because both the amount of the initial update and the subsequent increase to the thresholds are

set forth in this final rule, some employers may choose to make a single adjustment at the first

date that encompasses both the initial update and the impending change to the standard salary

level and the HCE total annual compensation threshold.

130

The Department intends for the initial update of the standard salary level and the HCE

total annual compensation requirement, using current earnings data applied to the 2019 rule

methodologies, to be severable from future triennial updates to the thresholds under §

541.607(b), as well as from the revision to the methodologies for the standard salary level and

the HCE total annual compensation threshold discussed in section V.B and section V.C. In

implementing the initial update, the Department intends to account for changes in earnings since

129

Consistent with the 2019 rule, the Department used pooled data for the most recent 3 years

(2021, 2022, 2023), adjusting them to reflect 2023, for the initial updates to both the standard

salary level and HCE total annual compensation threshold. See 84 FR 51250.

130

Although the Department’s approach is not a phase-in, the effect of increasing the salary level

twice in 8 months is, from a timing perspective, not altogether different from the request from

some commenters to phase in the salary level in more than one step. See, e.g., Argentum &

ASHA; Associated General Contractors; SBA Advocacy.

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review process. Only the version published in the Federal Register is the official version.

the 2019 rule. In changing the methodology for the standard salary level, the Department further

intends to fully restore the salary level’s historic screening function and account for the shift in

the 2004 rule from a two-test to a one-test system for defining and delimiting the EAP

exemption.

131

Lastly, in changing the methodology for the HCE total annual compensation

threshold, the Department intends to ensure the HCE threshold’s role as a streamlined alternative

for those employees most likely to meet the standard duties test by excluding all but those

employees “at the very top of [the] economic ladder[.]”

132

These are independent objectives of

this rulemaking and the provisions implementing them can each stand alone. Therefore, the

Department intends for the initial update to remain in force even if the methodologies for the

standard salary level and/or the HCE total annual compensation threshold established by this

final rule are stayed or do not take effect. Similarly, the Department intends for the initial update

to remain in effect even if future triennial updates under § 541.607(b) are stayed or do not take

effect.

The initial update will take effect approximately 60 days after the publication of the final

rule, immediately coming out of this notice and comment rulemaking. As such, the notice

procedures set forth in § 541.607(b)(3) will not apply. As discussed below, future triennial

updates will be preceded by advance publication of a notice of the updated salary level and HCE

total annual compensation threshold in the Federal Register. For the initial update, this final rule

provides notice of the updated salary and compensation levels.

133

131

See section V.B.

132

See section V.C.

133

The NPRM included updating the 2019 rule standard salary level and HCE annual

compensation threshold using 2022 data as a regulatory alternative, stating that applying the

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review process. Only the version published in the Federal Register is the official version.

3. Future Triennial Updates to Keep the Standard Salary Level and Total Annual

Compensation Threshold Up to Date

As the Department previously explained, the earnings thresholds are only an effective

indicator of exempt status if they are kept up to date. Left unchanged, the thresholds become

substantially less effective in helping identify exempt EAP employees as wages for workers

increase over time. To that end, the Department proposed to triennially update the standard salary

level and HCE total annual compensation threshold by applying the most recent earnings data to

the methodologies set forth in proposed § 541.600(a)(1) and § 541.601(a)(1), while any change

to the methodologies used to set the standard salary level and HCE annual compensation

threshold would be effectuated through future rulemaking.

The Department received many comments on its proposed triennial updating mechanism

for keeping the thresholds up to date in the future, which are addressed below. The comments

were sharply divided on this aspect of the NPRM. After considering the comments received, the

Department concludes that establishing a mechanism for resetting the standard salary level and

HCE total annual compensation requirement based on current earnings data, and on a regular 3-

year schedule, will ensure that the thresholds remain effective into the future and thus better

serve to help define and delimit the EAP exemption.

i. The Department’s Authority to Update the Standard Salary Level and Total Annual

Compensation Threshold with Current Data in the Future

The Department received many comments regarding its authority to update the earnings

thresholds through the proposed triennial updating mechanism. A majority of the commenters

methodologies would result in a standard salary level of $822 per week and a HCE annual

compensation threshold of $125,268. See 88 FR 62218.

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review process. Only the version published in the Federal Register is the official version.

opposing the updating mechanism challenged the Department’s authority to adopt such a

provision. Most commenters that supported the updating mechanism did not specifically discuss

the Department’s authority to institute such a mechanism. As to commenters supporting the

proposed triennial updating mechanism that addressed the issue, they supported the Department’s

authority.

Commenters favoring automatic updating, such as AFL-CIO and EPI, agreed with the

Department that just as the Department has authority to set salary thresholds for the EAP

exemption, it also has authority to provide for regular updates to ensure the thresholds do not

erode over time. Some supportive commenters further emphasized that future updates would

make no change to the standard (i.e., methodology) by which the Department implements the

FLSA, but rather merely ensure that the standard accounts for current economic conditions. See,

e.g., Administrative Law Professors; Democracy Forward Foundation; EPI. The Administrative

Law Professors similarly asserted that automatic adjustments to the earnings thresholds fall

within the Secretary’s authority to define and delimit “what it means to function in a ‘bona fide

executive, administrative, or professional capacity[.]’” Observing that even a so-called “static”

salary threshold expressed in “non-indexed dollar terms” is constantly changing as a matter of

economic value, the Administrative Law Professors asserted that “if a non-indexed salary

threshold is lawful, as nobody seriously questions, so too is a standard pegged to income

percentile.” The Administrative Law Professors observed “it is arguably more rational” for the

Department to “proffer a regulation that expressly accounts for the inevitably dynamic nature of

every salary threshold . . . rather than to permit arbitrarily fluid macroeconomic conditions to

dictate the threshold’s true economic worth.”

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review process. Only the version published in the Federal Register is the official version.

On the other hand, many commenters opposing the proposed updating mechanism

asserted that the Department lacks statutory authority to update the thresholds in this manner.

Some of these commenters contended that since the FLSA does not expressly authorize the

Department to index the earnings thresholds unlike, for example, the Social Security Act or the

Patient Protection and Affordable Care Act, it follows that the FLSA does not authorize the

Department to automatically update the thresholds.

134

See, e.g., CUPA-HR; International Dairy

Foods Association (IDFA); PPWO; RILA; Seyfarth Shaw. Several commenters pointed out that

Congress did not provide for automatic updating of any of the earnings requirements under the

FLSA, such as the minimum wage under section 6, the tip credit wage under section 3(m), or the

hourly wage for exempt computer employees under section 13(a)(17). See, e.g., AFPI; FMI.

Commenters including National Restaurant Association and PPWO further asserted that

Congress never amended the FLSA to grant the Department explicit authority to index the salary

level despite knowing that the Department has updated the salary level on an irregular schedule.

As the Department stated in the NPRM, the Department’s authority to update the salary

level tests for the EAP exemption by regularly resetting them based on existing methodologies is

134

In contrast, the Administrative Law Professors highlighted that “[a]utomatic updating is a

common feature of regulations pegged to monetary values, even when the relevant authorizing

statutes make no specific reference to indexing or automatic adjustment.” Some of the examples

cited by the Administrative Law Professors to illustrate this point include: 79 FR 63317 (2014)

(establishing automatic inflationary adjustments to the minimum amount set by the regulation to

define “adverse credit history”); 76 FR 23110 (2011) (establishing automatic adjustments to the

amount of “Denied Boarding Compensation” airlines must pay affected passengers); 88 FR

35150 (2023) (adopting once-every-five year inflation adjustments to the revenue threshold for

defining a “small business”); and Amusement & Music Operators Ass’n v. Copyright Royalty

Tribunal, 676 F.2d 1144 (7th Cir. 1982), cert. denied, 103 S. Ct. 210 (1982) (upholding a rule

promulgated by the Copyright Royalty Tribunal establishing a $50 compulsory royalty fee to be

paid by jukebox operators, and which would be subject to future inflationary adjustments).

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grounded in section 13(a)(1), which expressly gives the Secretary broad authority to define and

delimit the scope of the exemption. Using this broad authority, the Department established the

first salary level tests by regulation in 1938. Despite numerous amendments to the FLSA over the

past 85 years, Congress has not restricted the Department’s use of the salary level tests. As just

discussed, significant changes involving the salary requirements made through regulations issued

pursuant to the Secretary’s authority to define and delimit the exemption include adding a

separate salary level for professional employees in 1940, adopting the two-test system in 1949,

and switching to the single standard test and adding the new HCE test in 2004. Despite having

amended the FLSA numerous times over the years, Congress has not amended section 13(a)(1)

to alter these regulatory salary requirements.

Unlike the statutes some of the commenters referenced explicitly providing for indexing,

or the statutory FLSA wage rates—i.e., the minimum wage under section 6, the tip credit wage

under section 3(m), or the hourly wage for exempt computer employees under section

13(a)(17)—the part 541 earnings thresholds are established in the regulations. Therefore, it is not

surprising that the FLSA contains no specific reference to the indexing or automatic adjustments

of these thresholds. The Department agrees with the Administrative Law Professors and other

commenters that stated that the Department has the authority to establish a mechanism to

automatically adjust the earnings thresholds to ensure their continued effectiveness, using a

process established through notice and comment rulemaking, just as it has the authority to

initially set them. The Department believes the updating mechanism in this final rule fulfills its

statutory obligation to define and delimit the EAP exemptions by preventing the thresholds from

becoming obsolete and providing predictability and clarity for the regulated community.

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review process. Only the version published in the Federal Register is the official version.

Many of the commenters opposed to the updating mechanism also asserted that

automatically updating the earnings thresholds would violate the APA’s rulemaking requirements

expressly incorporated by reference in section 13(a)(1). See, e.g., AFPI; FMI; National Club

Association; and Wage and Hour Defense Institute. These and other commenters claimed that the

Department cannot lawfully update the salary level without engaging in notice and comment

rulemaking for each update. See, e.g., AASA/AESA/ASBO; Competitive Enterprise Institute;

CWC; RILA. IFDA, for example, asserted that notice and comment rulemaking needs to precede

each future update so that stakeholders have the opportunity to comment on and adequately

prepare for any changes that will affect them. AHLA commented that the proposal to update the

thresholds triennially without a preceding opportunity for comment is “drastic and troublesome”

and that “notice and comment will help ensure that the knowledge, expertise, and vital input of

interested stakeholders will be considered before moving forward with increases.”

Relatedly, AFPI, NRF, and SBA Advocacy asserted that automatic updating would violate

the directive under section 13(a)(1) that the Department define and delimit the EAP exemption

“from time to time” by regulations. NRF, for example, noted that Congress asked the Department

to revisit the EAP exemptions from time to time “expecting the Department to use its deep

knowledge of the U.S. economy in general, and labor market in particular, to establish

appropriate parameters for the exemptions” and contended that by implementing automatic

updates the Department evades that decision-making process. AFPI similarly asserted that the

“directive, ‘from time to time,’ does not allow the Department to set it and forget it.”

The Department disagrees with the assertion that triennial updates using the

compensation methodologies adopted in the regulations improperly bypass the APA’s—and

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

section 13(a)(1) by reference—requirements for notice and comment rulemaking. The

Department is adopting an updating mechanism in this rulemaking after publishing a notice of

the proposed rule and providing opportunity for stakeholders to comment in accordance with the

APA’s notice and comment requirements. The Department has received and considered numerous

comments on the proposed updating mechanism. Future updates under the triennial updating

mechanism would simply reset the thresholds by applying current data to a standard already

established by notice and comment regulation, providing clarity for the regulated community as

to future changes in the thresholds. Therefore, the Department disagrees with commenters that

claimed that notice and comment rulemaking must precede each future update made through the

updating mechanism even where the methodology for setting the compensation levels and the

mechanism for updating those levels would remain unchanged.

135

The updating mechanism will

not alter the Department’s ability to engage in future rulemaking to change the updating

mechanism or any other aspect of the part 541 regulations at any point.

The Department also disagrees with commenters that claimed section 13(a)(1)’s “time to

time” language precludes the Department from adopting an updating mechanism. The updating

135

Some commenters, such as Independent Electrical Contractors, RILA, and U-Haul, further

asserted that automatic updates improperly bypass the requirements of the Regulatory Flexibility

Act (“RFA”) and executive orders requiring the Department to undertake a detailed economic

and cost analysis. The Department disagrees. Pursuant to the RFA, the Department has included

in this final rule as well as in the NPRM detailed estimates for the future costs of updates under

the updating mechanism. See section VII and VIII; 88 FR 62224. Similarly, as relevant here,

Executive Order 13563 directs agencies to take certain steps when promulgating regulations,

including using the “best available techniques to quantify anticipated present and future benefits

and costs as accurately as possible” and adopting regulations “through a process that involves

public participation.” 76 FR 3821 (Jan. 18, 2011). The current rulemaking fully satisfies all

aspects of Executive Order 13563. See section VII; 88 FR 62182. The RFA and Executive Order

13563 do not require notice and comment rulemaking to precede future triennial updates made

through the updating mechanism established in this rulemaking.

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mechanism would only ensure the standard salary level and total annual compensation threshold

remain at the percentiles established through rulemaking. This does not preclude the Department

from engaging in future rulemaking “from time to time” if it determines that there is a need to

change the underlying methodologies for setting the standard salary level or HCE total annual

compensation threshold, the updating mechanism, or any other substantive change to part 541, as

the Department did, for instance, in 1940, 1949, 1958 1975, 2004, 2016, and 2019.

Many commenters opposing the updating mechanism referenced the Department’s prior

statements to further support their assertion that the Department lacks authority to implement

automatic updating. In particular, commenters pointed to the Department’s decision not to

institute an automatic updating mechanism in the 2004 rule and its statement that “the

Department finds nothing in the legislative or regulatory history that would support indexing or

automatic increases.” See, e.g., NAM; NFIB; SBA Advocacy. Others, like PPWO, further

asserted that automatic updates are contrary to the Department’s statement in the 2004 rule that

“[t]he salary levels should be adjusted when wage survey data and other policy concerns support

such a change.”

As stated in the NPRM, the Department’s decision not to institute an automatic updating

mechanism in the 2004 and 2019 rulemakings in no way suggests that it lacks the authority to do

so. In its 2004 rule, the Department stated that it found nothing in the legislative or regulatory

history that would support indexing or automatic increases.

136

As the Department elaborated in

its 2016 rulemaking, there was likewise no such authority prohibiting automatic updating.

137

The

136

69 FR 22171.

137

See 81 FR 32432–33 (noting that “instituting an automatic updating mechanism . . . is an

appropriate modernization and within the Department’s authority.”).

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2004 rule did not discuss the Department’s statutory authority to promulgate an updating

mechanism through notice and comment rulemaking or explore in detail whether automatic

updates to the salary levels posed a viable solution to problems created by lapses between

rulemakings. As the Department explained in the 2016 rule, the Department’s reference in the

2004 rule to automatic updating simply reflected the Department’s conclusion at that time that an

inflation-based updating mechanism, such as one based on changes in the prices of consumer

goods, that unduly impacts low-wage regions and industries, would be inappropriate. Such

concerns are not implicated here, where the mechanism will update the salary level to keep it at

the same percentile of earnings of full-time salaried workers. As for concerns that the salary level

should be updated only when wage data warrants it, the updating mechanism does just that—as

the earnings thresholds will change only to the extent earnings data in the relevant data sets have

changed, whether upward or downward as conditions dictate.

Similarly, the Department declined to adopt automatic updating in the 2019 rule because

it “believe[d] that it is important to preserve the Department’s flexibility to adapt to different

types of circumstances,”

138

and not because it lacked authority to do so. While the Department

decided not to institute an updating mechanism in its 2019 rule, it never said that it lacked the

statutory authority to do so. Upon further consideration, the Department concludes that the best

way to ensure the standard salary level and HCE total compensation threshold remain up to date

is a triennial updating mechanism that maintains the Department’s flexibility to adapt to different

circumstances and change course as necessary.

138

84 FR 51252.

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ii. Rationale for Continuing to Update the Standard Salary Level and Total Annual

Compensation Threshold with Current Data in the Future

The Department explained in the NPRM that its proposed updating mechanism would

allow for regular and more predictable updates to the earnings thresholds, which would benefit

both employers and employees and would better fulfill the Department’s statutory duty to define

and delimit the EAP exemption by preventing the erosion of those levels over time. The

Department noted that its regulatory history, marked in many instances by lengthy gaps between

rulemakings, underscored the difficulty with updating the earnings thresholds as quickly and

regularly as necessary to keep pace with changing employee earnings and to maintain the full

effectiveness of the thresholds. Through the proposed updating mechanism, the Department

explained it would be able to timely and efficiently update the standard salary level and the HCE

total annual compensation requirement by using the same methodologies as initially proposed

and adopted through notice and comment rulemaking to set the thresholds. The Department

noted that updating the thresholds in this manner would prevent the more drastic and

unpredictable increases associated with less frequent updates and ensure that future salary level

increases occur at a known interval and in more gradual increments. The Department received

many comments on the rationale for implementing the proposed triennial updating mechanism.

Several organizations representing employee interests as well as a handful of employers

agreed with the Department that an updating mechanism would ensure the thresholds keep pace

with wages and retain their usefulness. See, e.g., Coalition of Gender Justice and Civil Rights

Organizations; National Partnership; National Education Association (NEA); National

Employment Lawyers Association (NELA); National Employment Law Project (NELP);

Uncommon Goods; W.S. Badger Company. Nichols Kaster, PLLP (Nichols Kaster) noted the

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updating mechanism protects the thresholds from becoming outdated and irrelevant, although it

believed that annual updates would better reflect the economy. NELA commented that “indexing

represents the only simple and accurate” way to preserve the real value of the standard salary

level and the HCE total compensation threshold through time, although they contended that the

proposed methodologies should be higher earnings percentiles.

Many commenters supportive of the updating mechanism also asserted that regular

updates would provide greater predictability for employers and employees alike. See, e.g., AFL-

CIO; Center for WorkLife Law at University of California Law and Partner Organizations

(Family Caregiving Coalition); Justice at Work; NEA. Small Business Majority expressed

support for the proposed updating mechanism noting that smaller, predictable increases that are

known well in advance—as opposed to “large and sudden” increases—would allow small

business owners to be better prepared for any staffing or compensation changes they need to

make. Nineteen Democratic Senators commented that an updating mechanism is the most

effective way to provide consistency and stability for both workers and businesses. See also, e.g.,

EPI; Washington State Department of Labor and Industries. CLASP similarly noted the proposed

updating provision would enable employers to know exactly what to expect and when to expect

it.

In contrast, many organizations representing employer interests disagreed with the

Department’s rationale for the proposed updating mechanism. Several of these commenters

criticized the Department for stating that the updating mechanism is a more “viable and

efficient” means of updating the thresholds by asserting that the Department is trying to avoid its

obligation to engage in notice and comment rulemaking simply because such rulemaking is

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resource-intensive. See, e.g., IDFA; National Restaurant Association; PPWO. The Chamber

similarly commented that the Department’s history of long gaps in rulemaking is not an adequate

justification for adopting what it characterized as “a historically unprecedented change.”

Commenters including AHLA, FMI, the National Beer Wholesalers Association, and

Seyfarth Shaw, asserted automatic updating would lead to uncertainty that would pose

administrative and compliance burdens on employers. Some commenters, such as HR Policy

Association and PPWO, asserted the proposed mechanism would make it difficult to ascertain

exactly what the threshold will be every 3 years. Other commenters, including CUPA-HR, FMI,

IDFA, and SHRM, asserted triennial updates would have a significant financial impact on

employers as they would need to account for the cost of salaries or potential overtime as well as

the cost of conducting reclassification analysis and implementing the necessary changes every 3

years. Some nonprofit organizations and providers of home and community-based health

services expressed concern that future updates would be difficult for the nonprofit sector because

of their funding sources. See, e.g., Allegheny Children’s Initiative; ANCOR.

Some commenters opposing the updating mechanism claimed automatic updates would

hinder the Department from considering economic circumstances when making updates. Ten

Republican Senators asserted automatic updates “blind the administration to critical

considerations about the state of the economy and the workforce, including the unemployment

rate, inflation, job vacancies, or whether employers are in a position to adjust to the increases

without shedding jobs.” Some commenters, including Illinois College, ISSA, and the Society of

Independent Gasoline Marketers of America, expressed concern that the proposed mechanism

could lead to updates happening at a time of economic downturn or a recession and could further

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exacerbate those economic conditions. Others expressed concern that the updating mechanism

would hinder future rulemaking to change the earnings thresholds. See, e.g., Chamber; National

Association of Convenience Stores.

The Department continues to believe that the updating mechanism will ensure the

earnings thresholds keep pace with changes in earnings and remain useful in the future in helping

to delineate EAP employees from non-EAP employees. Whereas a fixed salary level threshold

becomes less effective over time as the data used to set it grows outdated, a fixed methodology

remains relevant if applied to contemporaneous data. The Department agrees with the

commenters that stated that the updating mechanism’s triennial updates would provide greater

certainty and predictability for the regulated community. Unlike irregular updates to the earnings

thresholds, which may result in drastic changes to the thresholds, regular updates on a pre-

determined interval and using an established methodology will produce more predictable and

incremental changes. For this reason, the Department disagrees with the assertion by some

commenters that regular updates will lead to unpredictable adjustments and ongoing uncertainty.

The Department also disagrees with commenters like HR Policy Association that claimed the

proposed mechanism will make it difficult to ascertain what exactly the threshold will be every 3

years. Through the updating mechanism, the Department will reset the standard salary level and

total annual compensation threshold using the most recent, publicly available, U.S. Bureau of

Labor Statistics (BLS) data on earnings for salaried workers. Therefore, stakeholders will be able

to track where the thresholds would fall on a quarterly basis by looking at the BLS data

139

and

can estimate the changes in the thresholds even before the Department publishes the notice with

139

See https://www.bls.gov/cps/research/nonhourly/earnings-nonhourly-workers.htm.

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the adjusted thresholds in the Federal Register. The Department believes that, compared to the

irregular updates of the past, stakeholders will be better positioned to anticipate and prepare for

future updates under the updating mechanism.

Moreover, the Department does not agree with the assertion that routine updates would

lead to undue increases at a time of economic downturn or recession. If anything, the

Department’s new updating mechanism will ensure that the thresholds match the earnings data as

they exist at the time of the update, whether by increasing or decreasing the earnings thresholds

as warranted by the data. As discussed below, the Department’s decision to deviate from the

2016 rule by adopting a mechanism for pausing future updates further guards against such

concerns. Similarly, nothing about the updating mechanism precludes the Department from

revisiting the standard salary level and HCE total annual compensation methodologies in the

future when conditions warrant. Having considered the comments received, the Department

remains convinced that an updating mechanism providing for regular updates on a triennial basis

is the best means of ensuring that the salary and compensation tests continue to provide an

effective means, in tandem with the duties tests, to distinguish between EAP and non-EAP

employees.

iii. Specific Features of the Updating Mechanism

The Department received many comments regarding the various aspects of the proposed

updating mechanism, including the updating frequency, methodology, notice period, and pause

mechanism. The Department proposed in § 541.607(a) and (b) to update the earnings thresholds

every 3 years by using the same methodology used in the regulations to set the thresholds.

Specifically, proposed § 541.607(a)(2) and (b)(2) stated that the methodologies for setting the

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standard salary level and HCE annual compensation threshold in the NPRM would be used for

future updates.

Many commenters that supported the proposed updating mechanism expressed a

preference for more frequent updates. See, e.g., Coalition of State AGs; Jobs to Move America;

NEA; NELP. Commenters including AFL-CIO, National Partnership, and Nichols Kaster

asserted annual updates, compared to triennial updates, offered better predictability and would

ensure that the salary threshold keeps pace with the changes in wages. EPI similarly observed

that annual updates would ensure that the salary threshold more closely adheres to the chosen

percentile “rather than slipping further and further behind in between triennial updates[.]”

Most commenters that opposed updating did not separately comment on the updating

frequency, but some addressed it in the context of discussing the impact of the updating

mechanism on employers. Many of these commenters claimed triennial updates would impose

substantial financial and compliance burdens on employers as they would need to engage in

reclassification analysis and implement necessary changes to adjust to the updated thresholds

every 3 years. See, e.g., ABC; CUPA-HR; HR Policy Association; NAM. Most of the

commenters opposing the updating mechanism did not suggest an alternative updating frequency.

Notwithstanding their objection to automatic updating, however, a few commenters, including

AHLA, ASTA, WFCA, and YMCA, suggested a longer updating frequency ranging from 4 to 6

years.

The Department agrees with the commenters that stated annual updates would keep the

salary level more up to date given that employee earnings are constantly changing. However, as

stated in the NPRM, the Department is also mindful of the potential burden that possible changes

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to the tests for exemption on an annual basis would impose on employers, including costs

associated with evaluating the exemption status of employees on an annual basis. Conversely, the

Department is not convinced by commenter claims that triennial updates would impose an undue

financial and compliance burden on employers. Many of these commenters did not address the

fact that the alternative to automatic updating is not a permanent fixed earnings threshold, but

instead larger changes to the threshold that could occur during irregular future updates. Since the

updating mechanism will change the thresholds regularly and incrementally, and based on actual

earnings of salaried workers, the Department predicts that employers will be in a better position

to be able to adjust to the changes resulting from triennial updates. The Department remains

persuaded that triennial updates are frequent enough to ensure that the part 541 earnings

thresholds are kept up to date—and continue to serve the purpose of helping to identify exempt

employees—while not being overly burdensome for employers. The final rule, therefore, adopts

an updating frequency of 3 years as proposed.

The comments regarding the method through which the Department’s proposed updating

mechanism would reset the salary and compensation thresholds were also divided. Commenters

favoring routine updates also supported the proposal to update the thresholds using the fixed

percentile approach—to keep the thresholds at the same percentile of earnings of full-time

salaried worker as established by the regulations. NELA, for example, asserted that updating the

thresholds using a fixed percentile of earnings “is the fairest way to maintain consistency in

workers’ FLSA eligibility in light of inevitable economic change.” EPI similarly noted updating

the thresholds through the proposed methodology ensures that the standard under the

Department’s rule “is simply preserved – neither strengthened nor weakened.”

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Commenters that opposed automatic updating opposed the proposed updating

methodology. Several of these commenters reiterated an assertion from comments on the 2016

rulemaking that the proposed updating mechanism—tied to a fixed percentile—would result in

the salary level being “ratcheted” upward over time due to the resulting actions of employers.

See, e.g., Chamber; NAM; NRF (including a report by Oxford Economics); SBA Advocacy. The

commenters contended that in response to each automatic update, most employers would either

reclassify employees earning below the new salary level to hourly status or raise the salaries of

those employees to keep their exempt status. These responses, the commenters claimed, would

skew the relevant data for future updates in favor of substantial increases because those

employees who were reclassified as hourly would fall out of the data pool causing the data pool

to be smaller and skew towards higher-paid workers. See, e.g., Chamber; National Association of

Convenience Stores; National Restaurant Association; NRF. While expressing a strong

preference that automatic updates be abandoned altogether, some of the commenters concerned

about this possible effect suggested that the Department adopt an updating mechanism tied to an

inflation-related index. See Seyfarth Shaw; SHRM.

The Department notes that very similar comments concerning an alleged “ratcheting”

effect were received during the 2016 rulemaking, which also proposed an updating mechanism

based on earnings percentiles. In response to those comments, the Department examined

historical data to determine the impact of its previous salary increase.

140

Specifically, the

Department looked at the share of full-time white-collar workers paid on an hourly basis before

and after the 2004 rule (January–March 2004; January–March 2005) both below and above the

140

81 FR 32441.

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standard salary level. The Department found that following the 2004 rule, the share of full-time

white-collar workers being paid hourly actually decreased marginally in the group below the

standard salary level and increased slightly in the group above the standard salary level.

141

The Department finds the claim that updating with a fixed percentile methodology would

lead to the “ratcheting” upward of the thresholds to be unsubstantiated. The “ratcheting” claim is

almost entirely based on the assumption that employers will respond to an automatically updated

salary level by converting all or a large number of newly nonexempt workers to hourly status,

thus removing them from the data set of full-time salaried workers. Yet none of the commenters

advancing this claim presented any tangible data or evidence to support their assumption. Even

those few commenters that provided economic analyses rested their views on the same

unsubstantiated assumption that employers will generally reclassify newly nonexempt employees

as hourly. See, e.g., NRF (including a report by Oxford Economics); PPWO (quoting a study by

Edgeworth Economics).

142

The results of the Department’s close examination of the impact of

the 2004 salary level increase provide no evidence that salary level increases due to regular

triennial updating will result in employers converting significant numbers of affected EAP

workers to hourly pay status and thus raising potential concerns about skewing future updates.

Although many commenters made nearly identical ratcheting claims in this rulemaking, none of

the commenters addressed the Department’s analysis in response to those same claims in the

2016 rule.

141

See id. at 32441, 32507–08.

142

The Edgeworth Economic study that was quoted by PPWO and a few other commenters

seemed to assume, without any support, that all affected workers or newly nonexempt workers

who earn between $684 and $1,059 per week will be reclassified as hourly employees.

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Having found no merit in the “ratcheting” claim, the Department declines to adopt the

alternative methodologies suggested such as an updating mechanism tied to an inflation-related

index. As noted in the NPRM, the fixed percentile approach, as opposed to other methods such

as indexing the thresholds for inflation, eliminates the risk that future levels will deviate from the

underlying salary setting methodology established through rulemaking. During the 2016 rule, the

Department extensively considered whether to update the thresholds based on changes in the

Consumer Price Index for All Urban Consumers (CPI-U)—a commonly used economic indicator

for measuring inflation.

143

The Department chose to update the thresholds using the same

methodology used to initially set them in that rulemaking (i.e., a fixed percentile of weekly

earnings of full-time salaried workers in the lowest-wage Census Region), observing that the

objectives that justify setting the salary level using a fixed percentile methodology also

supported updating the thresholds using the same methodology.

144

The Department is persuaded

that updating the earnings thresholds by applying the same methodology used to originally set

the levels instead of indexing them for inflation best ensures that the earnings thresholds

continue to fulfill their objective of helping effectively differentiate between bona fide EAP

employees and those who are entitled to overtime pay and work appropriately with the duties

test.

New § 541.607 therefore establishes triennial updates of the standard salary level and the

HCE total compensation threshold using the same methodologies used to set those thresholds.

Assuming the Department has not engaged in further rulemaking, the Department anticipates the

143

See 81 FR 32438–41.

144

See id. at 32440.

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second update under the updating mechanism—which will occur 3 years after the date of the

initial update discussed in section V.A—will use the methodologies established by this final rule

as those will become effective before the second update. Accordingly, the second update will

reset the standard salary level to the 35th percentile of weekly earnings of full-time workers in

the lowest-wage Census Region and will reset the HCE total annual compensation threshold to

the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally

based on contemporaneous data at that time.

The Department further proposed to publish in the Federal Register a notice with the

adjusted standard salary level and the HCE total annual compensation threshold at least 150 days

before the date the adjusted thresholds are set to take effect and to publish the updated thresholds

on WHD’s website no later than their effective date. The Department proposed to update both

thresholds using the most recent available 4 quarters of data, as published by BLS, preceding the

publication of the Department’s notice with the adjusted levels. The Department received fewer

comments regarding these aspects of the proposal than on the updating mechanism itself.

Most commenters supporting the proposed updating mechanism did not separately

comment on the 150-day notice period. Some commenters opposing automatic updates asserted

that the 150-day notice period would not be adequate time to prepare for compliance with the

new updated thresholds. See, e.g., Association of Public and Land-grant Universities (APLU)

(suggesting 180-day advance notice); Chamber (suggesting at least 1 year notice); National

Association of Convenience Stores (same); The American Association of Advertising Agencies

(The 4As) (same). Regarding the data set, EPI suggested the Department use the most recent

quarter of data asserting that the salary threshold would be “suppressed” for 2 out of every 3

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years if the Department adopts triennial updates. On the other hand, the National Association of

Convenience Stores, while opposing automatic updating, recommended the Department use the

most recent 6 quarters of data, or those quarters minus the 2 most recent, to account for changes

it claimed employers may make preemptively to adjust to an upcoming update for budgetary

reasons.

After considering the comments received, the Department is persuaded that a notice

period of not less than 150 days provides sufficient time for employers to make the necessary

adjustments to comply with the updated thresholds. This is especially true given that employers

will be able to access the data set that will be used to make the adjustments as published by BLS

and anticipate the extent of the adjustment even before the Department publishes the notice. A

period substantially longer than 150 days would hinder the Department’s ability to ensure that

the thresholds that take effect are based on the most up-to-date data. Similarly, the Department

believes that using the most recent available 4 quarters of data will account for the Department’s

goal that the thresholds reflect prevailing economic conditions while balancing the concerns of

commenters that wanted a longer or shorter period for the data set. Therefore, the final rule

establishes that for future updates under the updating mechanism, the Department will publish in

the Federal Register a notice with the adjusted thresholds not fewer than 150 days before the date

the new adjusted thresholds are set to take effect and will publish the updated thresholds on the

WHD website no later than their effective date. The updates will be based on the most recent

available 4 quarters of data as published by BLS.

Lastly, the Department’s proposal included a provision providing for the delay of a

scheduled update under the updating mechanism while the Department engages in notice and

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comment rulemaking to change the earnings requirements and/or updating mechanism, where

economic or other conditions merit. The Department explained that the delay would be triggered

if the Department publishes an NPRM proposing to change the salary level methodology and/or

modify the updating mechanism by the date on which it publishes the notice of the revised salary

and compensation thresholds. In that instance, the notice with the adjusted thresholds must state

that the scheduled update will be paused for 120 days from the day the update was set to occur

while the Department engages in rulemaking, and that the pause will be lifted on the 121st day

unless the Department finalizes a rule changing the salary level methodology and/or automatic

updating mechanism by that time. In the event the Department does not issue a final rule by the

prescribed deadline, the pause on the scheduled update will be lifted and the new thresholds will

take effect on the 121st day after they were originally scheduled to take effect. The Department

also explained the 120-day pause would not affect the date for the next scheduled triennial

update given the relative shortness of the delay and so as not to disrupt the updating schedule.

The next update, therefore, would occur 3 years from the date on which the delayed update

would have originally been effective.

The Department received somewhat mixed comments regarding its proposed pausing

mechanism. For example, notwithstanding their objection to automatic updating (and in some

cases, certain aspects of the pause mechanism), some employer organizations such as CUNA,

AHLA, and the National Association of Professional Insurance Agents commended the

Department for recognizing that there may be circumstances that may require temporarily

delaying a scheduled update. Some commenters that supported the updating proposal agreed. For

example, the Coalition of State AGs described the delay provision as “a fail-safe mechanism”

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that would provide the Department flexibility to adjust to changed circumstances as necessary.

On the other hand, Sanford Heisler Sharp, while otherwise favoring the updating mechanism,

objected to the pause feature asserting that it would “inject uncertainty into the administration of

the threshold, undermining the stated purpose of the NPRM to simplify enforcement of overtime

and minimum wage protections.”

Some commenters took issue with the phrase “unforeseen economic or other conditions”

in the NPRM’s preamble which generally described the circumstances in which the Department

may trigger the pause mechanism. AHLA, CUNA, and NAIS/NBOA asserted it is not clear what

circumstances would constitute “unforeseen economic or other conditions.” AFPI similarly

pointed out the phrase was found only in the preamble and not in the proposed § 541.607.

American Council of Engineering Companies expressed concern that the proposed pause

mechanism does not provide sufficient flexibility for the Department to respond to unexpected

economic conditions and recommended that the provision be modified to allow the Secretary “to

suspend automatic updates if economic conditions warrant.” RILA asserted the pause feature is

an inflexible process asserting that if a catastrophic event were to occur within 150 days of the

date of a scheduled update, the Department would have no flexibility or ability to delay or stop

the update. A few commenters claimed that the 120-day pause period is not sufficient time to

provide the Department the flexibility it needs to adjust to unforeseen circumstances or complete

a rulemaking. See, e.g., National Association of Convenience Stores; NRF.

Most of the comments objecting to or otherwise criticizing the pause mechanism seem to

assume the only way the Department can alter a scheduled update or change any other aspect of

the rule is through the updating mechanism’s pause provision. That is not correct. Nothing in the

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proposed updating mechanism limits the Department’s ability to engage in future rulemaking to

change any aspect of the part 541 regulations at any time. The pause mechanism offers the

Department added flexibility—in addition to its ability to engage in rulemaking at any time to

change the rule—by allowing it the ability to delay a scheduled update as it engages in

rulemaking. As the Department noted in the NPRM, the pause mechanism offers the Department

270 days—150 days before, and 120 days after, the effective date for the scheduled update—to

complete the rulemaking process. The Department can still engage in rulemaking outside of this

period and through that rulemaking can stop or delay a scheduled update or change any other

aspect of the part 541 regulations. This is true regardless of whether the Department adopts the

delay provision. The Department believes that the pause provision will provide additional

flexibility in the context of the triennial updates and will not impact the Department’s normal

rulemaking powers.

The Department recognizes that the phrase “unforeseen economic or other conditions”

was not in proposed § 541.607 and agrees that the lack of this language in the regulatory text

creates ambiguity about the standard for pausing a triennial update. Therefore, the Department is

revising § 541.607(d) to include similar language. The Department believes this revision clarifies

the standard for when the pause mechanism may be triggered but does not impinge on the

Department’s normal authority to engage in rulemaking for other reasons. The Department is

disinclined to further define what circumstances would trigger the pause mechanism, as some

commenters suggested. In proposing the pause mechanism, the Department was mindful of

previous statements from stakeholders, and the Department’s own prior statements, about the

need to preserve flexibility to adapt to unanticipated circumstances. As an example, the

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Department referenced the COVID pandemic and its widespread impact on workplaces.

However, it is not feasible for the Department to outline every possible circumstance that could

warrant a delay of a scheduled update. Doing so would unduly limit the Department’s flexibility

to adjust to truly unanticipated circumstances.

For these reasons, the Department has concluded that the proposed pause mechanism,

with the modification noted above, provides the Department sufficient flexibility to adopt to

unforeseen circumstances where necessary. Therefore, the new § 541.607(b)(4) establishes that

the Department can trigger the pause, where unforeseen economic or other conditions warrant,

by issuing an NPRM proposing to change the salary level methodology and/or modify the

updating mechanism by the date on which it publishes the notice with the adjusted salary and

compensation thresholds. Section 541.607(b)(4) further clarifies that the notice with the adjusted

thresholds must state that the scheduled update will be paused for 120 days from the day the

update was set to occur while the Department engages in rulemaking, and that the pause will be

lifted on the 121st day unless the Department finalizes a rule changing the salary level

methodology and/or automatic updating mechanism by that time.

Lastly, as discussed in more detail in section V.D, the Department intends for the

triennial updates of the standard salary level and the HCE total annual compensation threshold

using current earnings data to be severable from the revision to those methodologies discussed in

section V.B and section V.C. In implementing routine triennial updates, the Department intends

to ensure that the salary and compensation thresholds set in the regulations reflect changes in

earnings data and continue to function effectively in helping identify exempt white-collar

employees. As already noted, the Department has different objectives for changing the

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methodologies for setting the standard salary level and HCE total annual compensation

threshold. Specifically, in changing the methodology for the standard salary level, the

Department intends to fully restore the salary level’s historic screening function and account for

the shift in the 2004 rule from a two-test to a one-test system for defining and delimiting the EAP

exemption.

145

In changing the methodology for the HCE total annual compensation threshold,

the Department intends to ensure the HCE threshold’s role as a streamlined alternative for those

employees most likely to meet the standard duties test by excluding all but those employees “at

the very top of [the] economic ladder[.]”

146

These are independent objectives of this rulemaking

and the provisions implementing them can each stand alone. Therefore, the Department intends

for the triennial updates to remain in force even if the methodologies for the standard salary level

and the HCE total annual compensation threshold established by this final rule are stayed or do

not take effect. Similarly, the Department intends for the triennial updates under § 541.607(b) to

remain in force even if the initial update for wage growth in § 541.607(a) is stayed or does not

take effect.

B. Standard Salary Level

In its NPRM, the Department proposed to update the salary level by setting it equal to the

35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (the

South), resulting in a proposed salary level of $1,059 per week ($55,068 for a full-year worker).

The proposed salary level methodology built on lessons learned in the Department’s most recent

rulemakings to more effectively define and delimit employees employed in a bona fide EAP

145

See section V.B.

146

See section V.C.

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capacity. Specifically, the Department’s intent in the NPRM was to fully restore the salary level’s

screening function and account for the switch in the 2004 rule from a two-test system to a one-

test system for defining the EAP exemption, while also updating the standard salary level for

earnings growth since the 2019 rule.

The Department is finalizing the proposed standard salary level methodology and

applying it to the most recent available earnings data, resulting in a salary level of $1,128 per

week ($58,656 for a full-year worker). Setting the standard salary level at the 35th percentile of

weekly earnings of full-time salaried workers in the lowest-wage Census Region will, in

combination with the standard duties test, better define and delimit which employees are

employed in a bona fide EAP capacity in a one-test system. Because the salary level is above the

equivalent of the long test salary level, the final rule will (unlike the 2004 and 2019 rules) ensure

that lower-paid white-collar employees who perform significant amounts of nonexempt work,

and were historically considered by the Department not to be employed in a bona fide EAP

capacity because they failed the long duties test, are not all included in the exemption. At the

same time, by setting the salary level well below the equivalent of the short test salary level, the

final rule will address potential concerns that the salary level test should not be determinative of

EAP exemption status for too many white-collar employees. The combined result will be a more

effective test for exemption. The final salary level will also reasonably distribute between

employees and their employers what the Department now understands to be the impact of the

2004 shift from a two-test to a one-test system on employees earning between the long and short

test salary levels.

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1. History of the Salary Level

The FLSA became law in 1938 and the first version of the part 541 regulations, issued

later that year, set a minimum compensation requirement of $30 per week for executive and

administrative employees.

147

Since then, the Department has increased the salary levels eight

times—in 1940, 1949, 1958, 1963, 1970, 1975, 2004, and 2019.

In 1940, the Department maintained the $30 per week salary level for executive

employees but established a higher $200 per month salary level test for administrative and

professional employees. In selecting these thresholds, the Department used salary surveys from

Federal and state government agencies, experience gained under the National Industrial

Recovery Act, and Federal government salaries to determine the salary level that was a

reasonable “dividing line” between employees performing exempt and nonexempt work.

148

In 1949, recognizing that the “increase in wage rates and salary levels” since 1940 had

“gradually weakened the effectiveness of the present salary tests as a dividing line between

exempt and nonexempt employees,” the Department calculated the percentage increase in

weekly earnings from 1940 to 1949, and then adopted new salary levels at a “figure slightly

lower than might be indicated by the data” to protect small businesses.

149

In 1949, the

Department also established a short test for exemption, which paired a higher salary level with a

less rigorous duties test. The justification for this short test was that employees who met the

higher salary level were more likely to meet all the requirements of the exemption (including the

20 percent limit on nonexempt work), and thus a “short-cut test of exemption . . . would facilitate

147

3 FR 2518.

148

See Stein Report at 20–21, 31–32.

149

Weiss Report at 8, 14.

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the administration of the regulations without defeating the purposes of section 13(a)(1).”

150

Employees who met only the lower long test salary level, and not the higher short test salary

level, were required to satisfy the long duties test, which included a limit on the amount of

nonexempt work that an exempt employee could perform. The two-test system remained part of

the Department’s regulations until 2004. In 1958, the Department reiterated that salary is a “mark

of [the] status” of an exempt employee and reinforced the importance of salary as an

enforcement tool, adding that the Department had “found no satisfactory substitute for the salary

tests.”

151

To set the salary levels, the Department considered data collected during 1955 WHD

investigations on the “actual salaries paid” to employees who “qualified for exemption” (i.e., met

the applicable salary and duties tests in place at the time) and set the salary levels at $80 per

week for executives and $95 per week for administrative and professional employees.

152

The

Department set the long test salary levels so that only a limited number of employees performing

EAP duties (about 10 percent) in the lowest-wage regions and industries would fail to meet the

new salary level and therefore become entitled to overtime pay.

153

In laying out this

methodology, often referred to as the “Kantor” methodology and generally referenced in this rule

as the “long test” methodology, the Department echoed its prior comments stating that the salary

tests “simplify enforcement by providing a ready method of screening out the obviously

nonexempt employees.”

154

150

Id. at 22–23.

151

Kantor Report at 2–3.

152

Id. at 6, 9.

153

Id. at 6–7.

154

Id. at 2–3; see Weiss Report at 8.

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The Department followed a similar methodology when determining the appropriate long

test salary level in 1963, using data regarding salaries paid to exempt workers collected in a 1961

WHD survey.

155

The salary level for executive and administrative employees was increased to

$100 per week, and the professional exemption salary level was increased to $115 per week.

156

The Department noted that these salary levels approximated the methodology used in 1958 to set

the long test salary levels.

157

The Department continued to use a similar methodology when it updated the salary levels

in 1970. After examining data from 1968 WHD investigations, 1969 BLS wage data, and

information provided in a report issued by the Department in 1969 that included salary data for

executive, administrative, and professional employees,

158

the Department increased the long test

salary level for executive and administrative employees to $125 per week and increased the long

test salary level for professional employees to $140 per week.

159

In 1975, instead of following the previous long test methodology, the Department set the

long test salary levels “slightly below” the amount suggested by adjusting the 1970 salary levels

for inflation based on increases in the Consumer Price Index.

160

The long test salary level for

executive and administrative employees was set at $155, while the professional level was set at

$170. The salary levels adopted were intended to be interim levels “pending the completion and

analysis of a study by [BLS] covering a six-month period in 1975[,]” and were not meant to set a

155

28 FR 7002 (July 9, 1963).

156

Id. at 7004.

157

Id.

158

See 34 FR 9934, 9935 (June 24, 1969).

159

35 FR 885.

160

40 FR 7091.

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precedent for future salary level increases.

161

The envisioned process was never completed,

however, and the “interim” salary levels remained unchanged for the next 29 years.

The short test salary level increased in tandem with the long test level throughout the

various rulemakings between 1949 and 2004. Because the short test was designed to capture only

those white-collar employees whose salary was high enough to indicate a stronger likelihood of

being employed in a bona fide EAP capacity and thus warrant a less stringent duties requirement,

the short test salary level was always set significantly higher than the long test salary level

(approximately 130 percent to 180 percent of the long test level).

When the Department updated the part 541 regulations in 2004, it created a single

standard test for exemption instead of retaining the two-test system from prior rulemakings. The

Department set the new standard salary level at $455 per week and paired it with a duties test

that was substantially equivalent to the less rigorous short duties test. The Department set a

salary level that would exclude from exemption roughly the bottom 20 percent of full-time

salaried employees in each of two subpopulations: (1) the South and (2) the retail industry

nationally. In setting the salary level the Department looked to earnings data for all white-collar

workers—exempt and nonexempt—and looked to a higher percentile than the long test

methodology (10th percentile of exempt workers in low-wage industries and areas). The

Department acknowledged, however, that the salary arrived at by this method was, at the time,

equivalent to the salary derived from the long test method using contemporaneous data.

162

161

Id. at 7091–92.

162

See 69 FR 22168. The 2004 rule looked to the 20th percentile of a data set of all full-time

salaried workers and the long test methodology looked to the lowest paid 10 percent of exempt

salaried workers. The two methodologies resulted in equivalent salary levels because exempt

salaried workers generally have higher earnings than nonexempt salaried workers.

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In the 2016 rule, the Department set the standard salary level equal to the 40th percentile

of weekly earnings of full-time salaried workers in the lowest-wage Census Region (the South).

This resulted in a standard salary level of $913 per week, which was at the low end of the

historic range of short test salary levels. The Department explained that the increase in the

standard salary level was needed because, in moving from a two-test to a one-test system, the

2004 rule exempted lower-salaried employees performing large amounts of nonexempt work

who had historically been, and should continue to be, covered by the overtime compensation

requirement.

163

Since the standard duties test was equivalent to the short duties test, the

Department asserted that a salary level in the short test salary range—traditionally 130 to 180

percent of the long test salary level—was necessary to address this effect of the 2004 rule. As

explained earlier, the U.S. District Court for the Eastern District of Texas held the 2016 rule

invalid.

In the 2019 rule, the Department reapplied the methodology for setting the standard

salary threshold from the 2004 rule, setting the salary level equal to the 20th percentile of weekly

earnings of full-time salaried workers in the South and/or in the retail sector nationwide.

164

This

methodology addressed concerns that had been raised that the 2016 methodology excluded too

many employees from the exemption based on their salary alone and produced the current

standard salary level of $684 per week (equivalent to $35,568 per year).

165

Unlike in 2004,

however, where the 20th percentile of weekly earnings of full-time salaried workers in the South

and retail nationally was essentially the same as the long test, in 2019 this methodology now

163

81 FR 32405.

164

See 84 FR 51260 (Table 4).

165

Id. at 51238.

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produced a salary level amount that was lower than the equivalent of the long test salary level

using contemporaneous data ($724 per week, $37,648 per year). Put another way, the salary level

set in the 2019 rule was $40 per week below the long test level (used to validate the salary level

in the 2004 rule) and $292 per week below the low end of the short test range (used to set the

salary level in the 2016 rule).

2. Standard Salary Level Proposal

In its NPRM, the Department proposed to update the salary level by setting it equal to the

35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (the

South), resulting in a proposed salary level of $1,059 per week ($55,068 for a full-year worker).

The Department’s proposal explained that fully restoring the salary level’s screening function

required setting a salary level at least equal to the long test salary level. The Department

elaborated that prior to the 2019 rule (when the Department set the salary level $40 per week

below the long test level), employees who earned below the long test salary level were screened

from the EAP exemption by virtue of their pay—either by the long test salary level itself or, in

the case of the 2004 rule, a standard salary level set equal to the long test salary level. The

Department stated that the long test salary level provided what it believed should be the lowest

boundary of the new salary level methodology because it would ensure the salary level’s historic

screening function was restored.

In selecting the proposed salary level methodology, the Department also considered the

impact of its switch in 2004 to a one-test system for determining exemption status. The

Department explained that a single-test system cannot fully replicate both the two-test system’s

heightened protection for employees performing substantial amounts of nonexempt work and its

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increased efficiency for determining exemption status for employees who are highly likely to

perform EAP duties. Rather than reinstate the long duties test with its limitation on nonexempt

work, the Department examined earnings ventiles that would produce a salary level between the

long and short test salary levels (which were, respectively, equivalent to between the 26th and

27th percentiles, and the 53rd percentile, of full-time salaried worker earnings in the lowest-

wage Census Region). The Department explained that the long and short tests had served as the

foundation for nearly all the Department’s prior rulemakings, either directly under the two-test

system, or indirectly as a means of evaluating the Department’s salary level methodology under

the one-test system, and therefore were useful parameters. The Department concluded that

setting the salary level equal to the 35th percentile would, in combination with the standard

duties test, more effectively identify in a one-test system who is employed in a bona fide EAP

capacity in a manner that reasonably distributes among employees earning between the long and

short test salary levels and their employers the impact of the Department’s move to a one-test

system.

After reviewing the comments received, the Department is finalizing its proposal to set

the standard salary level equal to the 35th percentile of full-time salaried worker earnings in the

lowest-wage Census Region (the South), which is below the midpoint of the long and short test

salary levels. Applying this methodology to data for calendar year 2023 results in a salary level

of $1,128 per week ($58,656 annually for a full-year worker). This approach will fully restore

the salary level’s function of screening obviously nonexempt workers from the EAP exemption,

and account for the switch in the 2004 rule to a one-test system in a way that reasonably

distributes the impact of this shift among employees earning between the long and short test

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salary levels and their employers. The resulting salary level will work effectively with the

standard duties test to better define who is employed in a bona fide EAP capacity.

3. Salary Level Test Function and Effects

For 85 years, the Department’s regulations have consistently looked at both the duties

performed by the employee and the salary paid by the employer in defining and delimiting who

is a bona fide executive, administrative, or professional employee exempt from the FLSA’s

minimum wage and overtime protections. From 1949 to 2004, the Department determined EAP

exemption status using a two-test system comprised of a long test (a lower salary level paired

with a more rigorous duties test that limited performance of nonexempt work to no more than 20

percent for most employees) and a short test (a higher salary level paired with a less rigorous

duties test that looked to the employee’s primary duty and did not have a numerical limit on the

amount of nonexempt work). The two-test system facilitated the determination of whether white-

collar workers across the income spectrum were employed in a bona fide EAP capacity, and

employees who met either test could be classified as EAP exempt.

In a two-test system, the long test salary level screens from the exemption the lowest-paid

white-collar employees, thereby ensuring their right to overtime compensation. The Department

has often referred to many of the employees who are screened from the exemption by virtue of

their earning below the lower long test salary level as “‘obviously nonexempt employees[.]’”

166

The long test salary level helped distinguish employees who were not employed in a bona fide

EAP capacity because the Department found that employees who were screened from exemption

166

See id. at 51237 (quoting Kantor Report at 2–3).

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by the long test salary level generally did not meet the other requirements for exemption.

167

Since 1958, the long test salary level was generally set to exclude from exemption approximately

the lowest-paid 10 percent of salaried white-collar employees who performed EAP duties in the

lowest-wage regions and industries.

168

The long test salary level also served as a line delimiting

the population of white-collar employees for whom the duties test determined their exemption

status. In the two-test system, this duties analysis included an examination of the amount of

nonexempt work performed by lower-salaried employees, which ensured that these employees

were employed in an EAP capacity by limiting the amount of time they could spend on

nonexempt work. The duties and salary level tests worked in tandem to properly define and

delimit the exemption: lower-paid workers had to satisfy a more rigorous duties test with strict

limits on nonexempt work, and higher-paid employees were subject to a less rigorous duties test

because they were more likely to satisfy all the requirements of the exemption (including the

limit on nonexempt work).

169

Because employees who met the short test salary level were paid well above the long test

salary level, the short test salary level did not perform the same function as the long test salary

level of screening obviously nonexempt employees. Instead, the short test salary level was used

to determine whether the full duties test or the short-cut duties test would be applied to determine

EAP exemption status. The exemption status of employees paid more than the long and less than

the short test salary levels was determined by applying the more rigorous long duties test that

167

See Kantor Report at 2–3; Weiss Report at 8 (“In an overwhelming majority of cases, it has

been found by careful inspection that personnel who did not meet the salary requirements would

also not qualify under other sections of the regulations[.]”).

168

See 84 FR 51236.

169

Weiss Report at 22–23.

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ensured overtime protections for employees who performed substantial amounts of nonexempt

work. The exemption status of employees paid at or above the higher short test salary level was

determined by the less rigorous short duties test that looked to the employee’s primary duty and

did not cap the amount of nonexempt work an employee could perform. The short test thus

provided a faster and more efficient duties test based on the Department’s experience that

employees paid at the higher short test salary level “almost invariably” met the more rigorous

long duties test, including its 20 percent limit on nonexempt work, and therefore a shortened

analysis of duties was a more efficient test for exemption status.

170

In 2004, rather than updating the two-test system, the Department chose to establish a

new, single-test system for determining exemption status. The new single standard test for

exemption used a duties test that was substantially equivalent to the less rigorous short duties test

in the two-test system.

171

Since the creation of the standard test, the Department has taken two

different approaches to set the standard salary level that pairs with the standard duties test.

In 2004, as noted above, the Department set the new salary level roughly equivalent to

the 20th percentile of weekly earnings of full-time salaried workers in the South and in the retail

industry nationwide.

172

The Department acknowledged that the salary level ($455 per week) was,

in fact, equivalent to the lower long test salary level amount under the two-test system using

contemporaneous data.

173

Because it was equivalent to the long test salary level, the standard

salary test continued to perform the same initial screening function as the long test salary level:

170

Id.

171

69 FR 22214.

172

See id. at 22168–69.

173

See id.

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employees who historically were entitled to overtime compensation because they earned below

the long test salary level remained nonexempt under the new standard test.

Without a higher salary short test, however, all employees who met the standard salary

level were subject to the same duties test. Since the single standard duties test was equivalent to

the short duties test, some employees who previously did not meet the long duties test met the

standard duties test. As a result, the shift from a two-test to a one-test system significantly

broadened the EAP exemption because employees who historically had not been considered

bona fide EAP employees were now defined as falling within the exemption and would not be

eligible for overtime compensation. This broadening specifically impacted lower-paid, salaried

white-collar employees who earned between the long and short test salary levels and performed

substantial amounts of nonexempt work. Under the two-test system, these employees had been

entitled to overtime compensation if their nonexempt duties exceeded the long test’s strict 20

percent limit on such work. Under the 2004 standard test, these employees became exempt

because they met both the low standard salary level and the less rigorous standard duties test,

which does not have a numerical limit on the amount of nonexempt work.

The Department’s discussion of the elimination of the long duties test in the 2004 rule

focused primarily on the minimal role played by the long test at that time due to the erosion of

the long salary level, and on the difficulties employers would face if they were again required to

track time spent on nonexempt work when the dormancy of the long duties test meant that they

had generally not been performing such tracking for many years.

174

While asserting that

employees who were then subject to the long test would be better protected under the higher

174

See 69 FR 22126-27.

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salary level of the new standard test, the Department in the 2004 rule did not compare the

protection lower salaried employees would receive under the standard test with the protection

they would have received under an updated long test with a salary level based on

contemporaneous data and the existing long duties test.

To address the concern that lower-salaried employees performing large amounts of

nonexempt work historically were not considered bona fide EAP employees and thus should be

entitled to overtime compensation, in 2016 the Department set the standard salary level at the

40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census

Region (the South). This methodology produced a salary level ($913 per week) that was at the

low end of the historical range of short test salary levels, which had traditionally been paired

with the short duties test, and above the midpoint between the long and short test salary levels.

175

This approach restored overtime protection for employees performing substantial amounts of

nonexempt work who earned between the long and short test salary levels, as they failed the new

salary level test. However, this approach generated potential concerns that the salary level test

should not be determinative of exemption status for too many individuals. Specifically, the 2016

rule’s narrowing of the exemption prevented employers from using the exemption for employees

who earned between the long test salary level and the low end of the short test salary range and

would have met the more rigorous long duties test. Prior to 2004, employers could use the long

test to exempt these employees, and under the 2004 rule these employees remained exempt under

the one-test system. Thus, while the 2016 rule accounted for the absence of the long duties test

by restoring overtime protections to employees earning between the long test salary level and the

175

81 FR 32405, 32467.

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low end of the short test salary range who perform significant amounts of nonexempt work, it

also made a group of employees who had been exempt under the two-test system newly

nonexempt under the one-test system: employees earning between the long test level and the

short test salary range who perform only limited nonexempt work.

In its 2019 rule, the Department determined that the 2016 rule had not sufficiently

considered the impact of the increased standard salary level on employers’ ability to use the

exemption for this group of lower-paid employees who performed only limited amounts of

nonexempt work.

176

The Department emphasized that “[f]or most . . . employees the exemption

should turn on an analysis of their actual functions, not their salaries,” and that the 2016 rule’s

effect of making nonexempt lower-paid, white-collar employees who traditionally were exempt

under the long test “deviated from the Department’s longstanding policy of setting a salary level

that does not ‘disqualify[] any substantial number of’ bona fide executive, administrative, and

professional employees from exemption.”

177

To address these concerns, the Department simply

returned to the 2004 rule’s methodology for setting the salary threshold. Applying the 2004

method to the earnings data available in 2019 produced a standard salary level of $684 per week,

which was below the equivalent of what the long test salary level would have been using

contemporaneous data ($724 per week).

178

The 2019 rule was the first time the Department

paired the standard duties test with a salary level that was not at least equivalent to the long test

level.

176

84 FR 10908.

177

Id. (quoting Kantor Report at 5).

178

84 FR 51260.

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The 2019 rule, like the 2004 rule, exempted all employees who earned between the long

and short test salary levels and performed too much nonexempt work to meet the long duties test,

but passed the standard duties test (equivalent to the short duties test). The 2019 rule also for the

first time permitted the exemption of a group of low-paid white-collar employees (those earning

between $684 and $724 per week) who had always been protected by the salary level test’s initial

screening function—either under the long test or under the 2004 rule salary level that was

equivalent to the long test salary level. The Department stated that the standard salary level’s

“fairly small difference” from the long test level did not justify using the long test methodology

to set the salary level and emphasized that its approach preserved the salary level’s principal

function as a tool for screening from exemption obviously nonexempt employees.

179

In response

to commenter concerns about the 2019 rule exempting employees who traditionally earned

between the long and short test salary levels and received overtime compensation because they

did not meet the long duties test, the Department cited the legal risks posed by the 2016

methodology (drawing on the district court’s decisions as evidence) and explained that such

employees were already exempt in the years leading up to 2004 because the Department’s

outdated salary levels had rendered the long test with its more rigorous duties requirement

largely dormant.

180

As in the 2004 rule, the Department did not address the protection such lower

salaried employees would have received had the Department updated the long test using

contemporary data.

179

Id. at 51244.

180

Id. at 51243.

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As explained in the NPRM, the Department’s experience with a one-test system shows

that it is less nuanced than the two-test system, which allowed for finer calibration in defining

and delimiting the EAP exemption. In a two-test system, there are four variables (two salary

levels and two duties tests) that can be adjusted to define and delimit the exemption. In a one-test

system, there are only two variables (one salary level and one duties test) that can be adjusted,

necessarily yielding less nuanced results. The loss in precision does not impact the lowest-paid

white-collar employees, who were screened from exemption by the long test salary level,

because they maintain their right to overtime pay so long as the standard salary level is set at

least equivalent to the lower long test salary level—a condition that was met by the 2004 rule’s

salary level but not by the 2019 rule’s salary level. Instead, the Department’s experience shows

that the shift from a two-test system to a one-test system impacts employees earning between the

long and short test salary levels and, in turn, employers’ ability to use the exemption for these

employees.

In the two-test system, employees who earned between the long and short test salary

levels and performed large amounts of nonexempt work were protected by the long duties test,

while bona fide EAP employees in that earnings range who performed only limited amounts of

nonexempt work were exempt. Meanwhile, the short test provided a time-saving short-cut test

for higher-earning employees who would almost invariably pass the more rigorous, and thus

more time consuming, long duties test. But the more rigorous long duties test, with its limitation

on the amount of nonexempt work that could be performed, was always core to the two-test

system, with the higher short test salary level and less rigorous short duties test serving as a time-

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saving mechanism for employees who would likely have met the more rigorous long duties

test.

181

As explained in the NPRM, one way in a one-test system to ensure appropriate overtime

protection to lower-salaried employees earning between the long and short test salary levels who

were historically entitled to overtime compensation under the long test would be to reinstate the

long duties test with its limitation on nonexempt work. A one-test system with a more rigorous

duties test would appropriately emphasize the important role of duties in determining exemption

status. However, the Department did not propose in this rulemaking to replace the standard

duties test with the long duties test or to return to a two-test system with the long duties test. The

Department has not had a one-test system with a limit on nonexempt work other than from 1940

to 1949,

182

when the Department replaced this approach with its two-test system, and the two-test

system was replaced 20 years ago. Returning to the two-test system would eliminate the benefits

of the current duties test, including having a single test with which employers and employees are

familiar.

In light of these considerations, the Department’s goal in this rulemaking is not only to

update the single standard salary level to account for earnings growth since the 2019 rule through

the use of the updating mechanism, but also to build on the lessons learned in its most recent

rulemakings to more effectively define and delimit employees employed in a bona fide EAP

capacity. Consistent with its broad authority under section 13(a)(1), the Department’s aim is to

181

Numerous employer organizations supported the Department’s decision in 2004 to move to a

one-test system. See 69 FR 22126-27. Commenters likewise opposed returning to the two-test

structure in the 2016 and 2019 rulemakings. See 84 FR 10905; 81 FR 32444.

182

See 5 FR 4077.

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have a single salary level test that will work effectively with the standard duties test to better

define who is employed in a bona fide EAP capacity and will both fully perform the salary

level’s initial screening function and account for the change to a single-test system.

4. Discussion of Comments and Final Standard Salary Level

i. Overall Commenter Feedback.

The Department received a significant number of comments in response to its proposal to

set the standard salary level equal to the 35th percentile of weekly earnings of full-time salaried

workers in the lowest-wage Census Region. Numerous commenters supported the Department’s

proposed salary level. Supporters included thousands of individual employees, writing separately

or as part of comment campaigns, and many groups representing employees or employee

interests. See, e.g., American Association of Retired Persons (AARP); AFSCME; AFT; NEA;

Restaurant Opportunities Center United; United Auto Workers Region 6; United Steelworkers;

WorkMoney. Many other commenters, including advocacy groups, academics, and State officials

also supported the Department’s proposal. See, e.g., Administrative Law Professors; CLASP;

Coalition of Gender Justice and Civil Rights Organizations; Coalition of State AGs; Common

Good Iowa; EPI; The Leadership Conference on Civil and Human Rights; National Partnership;

NWLC. A number of supportive commenters urged the Department to set a higher salary level

than the one it proposed. See, e.g., AFL-CIO; Demos; Nichols Kaster; Sanford Heisler Sharp;

SEIU; Winebrake & Santillo, LLC (Winebrake & Santillo). A minority of employers, including

most notably a campaign of small business commenters, also supported the proposed salary

level. See, e.g., Business for a Fair Minimum Wage; Dr. Bronners; Firespring; Small Business

Majority. Some members of Congress also commented in support of the proposed salary level.

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See 19 Democratic Senators; 10 Democratic Representatives; U.S. Representative Maxwell Frost

(D-FL).

Commenters that supported increasing the salary level often emphasized that the FLSA’s

minimum wage and overtime requirements are fundamental employee protections, intended to

spread employment to more workers and provide extra compensation (above the statutory

minimum) to employees who work more than 40 hours in a week. See, e.g., AARP; AFL-CIO;

Coalition of State AGs; NELA; NELP; Nichols Kaster; United Steelworkers. Some supportive

commenters, including Sanford Heisler Sharp, Texas RioGrande Legal Aid, and Washington

State Department of Labor and Industries, stressed that the EAP exemption was premised in part

on the expectation that exempt employees received high salaries and other privileges to

compensate for their long hours of work and lack of FLSA protections. Other commenters

similarly stressed that the exemption is intended for employees who, based on the nature of their

work and their compensation, have sufficient bargaining power not to need the Act’s protections.

See, e.g., Business for a Fair Minimum Wage; CLASP; NELP; NWLC.

Supportive commenters often also emphasized that the salary level test has an important

and longstanding role in helping define which employees are employed in a bona fide executive,

administrative, or professional capacity. Some commenters, including AARP and NELA,

stressed that the salary level provides an important “bright line” test for helping determine

exemption status, and NWLC similarly stated that the salary level provides a “clear, objective,

and straightforward” test that is “easy for employers to apply and for employees to

understand[.]” NELP, quoting testimony from EPI at a 2015 Congressional hearing on this issue,

stated that salary level tests have been used since the Department’s earliest part 541 regulations

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because the “‘final and most effective check on the validity of the claim for exemption is the

payment of a salary commensurate with the importance supposedly accorded the duties in

question.’” The Coalition of State AGs stated that a salary level that is too low “no longer

accurately delimits the boundaries of who is an EAP” employee.

The vast majority of employers and commenters supporting employer interests opposed

the proposed salary level. As discussed in section III, many employer representatives opposed

any salary level increase and urged the Department to withdraw its proposal. See, e.g., AHLA;

Americans for Prosperity; Chamber; CUPA-HR; FMI; NAM; National Restaurant Association;

Oregon Restaurant and Lodging Association; PPWO; Wisconsin Bankers Association. Some

Members of Congress also opposed the proposed salary level and urged that the proposal be

withdrawn. See 10 Republican Senators; 16 Republican Representatives; U.S. Senator Mike

Braun (R-IN). Some commenters opposed to the proposal, writing separately or as part of

comment campaigns, expressed general opposition to the rule but did not specifically address

what, if any, salary level increase they would support in a final rule. See, e.g., American Dental

Association; Humane Society of Manatee County; National Sporting Goods Association. Others

that opposed or questioned any salary level change stated, in the alternative, what method they

preferred if the Department updated the salary level in the final rule. Most such commenters

favored applying the methodology that the Department used to set the salary level in its 2004 and

2019 rulemakings (the 20th percentile of earnings of full-time salaried workers in the South and

in the retail industry nationally) or updating for inflation the current salary level, which was set

using that methodology. See, e.g., ABC; CWC; NAM; National Restaurant Association. A

handful of employer commenters supported, or stated that they did not oppose, an increase based

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on the 2004/2019 methodology (resulting in a salary level of $822 per week based on data used

in the NPRM), citing, for example, that this approach promoted predictability, see RILA, and

accounted for regional and industry-specific differences, see YMCA. See also, e.g., SHRM;

WFCA. Others supported or suggested a salary level that was higher, but below the Department’s

proposed level. See, e.g., American Society of Association Executives; Ho-Chunk, Inc.;

University System of Maryland.

Commenters that opposed the Department’s proposal almost always objected to the size

and/or timing of the proposed salary level increase rather than to the existence of the salary test

itself. Most employer commenters, whether favoring no increase or a smaller increase, presumed

the salary level test’s continued existence and lawfulness, with some, such as National

Restaurant Association, expressly referencing their support for the 2019 rule’s salary level

increase. As discussed in detail below, many commenters acknowledged the salary level’s

longstanding function of screening obviously nonexempt employees from the exemption. See

section V.B.4.ii. Other commenters that opposed the proposal nonetheless cited benefits of

having a salary level test, including helping to ensure that the EAP exemption is not abused, see,

e.g., AASA/AESA/ASBO, Bellevue University, and “sav[ing] investigators and employers time

by giving them a quick, short-hand test[.]” See National Restaurant Association. APLU

recognized “DOL’s mission and responsibility to update the Fair Labor Standards Act overtime

regulations and ensure a baseline of protections for our nation’s workers, including periodic

updates to the minimum salary threshold for overtime exemptions.” In rather stark contrast, AFPI

asserted that employee “[c]ompensation is no more helpful than would be a dress code test” in

determining exemption status. AFPI was one of only a small number of commenters, as

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previously discussed in section V.A.1, that asserted the Department lacks authority under section

13(a)(1) to adopt a salary level test. See, e.g., Job Creators Network Foundation; NFIB; Pacific

Legal Foundation.

As the Department stated in its 2019 rule, an employee’s salary level “is a helpful

indicator of the capacity in which an employee is employed, especially among lower-paid

employees.”

183

The amount an employee is paid is also a “valuable and easily applied index to

the ‘bona fide’ character of employment for which exemption is claimed,” as well as the

principal “delimiting requirement . . . prevent[ing] abuse” of the exemption.

184

As the

Department has explained, if an employee “is of sufficient importance . . . to be classified” as a

bona fide executive employee, for example, and “thereby exempt from the protection of the

[A]ct, the best single test of the employer’s good faith in attributing importance to the

employee’s services is the amount [it] pays for them.”

185

Employee compensation is a relevant

indicator of exemption status given that, as many commenters observed, the EAP exemption is

premised on the understanding that individuals who are employed in a bona fide executive,

administrative, or professional capacity typically earn higher salaries and enjoy other privileges

to compensate them for their long hours of work, setting them apart from nonexempt employees

entitled to overtime pay.

186

Accordingly, the Department agrees with the overwhelming majority

183

84 FR 51239 (internal quotation marks omitted).

184

Stein Report at 19, 24; see also 81 FR 32422.

185

Stein Report at 19; see also id. at 26 (“[A] salary criterion constitutes the best and most easily

applied test of the employer’s good faith in claiming that the person whose exemption is desired

is actually of such importance to the firm that he is properly describable as an employee

employed in a bona fide administrative capacity.”).

186

See Report of the Minimum Wage Study Commission, Vol. IV, at 236, 240; see also, e.g.,

Stein Report at 19 (explaining that the “term ‘executive’ implies a certain prestige, status, and

importance” denoted by pay “substantially higher than” the federal minimum wage).

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of commenters that, explicitly or implicitly, supported the salary level continuing to have a role

in helping determine whether employees are employed in a bona fide executive, administrative,

or professional capacity.

187

The Department nonetheless recognizes that commenters had a wide range of views

about the salary level test and that no salary level methodology can satisfy all stakeholders. As

discussed below, competing commenter views were often grounded in differing opinions about

the salary level test’s role in defining the EAP exemption. Broadly speaking, commenters that

opposed the proposal generally favored a far more limited role for the salary level test and

emphasized perceived negative effects on employers of the proposed increase, while commenters

that supported the proposal or urged the Department to set a higher salary level often deemed the

proposal modest by historical standards and emphasized perceived positive effects on employees

of the proposed increase. Against this backdrop, the Department has reviewed the comments

received on its proposed methodology, with particular focus on feedback on the NPRM’s

rationale that the proposed methodology will better define and delimit the EAP exemption by

fully restoring the salary level’s screening function and accounting for the switch from a two-test

to a one-test system.

ii. Fully Restoring the Salary Level’s Screening Function

Some employer advocates that opposed the Department’s proposal emphasized the salary

level’s limited function of screening obviously nonexempt employees from the EAP exemption.

187

Consistent with its longstanding practice, the Department declines requests from commenters,

including Defiance College, International Bancshares Corporation, Rachel Greszler, and WFCA,

that suggested the Department adopt multiple salary level tests for different regions, industries,

and/or small businesses, rather than a single salary level that applies to all entities nationwide.

See 84 FR 51239; 81 FR 32411; 69 FR 22171.

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See, e.g., Independent Community Bankers of America; IFDA; National Council of Farmer

Cooperatives (NCFC); SHRM. Many employer representatives stated that the proposed salary

level exceeded this purpose by excluding from the exemption too many employees who pass the

duties test, particularly in low-wage regions and industries. See, e.g., Chamber; NAW; PPWO;

RILA; Seyfarth Shaw. AFPI quoted the statement in the Department’s 2019 rule that any salary

level increase must “have as its primary objective the drawing of a line separating exempt from

nonexempt” employees, and the Chamber asserted that to the extent employee “protection or

fairness” concerns motivated the proposed increase, such considerations exceed the

Department’s statutory authority.

Employer representatives that focused on the salary level’s screening function often

contrasted the Department’s proposal with prior rules that they stated met this objective. CWC

referenced the Department’s 1958 and 2004 rules as such examples, while AHLA stated more

broadly that the Department historically set a salary level that was “intentionally low” to screen

out nonexempt employees, and that the Department’s proposed methodology “is objectively not

the low end of the salary range as that has been understood since 2004[.]” Other commenters

similarly cited the 2004 and 2019 rules as fulfilling the salary level test’s screening function,

with National Restaurant Association, for example, emphasizing the salary level’s screening

function when explaining that the “2004 methodology’s chief virtue is its consistency with

historical practice.” See also, e.g., Bellevue University. Some commenters, including NCFC and

PPWO, stated that the proposed salary level would change the salary level from a “screening

device” to a “de facto sole test” for exemption, while others cautioned that the salary level set in

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the 2016 rule was declared invalid for exceeding this screening function. See also, e.g.,

Argentum & ASHA; NAM.

Though some employee representatives addressed the salary level’s screening function,

they generally emphasized other considerations that they believed justified setting a salary level

equal to or higher than what the Department proposed. A number of commenters stated that,

along with the duties test, the salary level “is intended to set a guardrail so that employers do not

incorrectly classify lower-paid salaried employees as” exempt. See, e.g., AFSCME; Family

Values @ Work; North Carolina Justice Center; United Steelworkers; Yezbak Law Offices.

Similarly alluding to the salary level’s screening function, AFL-CIO emphasized that until 2019

the Department had never set the salary level below the long test level and that as a result more

than half of the employees affected by the proposed salary level would have been nonexempt

under every prior rule (because they earned below the long test or long test-equivalent salary

level). EPI similarly stated that the 2019 rule set a salary level “that was even lower than what

the long-test methodology would have yielded.” See also Coalition of State AGs (referencing the

salary level’s screening function).

The Department has considered commenter feedback about the salary level test’s

screening function. The Department agrees with all commenters that emphasized the salary level

test’s function of screening obviously nonexempt employees from the exemption, a principle

that, as the Department observed in the 2019 rule and in the NPRM, “has been at the heart of the

Department’s interpretation of the EAP exemption for over 75 years.”

188

Fully effectuating the

salary level’s screening function is a key part of ensuring that the salary level sets an appropriate

188

88 FR 62165 (citing 84 FR 51241).

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dividing line separating exempt and nonexempt employees. In response to the Chamber’s

concern about the motivations underlying the proposed salary level, the Department notes that

while its proposal protects employees and promotes fairness (by helping ensure that only

employees employed in a bona fide executive, administrative, or professional capacity are

deprived of the FLSA’s minimum wage and overtime protections), these beneficial effects are a

byproduct of any higher salary level, not a basis for the proposed salary level.

As the Department explained in its NPRM, the concept of the salary level’s screening

function dates back to the two-test system, when the lower long test salary level provided “a

ready method of screening out the obviously nonexempt employees, making an analysis of duties

in such cases unnecessary.”

189

When the Department updated the long test in 1958, it reaffirmed

the long test salary’s function as a screening tool.

190

When the Department moved to a one-test

system in 2004, the standard salary test had to perform the initial screening function that the long

test salary level performed in the two-test system. In the 2004 rule, the Department reaffirmed its

historical statements emphasizing the salary level’s critical screening function and, most

significantly, used the long test salary level methodology to validate its new salary level of $455

per week.

191

The Department stressed in its final rule that both the 2004 rule standard salary level

methodology and the long test salary level methodology “are capable of reaching exactly the

same endpoint” and demonstrated that the two methods, in fact, produced equivalent salary

189

Weiss Report at 8.

190

Kantor Report at 2–3.

191

69 FR 22165–22166.

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levels using contemporaneous data.

192

By setting a salary level equivalent to the long test level,

the Department ensured that employees earning at levels that would have entitled them to

overtime compensation under the two-test system because they earned below the long test salary

level remained screened from the exemption by the new standard salary test, regardless of

whether they met the less rigorous standard duties test. The Department rejected requests from

commenters that supported a salary level that was $30 to $95 lower than the level the

Department ultimately adopted,

193

thus maintaining the historic screening function by declining

to set a salary level lower than the long test level.

In its 2019 rule, the Department reemphasized the salary level’s screening function.

194

The Department distinguished the 2016 rule, which was invalidated because it “‘untethered the

salary level test from its historical justification’ of ‘[s]etting a dividing line between nonexempt

and potentially exempt employees’ by screening out only those employees who, based on their

compensation level, are unlikely to be bona fide executive, administrative, or professional

employees.”

195

In contrast, the Department explained, reapplying the 2004 methodology to

contemporaneous data was likely to pass muster because the district court that invalidated the

2016 rule “endorsed the Department’s historical approach to setting the salary level” and

192

See id. at 22167–71 (showing that for all full-time salaried employees, $455 in weekly

earnings corresponded to just over the 20th percentile in the South and the 20th percentile in

retail, and that for employees performing EAP duties, $455 in weekly earnings corresponded to

just over the 8th percentile in the South and the 10th percentile in retail). AFPI commented that

in the 2003 NPRM the Department “acknowledged that ‘equivalency to either the current long or

short test salary levels is not appropriate’ because of the switch to a one-test system.” (quoting

68 FR 15560, 11570 (Mar. 31, 2003)). However, the Department shifted in its final rule and

validated its chosen methodology using the long test salary level.

193

See 69 FR 22164.

194

84 FR 51237.

195

Id. at 51231 (quoting 84 FR 10901).

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“explained that setting ‘the minimum salary level as a floor to screen[] out the obviously

nonexempt employees’ is ‘consistent with Congress’s intent.’”

196

In its NPRM, the Department explained that it needed to set a salary level at least equal to

the long test—$925 per week, equating to between the 26th and 27th percentiles of weekly

earnings of full-time salaried workers in the South—to fully restore the salary level’s screening

function. As noted above, employer commenters that emphasized the salary level’s screening

function generally viewed this function (which they often construed narrowly) as a justification

for limiting the size of any potential salary increase. However, such commenters did not directly

address the NPRM’s explanation of the long test salary level’s key role in the salary level’s

screening function or the relationship between the 2004/2019 methodology and the long test.

Other commenters that endorsed the screening function as embodied in the 2004 rule did not

grapple with the fact that in the 2019 rule, that methodology did not fully fulfill that function

because it no longer arrived at the same endpoint as prior rules (i.e., a long test or long-test

equivalent salary level).

The Department’s position remains that a core function of the salary level test is to screen

from the EAP exemption employees who, based on their low pay, should receive the FLSA’s

overtime protections. For decades under the Department’s two-test system, the long test salary

level performed this screening function. In the 2004 rule, the Department used a different

approach to reach the same outcome—setting a single salary level test that was equivalent to, and

thus set the same line of demarcation as, the long test salary level. The Department deviated from

this approach in 2019, setting a salary level that was $40 per week below the level produced

196

Id. at 51241 (quoting 275 F. Supp.3d at 806).

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using the long test methodology.

197

In doing so, the Department for the first time expanded the

exemption to include employees who were paid below the equivalent of the long test salary level.

The Department reaffirms its position stated in the NPRM that the salary level test must

equal at least the long test salary level in order to fulfill its historical screening function. From

1938 to 2019, all salaried white-collar employees paid below the long test salary level were

entitled to the FLSA’s protections, regardless of the duties they performed. This was true from

1938 to 1949 under the salary level test that became the long test;

198

from 1949 to 2004 under the

long test; and from 2004 to 2019 under the standard salary level test that was set equivalent to

the long test level—a key fact that commenters that opposed the Department’s proposal generally

did not address. Setting the salary level below the long test level as was done in the 2019 rule—

because the 2004 methodology no longer matched the long test salary level based on

contemporaneous data—departed from this history by enlarging the exemption to newly include

employees who earned less than the long test salary level. As an initial step, the new salary level

methodology must fully restore the salary level’s screening function by ensuring that employees

who were nonexempt because they earned less than the long test or long test-equivalent salary

level are also nonexempt under the standard test. Achieving this objective requires a standard

salary level amount at least equal to the long test level ($942 per week using current data, which

equates to approximately the 25th percentile of full-time salaried worker earnings in the South).

As discussed in section V.B.5.iii, fully restoring the salary level’s screening function

would affect 1.8 million employees. These are currently exempt employees who earn between

197

Id. at 51244.

198

During this period the Department used a one-test system that paired a lower salary level with

a more rigorous duties test. See, e.g., 5 FR 4077.

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$684 (the current salary level) and $942 per week (the long test level calculated using current

data) and would become nonexempt absent intervening action by their employers. In every rule

prior to 2019, employees who earned below the long test or long-test equivalent salary level have

always been excluded from the exemption based on their salary alone—even if they passed the

standard duties test or (prior to 2004) the more rigorous long duties test. The Department’s

approach does not, as commenters asserted, create an impermissible “de facto” salary-only test

or make nonexempt too many employees who pass the duties test, and is compatible with the

district court decision’s emphasis on the salary level test’s historic screening function.

199

iii. Accounting for the Shift to a One-Test System

In addition to fully restoring the salary level test’s screening function, the Department’s

proposed salary level methodology also accounted for the shift from a two-test to a one-test

system for determining who is employed in a bona fide executive, administrative, or professional

capacity. Commenters that supported the proposed salary level and specifically addressed this

rationale agreed with it. A group of Administrative Law Professors stated that the Department’s

move to a one-test system in 2004 “significantly expanded the number of relatively low-income

workers who might fall within the exemption . . . despite engaging in substantial nonexempt

work[,]” and concluded that the Department’s proposal was “reasonably geared” to restoring

nonexempt status to this class of workers. The Coalition of State AGs similarly stated that the

proposal “does more to take into account the shift to a one-test system in 2004 and establishes

more of a middle ground between . . . the previous short- and long-test methodologies.” They

199

The district court was principally concerned with the 2016 rule exceeding the salary level’s

screening function and making too many employees nonexempt based on salary alone. See

Nevada 275 F.Supp.3d at 806 & n.6.

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elaborated that “the balance struck is a more appropriate one” because most salaried white-collar

employees paid less than the proposed standard salary level do not meet the duties test, whereas

a substantial majority of salaried white-collar employees earning above the proposed standard

salary level meet the duties test. Some commenters asserted that this aspect of the Department’s

rationale supported setting a salary level higher than proposed. For example, AFL-CIO stated

that the proposed salary level captures only “a portion of workers who have been wrongly

excluded from nonexempt status since the 2004 elimination of the long and short test in favor of

a single test,” and Sanford Heisler Sharp stated that the proposal “does not go far enough

towards meeting [the] goal” of “‘ensur[ing] that fewer white-collar employees who perform

significant amounts of nonexempt work and earn between the long and short test salary levels are

included in the exemption.’”

200

NELA similarly urged the Department to adopt its 2016

methodology to more fully account for the shift to a one-test system.

Employer commenters that directly addressed the shift to a one-test system generally

rejected the premise that any adjustment for this change was warranted or appropriate. Some

commenters emphasized that the long test’s limit on nonexempt work became inoperative in

1991 and/or that the Department fully accounted for the move to the standard duties test in its

2004 rule. See Bellevue University; Chamber; NAM; RILA. The National Association of

Convenience Stores, which likewise emphasized that the short and long tests have not existed

since 2004, stated that to “the extent the two-test system still has any limited relevancy to the

current inquiry, it is that the salary level should be closer to what the pre-2004 long test would

have produced” rather than “to what the pre-2004 ‘short’ test would have produced” today. AFPI

200

Quoting 88 FR at 62158.

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asserted that “[a]ny salary level that excludes employees who are not ‘obviously nonexempt’ is

invalid[,]” that the long test salary level is a “made-up concept[,]” and that the “‘long test’ and

the ‘short test’ are terms [that have not been] considered since the Department’s regulatory

changes in 2004 . . . [and] should have no place in determining an appropriate increase to the

minimum salary level for exemption today.”

201

The Department agrees with commenters that supported the NPRM’s objective of

updating the salary level in part to account for the move to a one-test system. As previously

explained in detail in the NPRM and in section V.B.3 of this preamble, the Department

traditionally considered employees earning between the long and short test salary levels to be

employed in a bona fide EAP capacity only if they were not performing substantial amounts of

nonexempt work. With the adoption of a duties test based on the less rigorous short duties test,

the shift to a single-test system significantly decreased the examination of the amount of

nonexempt work employees performed. Following this shift, the Department has taken two

approaches to setting the salary level to pair with the standard duties test. The approach taken in

the 2004 rule permitted the exemption of all employees earning above the long test salary level

who met the standard duties test—including many employees who performed substantial

amounts of nonexempt work and traditionally were protected by the long duties test. The

approach taken in the 2016 rule was challenged and criticized as making employees earning

between the long test salary level and the low end of the short test salary range nonexempt—

201

NRF included an Oxford Economics report that questioned the Department’s long test figure

($925 per week), and, observing that the long test methodology varied over time, stated that a

“more reasonable” approach for replicating the long test would be to adjust the 1975 long test

level for inflation (which it concluded would result in a salary level of $843 per week in 2022

dollars).

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including employees who performed very little nonexempt work and would have been exempt

under the long duties test.

The Department recognizes that a single-test system cannot fully replicate both the two-

test system’s heightened protection for employees performing substantial amounts of nonexempt

work and its increased efficiency for determining exemption status for employees who are highly

likely to perform EAP duties. Inevitably, any attempt to pair a single salary level with the current

duties test will result in some employees who perform substantial amounts of nonexempt work

being exempt, and some employees who perform almost exclusively exempt work being

nonexempt.

202

But such a result is inherent in setting any salary level. The Department continues

to believe that it can better identify which employees are employed in a bona fide EAP capacity

by, in combination with the current duties test, using a salary level methodology that accounts for

the shift to a one-test system, and that doing so will both restore overtime eligibility for many

individuals who perform substantial amounts of nonexempt work and historically would have

been protected by the long duties test, and address potential concerns that the salary level test

should not be determinative of exemption status for too many individuals. Such a salary level

will also more reasonably distribute between employees and their employers what the

Department now understands to be the impact of the shift to a one-test system on employees

earning between the long and short test salary levels.

202

See Stein Report at 6 (“In some instances the rate selected will inevitably deny exemption to a

few employees who might not unreasonably be exempted, but, conversely, in other instances it

will undoubtedly permit the exemption of some persons who should properly be entitled to

benefits of the act.”).

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The Department disagrees with commenters that disputed this aspect of the NPRM based

on their view that the only valid salary level function is to screen from exemption obviously

nonexempt employees. Section 13(a)(1)’s broad grant of statutory authority for the Department

to define and delimit the EAP exemption provides the Department a degree of latitude in

determining an appropriate salary level for identifying individuals who are employed in a bona

fide EAP capacity. As discussed in section V.B.3, for decades, the short test salary level did not

perform a screening function, but rather was used to determine whether the full duties test or the

short-cut duties test would be applied to determine EAP exemption status. In a one-test system,

the Department can change the duties test, the salary level, or both, to ensure that the test for

exemption appropriately distinguishes bona fide EAP employees from nonexempt workers. As

discussed at length in the NPRM,

203

while acknowledging that it could lessen the salary level

test’s role by returning to a duties test that explicitly limited the amount of nonexempt work that

could be performed, the Department ultimately declined to propose changes to the duties test in

this rulemaking. Given that decision, it is appropriate for the Department to choose to better

define the EAP exemption by accounting for the shift to a one-test system, and to select a salary

level methodology that excludes from exemption some employees who historically were

nonexempt because of the more rigorous long duties test. The 2004 and 2019 rules’ significant

broadening of the statutory exemption (a fact employer commenters generally did not address) to

permit all salaried employees earning between the long and short tests who passed the standard

duties test to be exempt was not unlawful, but it leaves room for refinement. Section 13(a)(1)

203

88 FR 62164–65. Although some commenters addressed changes to the duties test, see, e.g.,

AFL-CIO, AHLA, NELA, FMI, such changes are beyond the scope of the current rulemaking.

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does not require the Department to forever maintain the regulatory choice it made 20 years ago

to pair the current duties test with a salary level that places the entire burden of the move to a

one-test system on employees who historically were entitled to the FLSA’s overtime protection

because they performed substantial amounts of nonexempt work and earned between the long

and short test salary levels.

The Department continues to believe that the long and short tests provide useful

parameters for determining the new salary level test methodology in this rulemaking. The

Department disagrees with AFPI that variations in the long test methodology render it a “made-

up concept” or that the long and short tests have “no place” in determining the new salary level.

The long test salary level has played a crucial role in defining the EAP exemption for the better

part of a century, either directly under the two-test system or indirectly under the one-test system.

As the Department explained in detail in its 2004 rule, the long test salary level “regulatory

history reveals a common methodology used, with some variations, to determine appropriate

salary levels[,]” and (with the exception of the 1975 rule) beginning in 1958 “the Department set

the [long test] salary levels to exclude approximately the lowest-paid 10 percent of exempt

salaried employees” in low-wage areas and industries.

204

The Department “[u]se[d] this

regulatory history as guidance” in its 2003 NPRM and, most importantly, validated its chosen

methodology in the 2004 rule by showing that it produced the same salary level as the long test

methodology—a critical fact employer representatives generally did not address in their

comments.

205

While the Department agrees with AFPI and the Oxford Economics report that the

204

69 FR 22166.

205

See id. at 22166–70; see also section V.B.3.

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data set used to set the long test salary level was not exactly the same in each regulatory update,

just as in 2004, minor historical variations do not deprive the long test of its usefulness in helping

determine an appropriate salary level now. The Oxford Economics report’s suggestion to

calculate the long test by updating the 1975 long test salary level for inflation would not

faithfully replicate the long test because it would produce a salary level below the 10th percentile

of exempt workers in low-wage regions and industries and would conflict with the Department’s

historical practice of avoiding the use of inflation indicators in updating the salary level.

206

The Department also disagrees with commenters who asserted that no adjustment is

needed to account for the shift to a one-test system because the long test became largely dormant

in 1991. In the 2004 rule, the Department acknowledged this dormancy resulting from its

outdated salary levels and asserted that employees who were then subject to the long test would

be better protected under the higher salary level of the new standard test.

207

But as previously

explained, section V.B.3, in the 2004 rule the Department did not compare the overtime

protection lower-salaried employees would receive under the standard test with the protection

they would have received had the Department updated the long test with a salary level based on

contemporaneous data and kept the existing long duties test. Instead, the Department’s discussion

of the elimination of the long duties test in the 2004 rule focused primarily on the minimal role

played by the long test at that time due to the erosion of the long salary level, and on the

difficulties employers would face if they were again required to track time spent on nonexempt

206

See, e.g., 84 FR 51245; 69 FR 22167.

207

See 69 FR 22126.

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work when the dormancy of the long duties test meant that they had generally not been

performing such tracking for many years.

208

The Department also disagrees with commenters that asserted that the 2004 rule fully

accounted for the move to the standard duties test. Because the 2004 rule did not fully account

for the lessened overtime protection for employees who would have been nonexempt under an

updated long test (as just described), it created a group of employees with lessened protection

under the standard test—those who earned between the long and short test salary levels. These

employees were traditionally nonexempt because they failed the long duties test, but were

exempt under the 2004 rule because they passed the more lenient standard duties test.

209

setting the standard salary level equivalent to the long test salary, the 2004 rule in effect created a

group of employees who bore the impact of the change from the two-test to the one-test system.

iv. Selecting the Salary Level Methodology

In its NPRM, the Department explained that fully restoring the salary level’s screening

function and accounting for the move to a one-test system supported setting the salary level at

the 35th percentile of full-time salaried worker earnings in the lowest-wage Census Region (the

South)—resulting in a proposed salary level of $1,059 per week. Commenters provided

competing views on this proposed increase. Employers and employer representatives that

208

See id. at 22126–27.

209

The Chamber asserted that the Department’s decision to adjust the salary level to account for

the shift to a one-test system “fails to appreciate the continued importance of the ‘primary duty’

principles, the application of which includes an analysis of non-exempt work performed and its

relation to the employee’s exempt work.” Although the Chamber is correct that the standard

duties test accounts for nonexempt work, it does so in a less rigorous manner than the long duties

test, resulting in some lower-paid white-collar employees who pass the standard duties test but

(due to their nonexempt work) would have failed the long duties test.

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opposed the proposed salary level often characterized it as “too much, too soon”—stating that an

increase of 54.8 percent (or 69.3 percent, based on the $60,209 projected salary level figure

included in footnote 3 of the NPRM)

210

less than 4 years after the most recent increase was

unnecessary and unprecedented. See, e.g., Air Conditioning Contractors of America; Americans

for Prosperity; Joint Comment from Argentum and American Seniors Housing Association;

CUPA-HR; International Sign Association; NRF. Some commenters, including American

Association of Community Colleges and Associated Builders and Contractors, observed that, by

contrast, prior salary level updates have ranged from 5 to 50 percent, and others commented that

the proposed increase greatly exceeded the rate of inflation since the 2019 rule, see Independent

Community Bankers of America, Ohio Township Association. Many employer organizations

asserted that the Department was trying to resurrect a methodology akin to the invalidated 2016

rule and that, like that rule, the proposed salary level (which many stressed is a higher dollar

figure than the level set in the 2016 rule) would unlawfully supplant the duties test. See, e.g.,

Americans for Prosperity; National Restaurant Association; PPWO.

Commenters that opposed the proposed salary level were particularly concerned about

the impact of this change on specific industries and on businesses in low-wage regions. Some

commenters, such as the American Outdoors Association, CUPA-HR, NAHB, and SHRM,

provided information from internal surveys to support how the proposal would negatively affect

their members. SBA Advocacy similarly summarized concerns received from small businesses.

See also, e.g., NFIB. Some commenters emphasized the proposal’s impact on particular

210

Several commenters criticized the Department for providing projected salary level figures in

footnote 3. See, e.g., PPWO; NRF. NAM stated that footnote 3 was “inconsistent” with the

Administrative Procedure Act.

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occupations in their industries, including first-line supervisors, see, e.g., AHLA, NAHB, and

entry-level managers, see, e.g., NAM, NRF. Emphasizing the proposed salary level’s geographic

impact, National Restaurant Association and PPWO warned that the proposal would exclude

from exemption a high percentage of employees who pass the duties test in lower-wage regions,

and could result in employees in the same job classification being treated differently based on

where they live. A number of educational institutions opposed the proposed increase due to cost-

related concerns specific to the educational sector. See, e.g., American Association of

Community Colleges; Association of Independent Colleges and Universities of Ohio; National

Association of Independent Colleges and Universities. The National Association of Counties

raised similar concerns about the impact of the increased salary level on local governments.

Nonprofit sector feedback was more mixed, with the National Council of Nonprofits

characterizing the industry response as one of “moral support” and “operational anxiety.” Some

nonprofit organizations opposed the proposal, see, e.g., Children’s Alliance of Kentucky, U.S.

Public Interest Research Group (U.S. PIRG), some supported it, see, e.g., CLASP, Justice at

Work, and some agreed with the Department’s intent but raised cost and other concerns, see, e.g.,

Catholic Charities, Open Roads Bike Program.

Commenters had different suggestions for how the Department should account for such

regional and industry-specific differences. For example, RILA urged the Department to include

the retail industry in its data set, AFPI suggested setting the salary level equal to the 20th

percentile of non-hourly employee earnings in the ten lowest-wage states, and Seyfarth Shaw

recommended using the East South Central Census Division. The Chamber asked the

Department to focus on data from the lowest-wage types of entities (such as small businesses,

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small nonprofits or small public employers), in the lowest-wage industries, in rural areas, in the

lowest-wage Census Region. The Chamber and National Association of Convenience Stores

favored excluding nonexempt workers from the data set (and using a lower earnings percentile)

and questioned the Department’s use of Current Population Survey (CPS) Merged Outgoing

Rotation Group (MORG) data for nonhourly earnings for full-time workers as a proxy for

salaried worker earnings.

Commenters that supported increasing the salary level viewed the Department’s proposal

very differently than employer representatives. Whereas many employer representatives focused

on specific regions or industries to assert that the proposed salary level was too high, supportive

commenters focused on the national impact to assert that the salary level was appropriate or too

low. Many supportive commenters considered it “modest.” See, e.g., AFSCME; CLASP; Family

Caregiving Coalition; National Partnership. Others stated that the salary level “could have

reasonably been significantly higher and still within historical precedent.” See, e.g., Common

Good Iowa; Jobs to Move America; Louisiana Budget Project; Maine Center for Economic

Policy; North Carolina Justice Center. The statistic most often cited to support that the proposal

was conservative by historical standards was that whereas 62.8 percent of full-time salaried

workers earned less than the short test salary level in 1975, 28.2 percent of full-time salaried

workers earned less than the proposed standard salary level (and several of these commenters

noted that only approximately 9 percent earned less than the current salary level). See, e.g., EPI;

National Center for Law and Economic Justice; Worker Justice Center of New York; Workplace

Justice Project. AFL-CIO and others highlighted that the proposed salary level was 19 percent

lower than the inflation-adjusted value of the 1975 short test salary level, and EPI stated that, on

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average, the proposed salary level was 16 percent lower than inflation-adjusted short test salary

levels set from 1949 and 1975. Some supportive commenters stressed that a significant salary

level increase was needed in part to account for the 2004 rule’s elimination of the long duties

test, see, e.g., EPI, NELP, while NWLC stated that the proposed methodology would “not eclipse

the role of the duties test” and instead would “restore[] a reasonable balance between the strength

of the duties test and the height of the salary threshold.”

Some commenters advocated for a much higher salary level than the Department

proposed, and a number of commenters specifically proposed alternate methodologies for the

Department to adopt in the final rule. For example, NELA stated that the proposed level was “too

low from a historical perspective” and, favoring “[b]older federal action[,]” asked the

Department to (like in the 2016 rule) set the salary level equal to the 40th percentile of weekly

earnings of full-time salaried workers in the lowest-wage Census Region (which would produce

a salary level of $1,196 per week based on the data used in this final rule). Winebrake & Santillo

similarly favored a return to that methodology. AFL-CIO supported setting the salary level

higher—at the historical average short test salary level (which would result in a salary level of

$1,404 per week based on current data). Other commenters sought a salary level that they stated

would exclude from exemption the same proportion of full-time salaried workers as under the

1975 salary level test. For example, Demos urged the Department to set the salary level at the

55th percentile of weekly earnings of full-time salaried workers nationwide to meet this “high-

water” mark, and Nick Hanauer supported a salary level of at least $83,000 to “restore the

overtime threshold” to a time “when the American middle class was strongest[.]” Commenters

that sought a higher salary level than the Department proposed often expressed their

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disagreement with the district court’s decision invalidating the 2016 rule. See, e.g., NELA;

Sanford Heisler Sharp; Winebrake & Santillo.

After considering the comments received, the Department is finalizing the salary level

methodology as proposed, setting it equal to the 35th percentile of full-time salaried worker

earnings in the lowest-wage Census Region (the South)—which produces a salary level of

$1,128 per week using calendar year 2023 data. Consistent with the Department’s responsibility

to “not only … determin[e] which employees are entitled to the exemption, but also [to] draw[]

the line beyond which the exemption is not applicable[,]”

211

this salary level will, in combination

with the standard duties test, effectively calibrate the scope of the exemption for bona fide EAP

employees and do so in a way that distributes across the population of white-collar employees

earning between the long and short test salary levels the impact of the shift to a one-test system.

As previously discussed, updating the salary level for wage growth since the 2019 rule produces

a salary level of $844 per week, and fully restoring the salary level’s historic screening function

would result in a salary level of $942 per week, equivalent to the 25th percentile of full-time

salaried worker earning in the South (i.e., the long test level). Accordingly, the increase from the

25th percentile to the 35th percentile is to account for the shift to a one-test system.

212

The

Department set the standard salary level at (or below) the long test level in the 2004 and 2019

rules and set it at the low end of the historic range of short test salary levels in the 2016 rule.

211

Stein Report at 2.

212

AFPI mistakenly asserts that the increase from the 20th percentile to the 35th percentile “is

based entirely on the switch to a one-test system in 2004.” The majority of the salary level

increase (from $684 to $942) is to update the salary level for wage growth and fully restore the

salary level’s historic screening function, with less than half (the increase from the $942 to

$1,128) made to account for the shift from the two-test system.

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of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

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review process. Only the version published in the Federal Register is the official version.

Setting the salary level at either the long test salary level or equivalent to a short test salary level

in a one-test system with the standard duties test, however, results in either denying overtime

protection to lower-paid employees who are performing large amounts of nonexempt work, and

thus, would have been exempt under the Department’s historical view of the EAP exemption, or

in raising concerns that the salary level is determining the exemption status of too many

employees. In contrast, an appropriately calibrated salary level between the long and short test

salary levels better defines and delimits which employees are employed in a bona fide EAP

capacity, and thus better fulfills the Department’s duty to define and delimit the EAP exemption.

The Department’s methodology established in this final rule uses the second-to-lowest of

the earnings ventiles between the long test salary level (the 25th percentile of full-time salaried

worker earnings in the lowest-wage Census Region) and the short test salary level

(approximately the 51stth percentile of this data set). These ventiles are the 30th, 35th, 40th,

45th, and 50th percentiles of full-time salaried worker earnings in the lowest-wage Census

Region. The Department continues to believe that its methodology produces a salary level high

enough above the long test salary level to ensure overtime protection for some lower-paid

employees who were traditionally entitled to overtime compensation under the two-test system

by virtue of their performing large amounts of nonexempt work, and also low enough, as

compared with higher salary levels, to significantly shrink the group of employees performing

EAP duties who are excluded from the exemption by virtue of their salary alone. Whereas the

2004 and 2019 rules permitted the exemption of employees earning between the long and short

test salary levels even if they performed significant amounts of nonexempt work, and the 2016

rule prevented employers from using the exemption for such employees earning below the short

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test salary range even if they performed EAP duties, the methodology adopted in this final rule

falls between these two methodologies and thus, as commenters including the Administrative

Law Professors and Coalition of State AGs agreed, reasonably balances the effect of the switch

to a one-test system in a way that better differentiates between those who are and are not

employed in a bona fide EAP capacity. Of the 10.8 million salaried white-collar employees

earning between the equivalent of the long and short test salary levels, approximately 40 percent

earn between $942 (the equivalent of the long test salary level) and $1,128 (the new salary level)

and would receive overtime protection by virtue of their salary, while approximately 60 percent

earn between $1,128 and $1,404 (the equivalent of the short test salary level) and would have

their exemption status turn on whether they meet the duties test. These and other statistics,

discussed in section V.B.5.iii, demonstrate that the salary level will not “essentially eliminate[]

the role of the duties test” as National Restaurant Association and others contended. See also,

e.g., AHLA; CWC.

Even though the Department’s decision to select a salary level below the midpoint

between the long and short tests means that the effect of the salary level on employees earning

within this range and their employers is not exactly equal, a higher salary level could disrupt the

reliance interests of employers who (due in part to the Department’s failure to update the salary

level tests between 1975 and 2004), have been able to use a lower salary level and more lenient

duties test to determine exemption status since 1991. However, a significantly lower salary level

akin to the long test salary level would avoid disrupting such reliance interests only by

continuing to place the burden of the move to a one-test system entirely on employees who

historically were entitled to the FLSA’s overtime protections because they perform substantial

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amounts of nonexempt work. The Department believes that employer reliance interests should

inform where the salary level is set between the long and short test levels, and that its approach

appropriately balances the impact of the move to a one-test system between employees’ right to

receive overtime compensation and employers’ ability to use the exemption. Such balancing is

fully in line with the Department’s authority under the FLSA to “mak[e] certain by specific

definition and delimitation” the “general phrases” “bona fide executive, administrative, or

professional capacity.”

213

This grant of authority confers discretion upon the Department to

determine the boundaries of these general categories; any such line-drawing, as courts have

recognized, will “necessarily” leave out some employees “who might fall within” these

categories.

214

The Department recognizes the tension between the methodology adopted in this final

rule and some statements made in its 2016 and 2019 rules. The Department stated in its 2016 rule

that the current duties test could not be effectively paired with a salary level below the short test

salary range, and for this reason expressly rejected setting the salary level at the 35th percentile

of weekly earnings of full-time salaried workers in the South.

215

But that rule, which would have

prevented employers from using the EAP exemption for some employees who were considered

exempt under the prior two-test system, was challenged in court, and a return to it would result in

significant legal uncertainty for both workers and the regulated community. In the 2019 rule, the

Department expressly rejected setting the salary level equal to the long test or higher.

216

213

See Walling, 140 F.2d at 831-32.

214

Id. at 832.

215

81 FR 32410.

216

See 84 FR 51244.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

However, as noted above, the Department did not fully address in that rule the implications of

the switch from a two-test to a single-test system. Having now grappled with those implications,

the Department concludes that not only can it pair the current duties test with a salary between

the long and short test salary levels, but that doing so appropriately recalibrates the salary level

in a one-test system to ensure that it effectively identifies bona fide EAP employees.

In setting the salary level, the Department continues to believe that it is important to use a

methodology that is transparent and easily understood. As in its prior rulemakings, the

Department is setting the salary level using earnings data from a lower-salary regional data set

(as opposed to nationwide data) to accommodate businesses for which salaries generally are

lower due to geographic or industry-specific reasons.

217

Specifically, the Department is setting

the salary level using the data set of full-time nonhourly

218

workers in the lowest-wage Census

Region (the South). This approach promotes transparency because BLS routinely compiles this

data. It also promotes regulatory simplification because the data set is not limited to exempt EAP

employees and thus does not require the Department to model which employees pass the duties

test.

219

In keeping with the Department’s past practice, it is relying on up-to-date data to

determine the salary level.

220

In the NPRM, the Department used 2022 salary data for estimating

the salary level resulting from the proposed methodology, which was current at the time the

217

See id. at 51238; 81 FR 32404.

218

Consistent with recent rulemakings and the NPRM, see 88 FR 62188, 84 FR 51258, in

determining earnings percentiles the Department looked at nonhourly earnings for full-time

workers from the CPS MORG data collected by BLS.

219

As discussed in the economic analysis, see section VII, this modeling is done using the

Department’s probability codes. See 84 FR 51244; 69 FR 22167.

220

See 84 FR 51245; 81 FR 32405; 69 FR 22168.

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Department developed its proposal. In this final rule, the Department is relying on calendar year

2023 salary data, as published by BLS, to set the salary level.

221

Given the strong views expressed by commenters, including those opposing the proposal

or favoring a higher salary level, the Department did not arrive lightly at its decision to finalize

the salary level methodology as proposed. Commenter feedback often reflected competing

vantage points for assessing the Department’s proposal. Commenters that supported the

Department’s proposal or a higher salary level (most often, the 2016 rule methodology) often

compared the proposed salary to short test salary levels, while commenters that opposed the

proposed increase often stressed the size of the change from the current salary level. The

Department agrees with supportive commenters that past salary levels should inform the current

update, and agrees that statistics such as the percentage of salaried white-collar workers who

earn below the salary level or statistics comparing the new salary level to inflation-adjusted prior

levels, reinforce the reasonableness of the Department’s approach. However, the Department is

wary of comments urging a return to the 2016 rule methodology that do not account for

subsequent court decisions and the Department’s 2019 rulemaking. The Department also

recognizes concerns from some commenters about the size of the salary level increase. But this

metric is influenced by many factors and thus does not, in and of itself, establish whether a salary

level sets an appropriate dividing line for determining whether an employee is employed in a

bona fide EAP capacity. For example, the size of the current increase is influenced by factors

including significant wage growth since the 2019 rule (simply adjusting the current salary level

221

BLS currently publishes this data at https://www.bls.gov/cps/research/nonhourly/earnings-

nonhourly-workers.htm.

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methodology for wage growth would result in a roughly 23 percent increase); the Department for

the first time updating a salary level that was set below the long test; and the Department

adjusting the salary level to account for the move to a one-test system. While the 65 percent

increase is greater in percentage terms than most prior updates, the Department does not consider

this factor dispositive.

222

The salary level methodology adopted in this final rule ($1,128 per week; $58,656

annually) produces a salary level that is lower than the two salary level estimates provided in

footnote 3 of the NPRM ($59,284 and $60,209), which were based on a quarter of data. The

Department disagrees with commenters that criticized the Department for providing projected

salary level figures in its NPRM. These comments overlook that the NPRM proposed a

methodology for updating the salary level test, not just a salary level figure. Providing

commenters an estimate of the salary level that the proposed methodology could produce in a

final rule based on updated data promoted rulemaking transparency and the opportunity for fully

informed commenter feedback. That many commenters used the figures in footnote 3 in their

comments, and the final salary level based on calendar year 2023 data is between the proposed

salary level and the two estimates in the footnote, reinforces that footnote 3 in no way deprived

commenters of the opportunity to meaningfully comment on the NPRM.

As previously discussed, most employer commenters that opposed the proposed salary

level opposed any increase or at most supported a return to the 2004/2019 methodology, and so

they did not address the NPRM’s analysis examining where to set the salary level between the

222

As discussed in section IV, in part to provide employers more time to adjust, the new

methodology will not be applicable until January 1, 2025.

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long and short test salary levels. The Department does not find these comments persuasive

because they in effect sought a salary level below the long test level, which would not even fully

restore the salary level’s screening function, let alone account at all for the move to a one-test

system. As for commenter concerns about the salary level’s impact on low-wage regions and

industries, the Department accounts for these concerns by setting the salary level using the

lowest-wage Census Region. This aspect of the rulemaking differs from the 2016 rulemaking,

where the Department proposed to set the salary level using a national data set and then, in

response to commenters concerns, shifted to the lowest-wage Census Region in the final rule to

account for low-wage regions and industries.

223

The Department used this past experience to

account for the impact on low-wage regions and industries in developing the NPRM and, having

done so, is again basing the salary level on the earnings of workers in the lowest-wage Census

Region in this final rule.

The Department declines requests from some commenters to change the data set it used

to set the salary level. Some asked the Department to add earnings data from a specific industry

to the CPS earnings data. The Department is not altering the data set in this way because it

believes that using earnings data from the lowest-wage Census Region produces a salary level

that accounts for differences across industries and regional labor markets. The Department also is

not altering the Census region data set so that it excludes all states with higher earnings, nor is

the Department creating a new data set that includes only States with the lowest earnings. The

Department’s chosen approach is consistent with its practice since the 2004 rule of using the

South, rather than a narrower geographic region, when setting the salary level. Restricting the

223

See 81 FR 32408.

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data set to the ten lowest-wage states or to the East South Central Region (made up of just four

states, Alabama, Kentucky, Mississippi, and Tennessee) would give undue weight to low-wage

areas and skew the salary level. The Chamber’s suggestion to restrict the data set even further

(by focusing on low-wage entities within low-wage industries within rural areas within the

South) would even further compound this concern.

The purpose of the data set is not simply to produce the lowest possible salary level. The

Department’s approach directly accounts for low-wage areas while producing a salary level that

is appropriate to apply nationwide. The Department also declines requests to limit its data set to

exempt workers, instead continuing to set the salary level using earnings data for exempt and

nonexempt workers—as it has done in every one of its rulemakings under the one-test system. As

explained in the 2004 rule, the Department’s chosen approach is preferable in part because

restricting the data set to exempt employees requires “uncertain assumptions regarding which

employees are actually exempt[.]”

224

The Department is also continuing to use data on nonhourly

worker earnings as a proxy for compensation paid to salaried workers. Although some

commenters challenged this approach, the Department is not aware of, and commenters did not

provide, any statistically robust data source that more closely reflects salary as defined in the

Department’s regulations. Also, as discussed in section VII, the Department believes that

relatively few nonhourly workers were paid by methods other than salaried.

In response to commenter opposition to the proposed salary level and the concerns

described above, the Department considered setting the salary level equal to the 30th percentile

of earnings of full-time salaried workers in the lowest-wage Census Region. The Department

224

69 FR 22167.

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ultimately decided not to adopt this approach, however, because it would less effectively account

for the shift to a one-test system. This methodology would set the salary level based on the

lowest earnings ventile between the short and long test salary levels and produce a salary level

that is only $77 above the long test level. As a result, for the population of white-collar workers

earning between the long and short tests, only 18 percent would earn below the salary level

(whereas 40 percent of this population earn below the new salary level). This approach thus

would not sufficiently address the problem inherent in the 2004 methodology of including in the

exemption employees who perform significant amounts of nonexempt work, including those

earning salaries close to the long test salary level—where the Department would expect a higher

proportion of workers to perform more nonexempt work.

225

In contrast, the Department’s

approach addresses these concerns in a manner that more reasonably distributes among

employees earning between the long and short test salary levels and their employers the impact

of the Department’s move to a one-test system.

The Department disagrees with commenters that stated that the chosen methodology

simply resurrects the 2016 methodology—which set the salary level equal to the 40th percentile

of full-time salaried worker earnings in the lowest-wage Census Region. The fact that the new

salary level is higher in nominal dollars than the level set in the 2016 rule ($913 per week) is

225

The Department has repeatedly recognized that increasing salary level tends to correlate with

the performance of bona fide EAP duties. See section V.B.1 (discussing role of long test and

short test salary levels); section V.C (discussing the role of the HCE total annual compensation

threshold). Thus, increasing overtime protection specifically for workers earning at the lower end

of the range between the long test salary level and short test salary level—but not those earning

at the higher end of that range—is an especially appropriate approach to balancing these

concerns.

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irrelevant because that level was calculated using 2015 data.

226

Applying the 2016 methodology

to current data produces a salary level of $1,196 per week. Whereas under this rule an

employee’s salary level will be determinative of exemption status for 40 percent of the 10.8

million employees earning between the long and short test levels, under the 2016 methodology

salary would be determinative for 55 percent of such employees. A salary level equivalent to the

40th percentile in the South would also result in 5.0 million affected workers. Although some of

these workers earn below the long test level and would be nonexempt under either approach, this

alternative approach would result in 949,000 more affected workers than the Department’s

chosen methodology. The Department’s decision to deviate from the 2016 methodology is

significant, as underscored by the fact that (as discussed in more detail below) a number of

employee representatives urged the Department to adopt that methodology or a higher percentile.

The Department recognizes that many commenters found the proposed methodology

conservative, or overly conservative, with some commenters urging the Department to select a

methodology that produces a higher salary level. Repeating the 2016 rule methodology, as some

commenters requested, by setting the salary level at the 40th percentile of weekly earnings of

full-time salaried workers in the lowest-wage Census Region would further reduce the impact of

the move to a one-test system on lower-paid white-collar employees who perform significant

amounts of nonexempt work. As discussed above, commenters that supported the 2016 rule

methodology provided statistics demonstrating that this approach yields a salary level within

historical norms. The 40th percentile would produce a salary level ($1,196 per week) that is

above the midpoint between the long and short test salary levels. As noted above, of the

226

See 81 FR 32393.

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approximately 10.8 million salaried white-collar employees who earn between the long and short

test salary levels, approximately 55 percent earn between the long test salary level and $1,196

and would receive overtime protection by virtue of their salary, while approximately 45 percent

earn between $1,196 and the short test salary level and would have their exemption status turn on

whether they meet the duties test.

The Department believes this rule appropriately distributes the burden of the change from

a two-test to one-test system between employees and employers. By contrast, the Department

remains concerned that courts could find that adopting the 2016 rule methodology would make

the salary level test determinative of overtime eligibility for too many employees. Setting the

salary level equal to a higher percentile of weekly earnings (such as the 55th percentile as Demos

recommended), would further amplify this concern. Setting the salary level based on a lower

percentile of earnings will (compared to such higher levels) increase the number of employees

for whom duties is determinative of exemption status, and in turn increase the ability of

employers to use the exemption for more lower-paid employees who meet the EAP duties

requirements. This outcome is consistent with the important role of the duties test in identifying

bona fide EAP employees. EPI did not find the number of workers affected by a salary level

increase to be an informative metric for assessing whether a threshold is appropriate and the

Department agrees that this statistic has significant limitations. In particular, it is notable that

although the standard salary level changes will result in 4.0 million affected workers (1.0 million

from the initial update and 3.0 million from applying the new standard salary level),

227

only 2.2

million of these workers are due to the increase from the long test to the new methodology, while

227

See Table 25.

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1.8 million affected workers (or 45 percent) are a result of restoring the historic screening

function of the long test salary level. By comparison, updating the salary level using the 2016

methodology and current data would result in 5.0 million affected workers. Although the number

of affected workers for this rule is above the number of affected workers in the 2019 rule, the

difference is necessary to fully restore the salary level’s screening function and account for the

shift to a one-test system, and the overall impact of this change on the workforce is relatively

small (see section V.B), such that the new salary level is a proper exercise of the Department’s

authority to define and delimit the scope of the EAP exemption.

In declining to adopt the 2016 rule methodology, the Department is also responding to

concerns that setting the salary level equal to the 40th percentile of weekly earnings of full-time

salaried workers in the lowest-wage Census Region would foreclose employers from exempting

any white-collar employees who earn less than that amount ($1,196 per week based on the data

used in this final rule) and perform EAP duties, including those who were exempt under the long

test and remained exempt when the Department established the one-test system in 2004 and set

the salary level equivalent to the long test level.

228

Litigants challenging the 2016 rule

emphasized this consequence of setting a salary level above the long test in a one-test system,

and those arguments have contributed to the Department more fully attempting to account for the

impact of the shift to a one-test system. Although some commenters favored a salary level

equivalent to the short test level, such an approach would result in employers being unable to use

the exemption for any employees who earn between the long and short test and have previously

been exempt, either under the long test, or under the standard test set equal to the long test. In

228

See 84 FR 51242.

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contrast, the methodology in this final rule produces a salary level that is not only below any

short test level, but also lower than the midpoint between the long and short test salary levels.

This approach appropriately balances the goal of ensuring that employees earning above the long

test salary level who perform substantial amounts of nonexempt work are not exempt with the

goal of enabling employers to use the exemption for employees who do not perform substantial

amounts of nonexempt work.

v. Salary Level Effects

In selecting the salary level methodology, the Department also considered commenter

views that the proposed salary level would generate a range of repercussions. Many commenters

that opposed the proposed salary level stated that it would cause widespread reclassification of

currently exempt employees to nonexempt status and a corresponding decrease in flexible work

arrangements, including remote work opportunities. See, e.g., FMI; IFDA; National Lumber and

Building Material Dealers Association; NRF. Others stated that employers would convert newly

nonexempt employees from salaried to hourly status, which they contended would harm

employee morale, see, e.g., Independent Electrical Contractors, National Small Business

Association, and create an undesirable “punch the clock” mentality, see, e.g., North Carolina

Center for Nonprofits, The 4A’s. Some commenters that opposed the proposal stated that the rule

would “harm the very workers the Department says it is trying to benefit,” asserting, for

example, that the proposal would result in reduced employee benefits and career advancement

opportunities, and increased turnover. See Americans for Prosperity; see also PPWO. Other

commenters expressed concern that the proposed increase would decrease employee

productivity, see, e.g., John. C. Campbell Folk School, decrease social services, see, e.g., Social

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Current, increase employer costs, prices, and inflation, see, e.g., Chamber, and/or cause salary

compression issues, see, e.g., Seyfarth Shaw.

Commenters that supported the Department’s proposed salary level or a higher salary

level than proposed often highlighted what they viewed as positive effects of the proposed

increase. Many emphasized that the updated salary level would make it more difficult to exempt

lower-paid employees who they believed should be nonexempt, particularly low-level managers

with many duties equivalent to non-managerial employees. See, e.g., Coalition of Gender Justice

and Civil Rights Organizations; NELP; Winebrake & Santillo. Restaurant Opportunities Center

United stated that the current “low salary threshold discourages restaurant employees from

taking managerial and supervisory positions, thereby gaining skills and experience that would

enable them to advance their careers[.]” Sanford Heisler Sharp stated that the “need for

monitoring and protecting white-collar workers’ hours is critical today” because the significant

increase in telework since 2020 has meant that employers are “no longer constrained by the

practical limitation of the worker leaving the workplace.” Other employee representatives

explained that the rule would produce positive societal benefits such as increased economic

security, see, e.g., NELP, improved worker health due to decreased work hours, see, e.g., SEIU,

decreased poverty, see, e.g., NEA, and disproportionate benefits for women, people of color, and

workers with disabilities, see, e.g., National Partnership.

Taken together, the above comments do not provide a compelling justification for

deviating from the Department’s proposed salary level methodology. The Department agrees that

the salary level increase will result in some currently exempt employees becoming nonexempt

and therefore receiving minimum wage and overtime protections. Employee reclassification is a

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consequence of any salary level increase, and the number of reclassified employees will depend

on how employers choose to respond to this rule for their employees who earn between the

current and new salary levels. Moreover, there is no prohibition on paying nonexempt employees

a salary as long as any overtime hours are appropriately compensated, and employers may

therefore choose to continue to pay a salary to affected workers. Employers likewise have

latitude to determine what flexible work arrangements to provide employees and, more broadly,

need not structure their pay plans in a manner that results in the potentially adverse effects (such

as decreased employee benefits) that some employers identified. Significantly, employees and

employee representatives did not share employer commenter concerns about potential adverse

consequences of the proposed salary level, let alone view them as a justification for deviating

from the proposed salary level. This includes comments from individual employees. For

example, an exempt manager for a small nonprofit organization stated that they “would love the

opportunity to be reclassified to nonexempt and be compensated for time worked beyond 40

hours, or alternatively be given a raise if that level of flexibility is deemed necessary by my

employer.” As to potential consequences of the updated salary level on the economy more

broadly, such implications are speculative and in dispute (as discussed in some detail in section

VII), and do not provide a basis for a different salary level methodology.

iv. Other Issues

The Department also addresses some other issues stakeholders raised in their comments.

Many nonprofit organizations worried that the proposed salary level would

disproportionately affect them, raising concerns related to, for example, their reliance on

government grants, see, e.g., Asclepius Initiative, Catholic Charities, National Council of

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Nonprofits, and their inability to raise prices, see, e.g., Advancing States, Independent Sector,

YMCA. Some commenters asked the Department to exempt at least certain nonprofit

organizations from the salary level test. See, e.g., Oklahoma Wesleyan University; U.S. PIRG.

Many nonprofit organization commenters opposed this idea. See, e.g., A Second Chance;

Delaware Alliance for Nonprofit Advancement; National Council for Nonprofits; North Carolina

Center for Nonprofits. The Department recognizes and values the enormous contributions that

nonprofit organizations make to the country. Nonprofit organizations provide services and

programs that benefit many vulnerable individuals in a variety of facets of life, including

services that benefit the vulnerable workers who the Department also works to protect by

ensuring that their workplaces are fair, safe, and secure. However, the Department’s EAP

exemption regulations have never had special rules for nonprofit organizations; the employees of

nonprofits have been subject to the EAP exemption if they satisfied the same salary level, salary

basis, and duties tests as other employees.

229

Consistent with this history, the Department

declines to exempt nonprofit organizations from the salary level test. As with other industries, as

discussed above, the Department accounts for nonprofit industry concerns by setting the salary

level using the lowest-wage Census Region.

A number of community-based service providers for people with intellectual and

developmental disabilities urged the Department to work closely with other government

agencies, including the Centers for Medicare and Medicaid Services (CMS) and the

Administration for Community Living (ACL), to implement the Department’s proposed changes

in the context of Medicaid home and community-based services (HCBS). See, e.g., ANCOR;

229

See 81 FR 32398, 32421; see also 84 FR 51234.

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BrightSpring Health Services; NASDDDS; United Cerebral Palsy Association. Some

commenters specifically referenced a policy that was adopted by the Department related to the

enforcement of the 2016 regulation for providers of Medicaid-funded services for individual with

intellectual or developmental disabilities in residential homes or facilities with 15 or fewer

beds.

230

See, e.g., Chimes; The Arc of the United States. Consistent with its approach in the 2019

rule, the Department is not adopting a similar policy in this rulemaking. The Department believes

following this approach is appropriate given that the initial update (to $844 per week) is less than

salary level increase in the 2019 rule, and service providers will have approximately 8 months

from publication of this rule to comply with the new salary level ($1,128 per week).

Additionally, the Department intends (as many commenters requested) to issue technical

assistance to help employers comply with the FLSA and will continue to coordinate (as other

commenters requested) with ACL and CMS on supporting Medicaid-funded service providers

impacted by this rule.

Some commenters asked the Department to permit employers to prorate the salary level

for part-time employees. See, e.g., NCFC; PPWO; Seyfarth Shaw; University System of

Maryland. The Department has never prorated the salary level for part-time positions; considered

and rejected similar requests in its 2004, 2016, and 2019 rules; and declines to establish a

prorated salary level for part-time positions in this rule.

231

As the Department has previously

explained, employees hired to work part time generally do not work in excess of 40 hours in a

workweek, and overtime pay is not at issue for these employees. An employer may pay a

230

See 81 FR 32390 (May 23, 2016).

231

84 FR 51239; 81 FR 32422; 69 FR 22171.

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nonexempt employee a salary to work part time without violating the FLSA, so long as the salary

equals at least the minimum wage when divided by the actual number of hours (40 or fewer) the

employee worked.

232

The Chamber objected to the Department’s proposed change to the example provided in §

541.604(b), a salary basis test regulation establishing that an exempt employee may be paid on

an hourly, daily, or shift basis if the employment arrangement “includes a guarantee of at least

the minimum weekly required amount paid on a salary basis regardless of the number of hours,

days or shifts worked, and a reasonable relationship exists between the guaranteed amount and

the amount actually earned.” The Department did not propose any substantive change to this

regulation and only proposed to update the dollar amounts in light of the proposed increase in the

standard salary level. The Department has again updated the figures in the regulation to account

for the salary level change from the NPRM to the final rule. The updated numbers in this final

rule produce the same ratios between actual and guaranteed earnings as example in the current

regulations. The Department declines the Chamber’s suggestion to change the numbers, which

would change the ratio.

Some commenters urged the Department to increase the percentage of the salary level

that employers could satisfy using nondiscretionary bonuses and incentive payments (including

commissions). See, e.g., FMI; National Automobile Dealers Association; National Golf Course

Owners Association; TechServe Alliance. The Department did not propose any changes to how

bonuses are counted toward the salary level requirement,

233

and declines to make any such

232

See FLSA2008–1NA (Feb. 14, 2008).

233

See 88 FR 62169.

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changes in this final rule. Consistent with the current regulations, employers can satisfy up to 10

percent of the new salary level ($112.80 per week under this final rule) through the payment of

nondiscretionary bonuses and incentive payments (including commissions) paid annually or

more frequently.

5. Assessing the Impact of the Salary Level

i. The Department’s Assessment of the Impact of the Proposed Salary Level

As stated in the NPRM, the Department sought to achieve three objectives in proposing

to set the standard salary level at the 35th percentile of weekly earnings of full-time salaried

workers in the lowest-wage Census Region: preserve the primary role that the duties test plays in

determining EAP exemption status; fully restore the initial screening function of the salary level;

and more effectively identify in a one-test system who is employed in a bona fide EAP capacity

in a manner that reasonably distributes among employees earning between the long and short test

salary levels and their employers the impact of the Department’s move from a two-test to a one-

test system.

In assessing whether the proposal met these objectives, the Department first considered

the impact of its proposed salary level on salaried white-collar workers across the income

spectrum. The Department noted that almost three-quarters of salaried white-collar workers

earned above the proposed salary level, and therefore duties, rather than salary, would remain

determinative of exemption status for a significant majority of white-collar workers. The

Department also concluded that a minority of the smaller share of salaried white-collar workers

who earn less than the proposed standard salary level would meet the duties test, whereas

approximately three-quarters of the far-larger share of salaried white-collar workers who earn at

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least the proposed standard salary level would meet the duties test. The Department noted that

this supported that the proposed salary level would be an effective indicator of the capacity in

which salaried white-collar workers are employed. The Department also examined the impact of

the proposed salary level on currently exempt EAP workers—salaried white-collar employees

who meet the standard duties test and earn at least $684 per week. The Department found that

1.8 million of the workers who would be affected by the proposed salary level earned less than

the long test salary level and therefore would have been screened from the exemption under

every prior rule issued by the Department except for the 2019 rule, thus confirming that the

proposed standard salary level would play a relatively modest role in determining EAP

exemption status.

ii. Comments Received

The Department received relatively few comments directly addressing its estimates of the

impact of the proposed salary level or the metrics it identified to assess those impacts. As

previously discussed, some commenters representing employer interests stated that the proposal

would exclude too many workers from the exemption based on their earnings. See, e.g.,

Chamber; PPWO; Seyfarth Shaw. However, commenters that expressed such views generally

did not challenge the Department’s analysis of the impact of its proposed salary level on all

salaried white-collar workers,

234

nor did they generally address the Department’s conclusion that

under the proposed standard salary level, duties would be determinative of exemption status for a

234

Some commenters asserted that the proposed salary level would make nonexempt too many

workers in lower-wage regions and industries. See, e.g., AHLA; CUPA-HR; NAHB; National

Restaurant Association. As discussed above, the Department has accounted for low-wage

industries and regions by using earnings data from the lowest-wage Census Region to set the

salary level.

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large majority of full-time salaried white-collar workers.

235

As noted in section V.B, employer

advocates that opposed the Department’s proposed salary level instead often emphasized the

salary level’s function of screening obviously nonexempt employees from the exemption, albeit

asserting that the proposed salary level would exceed its screening function, see, e.g., PPWO,

RILA, SHRM, whereas worker advocates often favored a greater role for the salary level than

employer representatives, see, e.g., AFSCME, EPI, Family Values @ Work.

AFPI challenged the Department’s estimate of the number of workers who earn between

the proposed salary level and the long test salary level, which it claimed is a “made-up

number.”

236

Some commenters representing employer interests stated that the Department

underestimated the number of currently exempt workers who would be impacted by its proposed

salary level. See, e.g., AFPI; NAM; NRF (including a report by Oxford Economics); Rachel

Greszler; Seyfarth Shaw. The Oxford Economics report claimed that up to 7.2 million workers

could be affected by the proposed salary level; AFPI asserted that approximately “7.5 million

235

AFPI objected to the Department’s use of nonhourly workers’ earnings to estimate the impact

of the proposed salary level on salaried workers. See also Chamber; National Association of

Convenience Stores. The Department disagrees with the suggestion that data on compensation

paid to full-time nonhourly workers is not representative of the earnings of full-time salaried

workers. The Department used the same approach in the 2004, 2016, and 2019 rules. See 84 FR

51258; 81 FR 32414; 69 FR 22197. As explained in greater detail below, see section VII, while

the CPS MORG data on full-time nonhourly workers on which the Department has relied

includes workers paid on a salary basis along with workers paid on other bases, such as on a

piece-rate or day-rate basis, the Department’s analysis of data from the Panel Study of Income

Dynamics (PSID) shows that relatively few nonhourly workers were paid by methods other than

salaried.

236

NRF included a report from Oxford Economics which stated that a more reasonable

methodology for modeling the long test salary level would be to update the 1975 long test level

for inflation. As discussed in section V.B, the Department disagrees with Oxford Economics’

suggestion, which would conflict with the Department’s historical practice of avoiding the use of

inflation indicators in updating the salary level.

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employees would be non-exempt for the first time based on salary alone”; and Rachel Greszler

stated that the correct figure is as high as 12.3 million workers. NAM stated that the Department

“underestimated the impact,” though it did not elaborate. Some of these commenters also

challenged the probability codes the Department used to estimate the number of workers who

meet the duties test. See, e.g., AFPI; Rachel Greszler.

On the other hand, AFL-CIO, the Coalition of State AGs, and EPI relied on the

Department’s estimates in their comments. For instance, the Coalition of State AGs observed

that “‘most salaried white-collar employees paid less than the proposed standard salary level do

not meet the duties test, whereas a substantial majority of salaried white-collar employees

earning above the proposed standard salary level meet the duties test,’” quoting the NPRM, in

opining that the proposed salary level struck a more appropriate balance between the long and

short test salary levels than the 2004 and 2019 rules. In asserting that the proposed salary level,

although “too low[,]” would restore overtime protections to lower-paid workers “who were

wrongly classified as exempt[,]” AFL-CIO referenced the Department’s estimate that the

proposed salary level would be “restorative for more than half of the workers it affects” since

“these employees would have been entitled to overtime in every rule prior to the 2019 rule.” EPI

noted that the 3.4 million workers that the Department estimated would be affected by the

proposed salary level, plus the approximately 248,000 workers who would be affected by the

proposed change in the total compensation threshold for the HCE test, discussed below, together

constituted “just 2.6% of workers subject to [the] FLSA . . . and just 2.3% of all workers.” As

discussed in section V.B, numerous commenters representing workers also pointed to additional

data points which, they stated, show that the Department’s proposed salary level would fulfill a

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relatively limited role in determining exemption status, particularly by historical standards. For

instance, multiple commenters stated that approximately 28.2 percent of all full-time salaried

workers earn below the proposed salary level, whereas in 1975 approximately 62.8 percent of

full-time salaried workers earned below the short test salary level. See, e.g., AFL-CIO; EPI;

NELP; NWLC.

iii. Assessing the Impact of the New Salary Level

As discussed in section V.B, the Department is finalizing its proposal to set the standard

salary level equal to the 35th percentile of earnings of full-time salaried workers in the lowest-

wage Census Region, which, based on the most recent earnings data, produces a salary level of

$1,128 per week. The Department has analyzed the impact of the new salary level, applying

generally the same metrics that it applied in the NPRM. Upon consideration of the comments

received, the Department concludes that this salary level meets the objectives it sought to

achieve in undertaking this rulemaking: preserving the primary role of an analysis of employee

duties in determining EAP exemption status; fully restoring the initial screening function of the

salary level; and more effectively identifying in a one-test system who is employed in a bona fide

EAP capacity in a manner that reasonably distributes among employees earning between the

long and short test salary levels and their employers the impact of the Department’s move from a

two-test to a one-test system.

The Department intentionally chose a salary level methodology that will ensure that EAP

exemption status for the great majority of white-collar employees will continue to depend on

their duties. Consistent with the NPRM, the Department thus began by analyzing the impact of

the new salary level on all full-time white-collar salaried workers. The Department continues to

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believe that an analysis of how the new salary level will impact all full-time salaried white-collar

workers is necessary to put the salary level and its relation to an examination of duties in the

appropriate context, as this is the universe of workers who could potentially be impacted by an

increase in the standard salary level. As noted above, commenters representing employers did

not directly challenge this aspect of the Department’s analysis. And many commenters

representing workers effectively endorsed this approach in stating that the proportion of full-time

salaried workers who earn less than the proposed salary level shows the relatively modest impact

of the proposed salary level in determining EAP exempt status, in comparison to an examination

of duties. See, e.g., AFL-CIO; EPI; NELP; NWLC.

237

The Department’s analysis confirms that the number of full-time salaried white-collar

workers who will be excluded from the EAP exemption due to the Department’s salary level is

greatly exceeded by the far-larger population of full-time salaried white-collar workers for whom

duties will continue to determine their exemption status. As illustrated in Figure A below, of the

approximately 45.4 million full-time salaried white-collar workers in the United States subject to

the FLSA,

238

about 12.7 million earn below the new salary level of $1,128 per week, and about

32.7 million earn above the salary level.

239

Thus, approximately 28 percent of full-time salaried

237

As discussed further below, the Department does not believe, as some commenters

representing workers suggested, that the proportion of full-time salaried workers who earned

below the short test salary level in 1975 is the most appropriate comparator for the population of

workers who earn below the new salary level.

238

Excluded from this number are workers in named occupations and those exempt under

another non-EAP overtime exemption. The exemption status of these groups will not be

impacted by a change in the standard salary level. Commenters did not address the Department’s

exclusion of these workers from its analysis of the impact of the proposed salary level.

239

This estimate is conservative, as it excludes 8.1 million white-collar workers employed as

teachers, attorneys, and physicians, for whom there is no salary level requirement under the part

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white-collar workers (most of whom, as discussed below, do not perform EAP duties) earn

below the new salary level, whereas approximately 72 percent of full-time salaried white-collar

workers earn above the salary level and would have their exemption status turn on their job

duties.

Figure A: Distribution of Full-Time Salaried White-Collar Workers by Weekly Earnings

Scrutinizing these figures more closely reinforces the continued importance of the duties

test under the final rule. Of the approximately 12.7 million full-time salaried white-collar

workers who earn below the new salary level of $1,128 per week, about 8.3 million earn below

the long test salary level of $942 per week. With the exception of the 2019 rule when the

Department set the salary level slightly lower, the Department has always set salary levels that

screened from exemption workers earning below the long test salary level. As discussed in

section V.B, the long test salary level is a key parameter for determining an appropriate salary

541 regulations and whose exemption status is therefore always determined by their duties. If

these workers in “named occupations” are included, the percentage of salaried full-time white-

collar employees for whom exemption status would depend on duties, rather than salary,

increases to 76 percent. See §§ 541.303–304.

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level.

240

The number of full-time salaried white-collar workers for whom salary would be

determinative of their nonexempt status and who earn at least the long test salary level—4.3

million—is over seven times smaller than the number of full-time salaried white-collar workers

for whom job duties would continue to be determinative of their exemption status because they

earn at least the new salary level—32.7 million.

In analyzing how the Department’s new salary level will impact all salaried white-collar

workers, the Department also considered the extent to which full-time salaried white-collar

workers across the income distribution perform EAP duties. As the Department stated in the

NPRM and the 2019 rule, the salary level has historically served as “a helpful indicator of the

capacity in which an employee is employed, especially among lower-paid employees;

however,

the salary level should not eclipse the duties test.

241

In considering the extent to which full-time

salaried white-collar workers perform EAP duties, the Department uses probability estimates of

passing the standard duties test, as it did in the NPRM.

242

The Department’s analysis shows that the new salary level is a helpful indicator of

whether salaried workers perform EAP duties, since a minority of full-time salaried white-collar

workers who earn less than the salary level meet the standard duties test, whereas a large

majority of such workers who earn more than the salary level meet the standard duties test. As

illustrated in Figure B, of the 12.7 million full-time salaried white-collar workers who earn less

240

The Department calculated the value of the long test salary level using the same methodology

it used in the NPRM, updated for current earnings data: the 10th percentile of earnings of likely

exempt workers in low-wage industries and regions. As explained in section V.B, any minor

historical variations in the long test methodology do not deprive it of its usefulness in helping

determine an appropriate salary level now.

241

88 FR 62171;84 FR 51239, 51237.

242

See section VII.

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than $1,128 per week, the Department estimates that only 38 percent—about 4.8 million

workers—meet the standard duties test. In contrast, of the 32.7 million full-time salaried white-

collar workers who earn at least $1,128 per week, a large majority—77 percent, or about 25.3

million workers—meet the standard duties test.

243

The number of full-time salaried white-collar

workers who meet the standard duties test and earn below the salary level is thus over five times

smaller than the number of full-time salaried white-collar workers who meet the standard duties

test and earn at least the salary level amount.

244

And 84 percent of all full-time salaried white-

collar workers who meet the standard duties test—25.3 million out of a total of approximately

30.0 million—earn at least the new salary level.

245

Figure B: Salaried White-Collar Workers Earning Above and Below the Standard Salary Level

Who Meet or Do Not Meet the Standard Duties Test

243

While a significant majority of full-time salaried white-collar workers who earn above the

new salary level meet the duties test, helping confirm its appropriateness as an indicator of the

capacity in which individuals are employed, a large number of full-time salaried white-collar

workers who earn above the salary level—7.4 million—do not meet the duties test. A

comparable number of salaried white-collar workers who earned above the proposed salary level

did not meet the duties test, as EPI and AFI-CIO noted in their comments. PPWO’s statement

that “[t]he Department seem[ed] to be setting the salary level at a point at which all employees

above the line would be exempt” is thus incorrect. The Department agrees with EPI that the fact

that a large number of salaried white-collar workers who earn above the salary level will be

nonexempt because they do not meet the duties test underscores the importance of an

examination of duties under this rule. These 7.4 million workers will continue to be entitled to

overtime because of their duties, not their salaries. Notably, this population is significantly larger

than the population of workers who will become nonexempt under the new salary level. Rather

than indicating that the salary level must be set higher, as AFL-CIO suggested, this fact indicates

that this rule meets the Department’s objective of preserving a primary role for an examination

of duties.

244

As noted above, see supra note 239, these figures exclude salaried white-collar workers who

are not subject to the part 541 salary criteria.

245

Note that these numbers refer only to salaried white-collar workers at all salary levels who

meet the standard duties test, including workers who are nonexempt because they earn below the

current standard salary level.

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The Department disagrees with commenters that challenged its use of its probability

codes to determine whether a worker meets the duties test in light of changes in occupational

codes and the duties test since the probability codes were first developed. The Department has

used the probability codes to estimate the number of workers who meet the duties test in its last

three EAP rules.

246

As noted in section VII, although the probability codes were developed 25

years ago, the standard duties test is not substantively different from the former short duties tests

reflected in the probability codes,

247

and the Department used occupational crosswalks to map

the occupational codes on which the probability codes were originally based onto the 2018

246

See 84 FR 51258-59; 81 FR 32458; 69 FR 22198.

247

See 69 FR 22214.

7.9

7.4

4.8

25.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Below $1,128 Above $1,128

Workers (millions)

Weekly Earnings

Do Not Meet Standard Duties Test Meet Standard Duties Test

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Census occupational codes, which are used in the most recent CPS MORG data.

248

Additionally,

the Department verified the continued appropriateness of the probability codes in 2016 through a

review of the O*NET database,

249

which confirmed that the probability codes reflected current

occupational duties.

250

The Department’s probability codes remain reliable and appropriate

indicators for evaluating whether workers meet the standard duties test.

Consistent with the NRPM, the Department next examined how the new salary level will

impact salaried white-collar workers earning between the historic long and short test thresholds.

As discussed in section V.B, the long and short test salary levels are important parameters for

assessing the appropriateness of the salary level. Under the final rule, duties will continue to be

determinative of exemption status for a majority of white-collar workers earning between these

thresholds. As illustrated in Figure C, of the approximately 10.8 million salaried white-collar

workers who earn between the long test salary level of $942 per week and the short test salary

level of $1,404 per week, about 40 percent (4.3 million) earn below the new salary level, and

about 60 percent (6.5 million) earn at or above the new salary level. Moreover, of the 4.3 million

workers earning between the long test and the new standard salary level, almost half do not meet

the standard duties test.

251

248

See section VII.

249

The O*NET database contains hundreds of standardized and occupation-specific descriptors.

See https://www.onetcenter.org.

250

See 81 FR 32459.

251

As discussed further below, about 2.1 million of the approximately 4.3 million salaried white-

collar workers who earn between the long test salary threshold and the Department’s new salary

level (about 48 percent of these workers) do not meet the standard duties test. Thus, in effect,

only 21 percent of salaried white-collar workers who earn between the long and short test salary

levels—2.2 million out of a total of 10.8 million—have their exemption status determined solely

by the new standard salary level.

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Figure C: Salaried White-Collar Workers Between the Long and Short Test Salary Levels Who

Meet or Do Not Meet the Standard Duties Test

Commenters representing workers pointed to the proportion of full-time salaried workers

who earned below the short test salary level in 1975, as compared to the proportion of full-time

salaried workers who earned below the proposed salary level, in stating that the Department

could or should set the salary level higher than the proposed salary level. See, e.g., AFL-CIO;

EPI; NELP; NWLC.

As emphasized above, the Department agrees that the short test and long

test salary levels are key parameters for assessing the appropriateness of a salary level in a one-

test system. It is also useful to put any salary level in historical context.

2.1

2.6

2.2

3.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Between $942 & $1,128 Between $1,128 & $1,404

Workers (millions)

Weekly Earnings

Do Not Meet Standard Duties Test Meet Standard Duties Test

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from the published document if minor technical or formatting changes are made during the OFR

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However, the Department notes that under the two-test system, employers could also use

the long test, which paired a lower salary level with a more rigorous duties test. Accordingly, a

segment of the workers who earned below the short test salary level in 1975—those who earned

between the short and long test salary levels and performed limited amounts of nonexempt

work—were still exempt from overtime under the long test even though they earned below the

short test salary level. As explained in section V.B.4, the Department has elected to set the salary

level well below the short test salary level in part because setting it in the short test salary range

would prevent employers from using the EAP exemption for this entire population of historically

exempt workers.

Lastly, the Department also looked at the impact of the new salary level on currently

exempt employees—those salaried white-collar workers who meet the standard duties test and

earn at least $684 per week. As with every prior rulemaking to increase the part 541 salary

levels, a relatively small percentage of currently exempt workers will become nonexempt. Of the

approximately 45.4 million salaried white-collar workers in the United States, approximately

29.3 million currently qualify for the EAP exemption.

252

Of these 29.3 million presently exempt

workers, just 4.0 million earn at or above the current $684 per week standard salary level but less

than $1,128 per week and will, without some intervening action by their employers, become

entitled to overtime protection as a result of the combined effect of the initial update and the

252

Note that the 29.3 million worker figure only refers to workers who meet the standard EAP

exemption and thus differs from the population of potentially affected EAP workers identified in

the economic analysis (29.7 million), which includes workers who qualify only for the HCE

exemption. As noted above, this is a conservative estimate because there are also 8.1 million

workers in the “named occupations” who, under the Department’s regulations, are exempt based

on their duties alone.

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subsequent application of the new standard salary level in this rule. A test for exemption that

includes a salary level component will necessarily result in a number of workers who earned at

or above the prior salary level and pass the duties test becoming nonexempt when the salary level

is increased. As the Department has consistently found since 1938, salary is an important

indicator of whether an individual is employed in a bona fide EAP capacity and therefore a key

element in defining the exemption.

As the Department explained in its analysis of the impact of the proposed salary level, the

new salary level will impact the exemption status of two distinct and important, but relatively

small, groups of lower-paid EAP workers. First, the new salary level will restore overtime

protections to 1.8 million currently exempt workers who meet the standard duties test but earn

less than the equivalent of the long test salary level ($942 per week). Such employees were

excluded from the EAP exemption under every rule prior to 2019, either by the long test salary

level itself, or under the 2004 rule standard salary level, which was set equivalent to the long test

salary level. Fully restoring the salary level’s initial screening function requires a salary level

that will ensure all employees who earn below the long test level are excluded from the

exemption.

Second, the new salary level will result in overtime protections for an additional 2.2

million currently exempt workers who meet the standard duties test and earn between the long

test salary level ($942 per week) and the final salary level. As explained earlier, the Department

is setting the standard salary level above the long test level to account for the shift to a one-test

system in a manner that reasonably distributes the impact of this switch. The final rule will limit

the number of affected workers by setting a standard salary level below the midpoint between the

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long and short test salary levels and by using earnings data from the lowest-wage Census Region

(the South).

Even among the 4.0 million workers affected by the combination of the initial update and

the subsequent application of the new standard salary level in this rule, the fact that a large share

of these workers earn below the long test level underscores the modest role of the final salary

level. Beyond the 1.8 million workers earning less than the long test salary level—to whom the

final rule will simply restore overtime protections that they had under every rule prior to 2019—

the increase in the salary level will affect the exemption status of 2.2 million workers. This group

makes up about 8 percent of all currently exempt, salaried white-collar workers and just under 5

percent of all salaried white-collar workers.

253

The salary level methodology adopted in this rule

will thus maintain the “useful, but limited, role” of the salary level in defining and delimiting the

EAP exemption.

254

Finally, the Department does not agree with commenters that stated that it underestimated

the number of affected workers in the NPRM. Commenters that asserted the number of affected

workers could be much higher generally referenced estimates of the number of workers earning

between the current salary level and the proposed salary level, regardless of whether they passed

the duties test, and then posited that up to that many workers (e.g., 7.2 million, 7.5 million, or

12.3 million) could be affected. See AFPI; NRF; Rachel Greszler. The position that all workers

earning below the new salary level, regardless of their duties, will be affected by the new salary

253

The 4.0 million workers affected by the new salary level represent only 13.8 percent of the

29.3 million salaried white-collar workers who currently qualify for the standard EAP

exemption.

254

See 88 FR 62173; 84 FR 51238.

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from the published document if minor technical or formatting changes are made during the OFR

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level fails to account for the fact that that millions of these workers are already nonexempt

because they fail the duties test. The exemption status of workers who fail the duties test will not

be affected by this rule.

Determining the workers who will be affected by a change in the salary level requires an

examination of workers’ earnings and their duties. Consistent with the NPRM, the Department

determined the populations of currently exempt workers who will be affected by the salary level

by applying its probability codes. For the reasons discussed earlier in this section and in section

VII below, the Department’s probability codes are reliable and appropriate indicators of whether

an employee meets the standard duties test. The Department has consistently applied this

methodology in all its recent part 541 rules.

255

Though some commenters criticized the

Department’s method for calculating the affected worker figure, they did not offer an alternate

methodology for determining which workers pass the current duties test, let alone one as robust

and proven as the Department’s probability codes.

C. Highly Compensated Employees

In the 2004 rule, the Department created the HCE test for certain highly compensated

employees. Combining a much higher compensation requirement with a minimal duties test, the

HCE test is based on the rationale that employees who earn at least a certain amount annually—

an amount substantially higher than the annual equivalent of the weekly standard salary level—

will almost invariably pass the standard duties test.

256

The HCE test’s primary purpose is

255

See 84 FR 51258–59; 81 FR 32458; 69 FR 22198.

256

84 FR 51249; see also § 541.601(c) (“A high level of compensation is a strong indicator of

an employee’s exempt status, thus eliminating the need for a detailed analysis of the employee’s

job duties.”).

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therefore to serve as a streamlined alternative for very highly compensated employees because a

very high level of compensation is a strong indicator of an employee’s exempt status, thus

eliminating the need for a detailed duties analysis.

257

As outlined in § 541.601, to be exempt under the HCE test, an employee must earn at

least the amount specified in the regulations in total annual compensation—presently $107,432

per year.

258

Of this HCE threshold amount, no less than the full standard salary level amount

must be paid on a salary or fee basis.

259

Finally, the employee must “customarily and regularly

perform[] any one or more of the exempt duties or responsibilities of an executive,

administrative, or professional employee[.]”

260

The HCE test applies only to employees whose

primary duty includes performing office or non-manual work.

261

Employees qualifying for exemption under the HCE test must receive at least the

standard salary level per week on a salary or fee basis, while the remainder of the employee’s

total annual compensation may include commissions, nondiscretionary bonuses, and other

nondiscretionary compensation.

262

Total annual compensation does not include board, lodging,

or other facilities, and does not include payments for medical insurance, life insurance,

257

See 69 FR 22173–74.

258

§ 541.601(a)(1).

259

§ 541.601(b)(1). Although § 541.602(a)(3) allows employers to use nondiscretionary bonuses,

incentives, and commissions to satisfy up to 10 percent of the weekly standard salary level when

applying the standard salary and duties tests, the Department’s regulation at § 541.601(b)(1) does

not permit employers to use such payments to satisfy the weekly standard salary level

requirement for HCE workers. See 84 FR 51249.

260

§ 541.601(c).

261

§ 541.601(d).

262

§ 541.601(b)(1). The criteria for determining if an employee is paid on a “salary basis” are

identical under the standard exemption criteria and the HCE test. See Helix Energy Solutions,

143 S.Ct. at 683.

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retirement plans, or other fringe benefits. An employer is permitted to make a final “catch-up”

payment during the last pay period or within 1 month after the end of the 52-week period to

bring an employee’s compensation up to the required level.

As stated in the NPRM, the Department continues to believe that the HCE test is a useful

alternative to the standard salary level and duties tests for highly compensated employees.

However, as with the standard salary level, the HCE total annual compensation level must be

updated to ensure that it remains a meaningful and appropriate standard to pair with the minimal

HCE duties test. To maintain the HCE test’s role as a streamlined alternative for those employees

most likely to meet the standard duties test, the HCE total annual compensation level must be

high enough to exclude all but those employees “at the very top of [the] economic ladder[.]”

263

The proposal noted that when it was created in 2004, the HCE test featured a $100,000 threshold

that exceeded the annual earnings of approximately 93.7 percent of salaried workers

nationwide.

264

More recently in the 2019 rule, the Department set the HCE test threshold so it

would be equivalent to the annual earnings of the 80th percentile of full-time salaried workers

nationwide. At the time of the NPRM, however, the $107,432 per year HCE threshold covered

only 72 percent of full-time salaried workers nationwide.

265

The Department proposed to update the HCE test by setting the total compensation

amount equal to the annualized weekly earnings of the 85th percentile of full-time salaried

workers nationwide. Based on earnings data used in the NPRM, this proposed methodology

resulted in a proposed HCE threshold of $143,988, of which at least $1,059 per week (the

263

69 FR 22174.

264

See 88 FR 62159.

265

Id.

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proposed standard salary level) would have to be paid on a salary or fee basis.

266

The Department

noted that its proposed methodology would produce an HCE threshold that was higher than

under the methodology adopted in the 2019 final rule (which set the HCE threshold equal to the

annualized weekly earnings of the 80th percentile of full-time salaried workers nationwide),

267

but lower than under the 2004 rule (which covered 93.7 percent of salaried workers nationwide)

and the method adopted in the 2016 rule (which would have covered 90 percent of salaried

workers nationwide).

268

In justifying the proposed HCE threshold, the Department explained in

the NPRM that it was concerned that repeating the 2019 rule’s methodology now would not

produce a threshold high enough to reserve the HCE test for employees at the top of today’s

economic ladder and could risk the unintended exemption of large numbers of employees in

high-wage regions.

269

The Department is finalizing its proposal to increase the HCE total compensation

threshold to the 85th percentile of annualized weekly earnings of full-time salaried workers

nationwide. Applying this methodology to calendar year 2023 earnings data results in a total

compensation threshold of $151,164 per year. This approach will guard against the unintended

exemption of workers who are not bona fide executive, administrative, or professional

employees, including those in higher-income regions and industries.

266

It is the Department’s intent that the increase in the HCE total annual compensation threshold

is independent of, and severable from, the increase in the standard salary level to the 35th

percentile of weekly earnings of full-time salaried employees in the lowest-wage Census Region

(the South) and the updating provision, pursuant to which the HCE total annual compensation

threshold will be regularly updated to reflect current earnings.

267

See 84 FR 51250.

268

See 69 FR 22169–70 (Tables 3 and 4); 81 FR 32429.

269

88 FR 62176.

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review process. Only the version published in the Federal Register is the official version.

As in prior rulemakings, the Department received significantly less feedback from

commenters on the proposed increase to the HCE threshold than on the proposed increase to the

standard salary level. Most commenters did not address the issue. Among the comments that

addressed the proposed HCE threshold, stakeholder sentiment was split; employee

representatives generally supported the proposed increase or asked for a higher increase, while

most employer representatives favored a smaller increase or no increase at all.

A number of commenters expressed support for the proposed increase to the HCE

threshold. See, e.g., AFT; AFL-CIO; Coalition of State AGs. For example, the Coalition of State

AGs asserted that “[s]ignificant inflation since the 2019 rule became effective in January 2020

has eroded the purchasing power of the HCE salary level” and remarked that the HCE threshold

“could arguably be made even higher than the proposed level, particularly for high-cost, high-

wage states[.]” The National Partnership described the proposed HCE threshold as “in line with

historic and economic precedent,” while the AFT commented that the proposed HCE threshold

“will ensure [that] workers in the health care sector, and workers who provide a wide range of

services and expertise for state and local governments, are not completely excluded from

possibly qualifying for overtime.”

A handful of commenters advocated for the adoption of a higher HCE threshold than

proposed. Noting that the HCE threshold originally exceeded the earnings of 93.7 percent of all

salaried employees nationwide when it was introduced in 2004, Sanford Heisler Sharp asserted

that the Department’s proposal to set the HCE threshold at the 85th percentile “introduces a

substantial risk of harming employees who truly need overtime protections.” NELA and Nichols

Kaster urged the Department to repeat the approach it took in the 2016 rule, which set the HCE

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threshold equal to the 90th percentile of salaried earnings nationwide. Invoking the FLSA’s

policy goal of spreading employment, NELA also opined that “an overly permissive HCE [test]

will result in fewer ‘highly compensated’ jobs available for workers aspiring to climb the

economic ladder to benefit themselves and their families.”

Employer stakeholders that addressed the HCE threshold opposed the Department’s

proposed increase, with many commenters disputing that the current HCE threshold should be

increased at all. See, e.g., ABC; AHLA; Argentum & ASHA; NAW; Visiting Angels. A number

of commenters that opposed the proposed HCE threshold asserted that it would be

administratively burdensome to reevaluate the exemption status of employees who earn between

the current and proposed HCE thresholds. See, e.g., HR Policy Association; NAM; NCFC.

PPWO commented that “[e]mployers will be faced with the task of reviewing the basis on which

each employee was accorded exempt status, including employees for whom the exempt status

decision was made a decade ago and who may be among the most highly paid employees in the

company.”

Other employer-side stakeholders opposed the proposed HCE threshold but indicated

(either in the alternative or outright) that they would be open to a smaller increase. Several

commenters stated an increase to the HCE threshold using the 80th percentile methodology

applied in the 2019 rule would be preferable. See, e.g., CWC; LeadingAge; RILA; see also

Chamber (asserting that the NPRM “does not address whatsoever why the 80th percentile

[methodology] would be insufficient”). National Restaurant Association asserted that if the

Department changes the HCE threshold, it “should calculate any new HCE highly compensated

level by using data from the South Census Region, rather than on a nationwide basis, to ensure

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that the HCE exemption is at least within reach of some employers in the lowest-wage regions in

the country.” WFCA similarly recommended that the Department set the HCE threshold at the

85th percentile of salaried earnings in lowest-wage Census Region or, alternatively, use the 80th

percentile of national data for full-time salaried workers (i.e., the 2019 rule’s approach).

Having considered the comments received, the Department is finalizing its proposal to

increase the HCE threshold to the 85th percentile of annualized weekly earnings of full-time

salaried earnings nationwide. This results in a new HCE threshold of $151,164 per year, using

calendar year 2023 earnings data, of which at least $1,128 per week (the standard salary level)

must be paid on a salary or fee basis.

270

As an initial matter, the Department maintains that the current HCE threshold must be

increased. In nominal terms, the current $107,432 HCE threshold is only 7 percent higher than

the $100,000 HCE threshold that was introduced in 2004 and, as multiple commenters noted, it

has failed to keep up with wage growth over the last 20 years. According to 2023 earnings data,

the current HCE threshold ($107,432) now covers just 70 percent of full-time salaried workers

nationwide, less than the 80 percent of such workers that it covered when it was set in 2019. This

coverage would continue to decrease in the absence of an increase, which is needed to reserve

the HCE test for employees “at the very top of today’s economic ladder,”

271

as the Department

originally intended. Inaction could risk the unintended exemption of employees in higher-income

regions and industries who clearly are outside of the scope of the exemption.

272

270

As discussed in section IV, the increase in the HCE threshold and the standard salary level

using the new methodologies will be applicable on January 1, 2025.

271

69 FR 22174.

272

Id.

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The Department concludes that increasing the HCE threshold to the 85th percentile of

annualized weekly earnings of full-time salaried workers nationwide will ensure that the

threshold is sufficiently high to provide a meaningful and appropriate complement to the

minimal HCE duties test, and that nearly all of the highly paid white-collar workers earning

above this threshold “would satisfy any duties test.”

273

The Department considered keeping the

2019 rule’s methodology for the HCE threshold (i.e., the 80th percentile of earnings of full-time

salaried employees nationwide) and applying it to current earnings data. However, the

Department reaffirms its determination from the NPRM that this methodology is not appropriate

because it does not produce a threshold high enough to reserve the HCE test for employees who

would almost invariably pass the standard duties test. The Department agrees with commenters

that stated that setting the HCE threshold at the annualized weekly earnings of the 85th

percentile of full-time salaried workers nationwide will guard against the unintended exemption

of workers who are not bona fide executive, administrative, or professional employees, including

those in higher-income regions and industries.

The Department disagrees that the new HCE threshold is too high. Adjusting for wage

growth, the proposed HCE threshold is significantly lower than the original HCE threshold that

was introduced in 2004 (which surpassed the earnings of 93.7 percent of full-time salaried

workers). Going forward, employers with employees affected by the increased HCE threshold

can still use the standard exemption criteria to take advantage of the EAP exemption. The HCE

test is a streamlined alternative to the standard exemption criteria for a select class of employees

273

84 FR 51250 (internal citation omitted).

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who are so highly paid that they will almost invariably pass the standard duties test.

274

By design,

the HCE test is reserved for employees “at the very top of today’s economic ladder” who would

satisfy “any duties test” in “virtually every” case.

275

This exclusivity is necessary because of the

risk that the HCE test poses to salaried employees in high-income regions and industries who are

not bona fide EAP employees, which the Department acknowledged when the HCE test was

created in 2004.

276

Although the Department has previously acknowledged that the HCE test may exempt

some employees who fail the standard duties test and would otherwise be entitled to overtime

pay, such outcomes should be “rare,” involving employees whose pay is high enough that their

exemption “would not defeat the objectives of section 13(a)(1) of the Act.”

277

The only way to

ensure that the HCE test serves its intended purpose—i.e., serving as an efficient, streamlined

test for employees who would “almost invariably” meet the standard duties test—is for the test to

include an earnings threshold high enough to exclude nearly all employees whose EAP status

may be questionable. The exemption status of such employees should be determined by the

standard exemption criteria.

The Department acknowledges that some commenters requested the adoption of a higher

HCE threshold, closer in magnitude to the original $100,000 HCE threshold that was adopted in

274

See § 541.601(c) (“A high level of compensation is a strong indicator of an employee’s

exempt status, thus eliminating the need for a detailed analysis of the employee’s job duties.”);

see also 84 FR 51249.

275

69 FR 22174.

276

See id. (explaining the need to avoid the unintended exemption of employees “such as

secretaries in New York City or Los Angeles . . . who clearly are outside the scope of the

exemptions and are entitled to the FLSA’s minimum wage and overtime pay protections.”).

277

See 84 FR 51249.

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2004. As noted above, the original HCE threshold exceeded the earnings of over 93 percent of

salaried white-collar workers when it was adopted. Germane to these comments, the Department

considered repeating the approach it took in the 2016 final rule and proposed in the 2019 NPRM

of setting the HCE threshold at the annualized weekly earnings of the 90th percentile of full-time

salaried workers nationwide, which would result in a threshold of $179,972 per year. As noted in

the NPRM, however, the Department is concerned that an HCE threshold set at $179,972 could

unduly restrict the use of the HCE test for employers in lower-wage regions and industries.

278

While the new HCE threshold does not exclude from the HCE test as high a percentage of full-

time salaried employees as the HCE threshold initially adopted in 2004, it excludes a sufficiently

large percentage (i.e., 85 percent of full-time salaried employees nationwide) to guard against the

unintended exemption of employees in higher-income regions and industries who are not bona

fide EAP employees.

For all of the reasons provided above, the Department adopts its proposal to set the HCE

threshold equal to the annualized weekly earnings of the 85th percentile of full-time salaried

workers ($151,164). This new level will be applicable on January 1, 2025.

D. Severability

1. The Department’s Proposal

The Department proposed to add a severability provision to its part 541 regulations at §

541.5. Proposed § 541.5 stated that if any provision of this part is held to be invalid or

unenforceable by its terms, or as applied to any person or circumstance, or stayed pending

further agency action, the Department intended that the provision be given the fullest effect

278

See 88 FR 62176; see also 84 FR 51250.

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permitted by law, unless the provision is held to be completely invalid or unenforceable, in

which case, the Department intended the provision to be severable and not to affect the

remaining provisions.

The Department illustrated the intended effect of proposed § 541.5 with some examples.

The Department noted that it was its intent that the proposed updating mechanism be effective

even if the proposed increase in the standard salary level were invalidated. It was also the

Department’s intent that the proposed increase in the HCE total annual compensation threshold

be effective even if the increase in the standard salary level were invalidated. And it was the

Department’s intent that the proposed increases in the standard salary level and HCE annual total

compensation requirement apply even if the updating mechanism was determined to be

invalid.

279

The Department is finalizing § 541.5, Severability, as proposed, with that addition of

clarifying language as discussed below.

2. Discussion of Comments and Final Rule

Most commenters did not address proposed § 541.5. Of the few commenters that did

address the Department’s severability proposal, the Administrative Law Professors and NELP

supported the inclusion of a severability provision in the final rule.

279

The Department also stated that it was the Department’s intent that its proposal to apply the

standard salary level to the U.S territories subject to the Federal minimum wage remain in effect

even if the proposed change to the standard salary level were invalidated. As discussed above,

see supra note 9, at this time the Department is not finalizing in this final rule its proposal to

apply the standard salary level to the U.S. territories subject to the Federal minimum wage and to

update the special salary levels for American Samoa and the motion picture producing industry.

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In expressing their support, the Administrative Law Professors provided the most in-

depth discussion of the Department’s proposed severability provision. The Administrative Law

Professors explained that a provision of a rule is severable where the agency intends for the

remainder of the rule to be effective, even if the provision is invalidated, and the rule would be

workable absent the provision, citing precedent from the U.S. Supreme Court and the U.S. Court

of Appeals for the District of Columbia Circuit.

280

The professors noted that the Department

“clearly state[d] [its] intention” in proposed § 541.5 that the updating mechanism in proposed §

541.607 “be effective even if the proposed increase in the standard salary level is invalidated.”

They further noted that the Department “expresse[d] the same intention with regard to the

implementation of the HCE total annual compensation requirement whether or not the standard

salary level is invalidated” and “the application of the Department’s proposed 2023 earnings

thresholds, whether or not automatic updating is upheld.”

The Administrative Law Professors observed that the Department’s inclusion of a

severability provision in the NPRM was consistent with guidance from the Administrative

Conference of the United States (ACUS), which advised agencies in a 2018 report

281

to address

severability in the text and preamble of both the NPRM and the final rule where the agency

intends the provisions of a rule to be severable and anticipates that the rule may be challenged in

court. The professors suggested that the Department further explain in the final rule how the rule

“would remain workable” if any of its provisions were declared invalid. As an example, the

280

See K-Mart Corp. v. Cartier, 486 U.S. 281, 294 (1988); Davis Cnty. Solid Waste Mgmt. v.

EPA, 108 F.3d 1454, 1459-60 (D.C. Cir. 1997).

281

See Admin. Conf. of the U.S., Recommendation 2018-2, Severability in Agency Rulemaking,

83 FR 30683, 30685 (June 29, 2018).

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

professors suggested stating explicitly that invalidation of the updating provision “would have no

bearing on the rationality or administrability of the standard salary and HCE salary thresholds”

as set in the rule. They further noted that in the event of the invalidation of either the standard

salary level or the HCE compensation threshold, the updating provision could function

independently because “updating would simply take as the 2023 baseline the thresholds left in

place from the 2019 rule.” The Administrative Law Professors made clear that expanding the

explanation of “the independent workability of any of the rule’s provisions” should not be seen

as an indication of legal vulnerability but instead as merely an acknowledgement of the

possibility of legal challenge.

NELP also supported the proposed severability provision, noting the “vital importance”

of the proposed rule to millions of workers. Specifically, NELP stated that if any provision of the

rule “is deemed legally questionable, only that provision should be stayed while litigation

proceeds.”

A small number of commenters representing employer interests specifically opposed the

proposed severability provision or criticized the Department’s severability proposal. Indiana

Chamber of Commerce and U-Haul Holding Company (U-Haul) stated that the proposed

severability provision was an acknowledgement of the legal vulnerability of the Department’s

proposed updating section. The YMCA stated that the Department failed to explain the need for,

or appropriateness of, the proposed severability provision, and RILA asserted that the

Department failed to explain how the proposed rule would function if any of its provisions were

declared invalid. The Chamber and the National Association of Convenience Stores asserted that

the Department should withdraw the severability provision.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The Chamber further asserted that, pursuant to the district court decision invalidating the

2016 rule, “the automatic increase provision in the Proposed Rule cannot survive if the increase

to the minimum salary level is struck down.” The Department does not read the court’s decision

as substantively examining the validity of the 2016 rule’s automatic updating provision or

analyzing whether that provision was severable from the remainder of the rule. And importantly,

the 2016 rule did not contain a severability provision or discuss the Department’s intent

regarding severability of the provisions of that rule. In contrast, the Department’s current NPRM

included a severability provision and a detailed discussion of the Department’s intent that

specifically addressed severability of the updating provision. As the Administrative Law

Professors noted, as proposed, the updating provision was not dependent on the proposed

increases to the standard salary level and the HCE compensation threshold. If either of the new

thresholds were vacated, the updating provision would simply use the existing methodologies set

in the 2019 rule as the baseline for the update (i.e., the Department would apply those

methodologies triennially to update the earnings thresholds as established in § 541.607). This is a

significant change from the 2016 updating provision, which would have updated the standard

salary level and HCE total compensation requirement based on the specific methodologies set in

that rule and facially could not function if those methodologies were invalidated.

282

Upon consideration of the comments received, the Department is finalizing the

severability provision in § 541.5 as proposed, with an additional sentence to further clarify its

intent. The Department intends that each of this rule’s provisions be considered separate and

severable and operate independently from one another. The Department is revising § 541.5 to

282

See 81 FR 32251.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

state this explicitly. In this regard, the Department intends that if any application of a provision is

stayed, enjoined, or invalidated, the provision be construed to continue to give the maximum

effect to the provision permitted by law. In the event any provision within a section of the rule is

stayed, enjoined, or invalidated, the Department intends that all remaining provisions within that

section, plus all other sections, remain effective and operative. And in the event any whole

section of the rule is stayed, enjoined, or invalidated, the Department intends that all remaining

sections remain effective and operative.

It is the Department’s position that the provisions and sections of the rule can function

sensibly in the event that any specific provisions, sections, or applications are invalidated,

enjoined, or stayed. To begin, the new standard salary level set forth in § 541.600(a)(2) of $1,128

per week—the 35th percentile of weekly nonhourly earnings in the lowest-wage Census

Region—can function sensibly, even if, for instance, the rule’s new updating section or the

revision to the HCE total compensation requirement are stayed, enjoined, or invalidated. The

revision to the standard salary level under the new methodology operates independently of and

does not depend on either the new updating section or the revision to the HCE total

compensation requirement. If, for instance, the triennial updating of the standard salary level

were invalidated, the new salary level of $1,128 would still go into effect, and it would remain

$1,128 per week until the Department conducts further rulemaking. The new standard salary

level of $1,128 per week would also still take effect if the initial update to the standard salary

level were invalidated.

283

And the new standard salary level would still go into effect and

283

As noted in section IV, the initial update to the standard salary level and HCE total annual

compensation requirement are applicable July 1, 2024, whereas the new standard salary level and

HCE total annual compensation requirement are applicable 6 months later on January 1, 2025.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

function sensibly if the revision to the HCE total compensation requirement were invalidated as

well. Notably, in such an event, the total annual compensation an employee would need to

receive to qualify for the HCE test would remain at the existing level;

284

however, the

employee’s total annual compensation would need to include at least $1,128 per week paid on a

salary or fee basis. As discussed in section V.B, the revised standard salary level will work

effectively with the standard duties test to better define who is employed in a bona fide EAP

capacity by restoring the initial screening function that the salary level long fulfilled and

adjusting the salary level to account for the change to a single-test system. Finalizing the new

standard salary level will thus accomplish several of the key objectives the Department is

seeking to achieve in undertaking this rulemaking, even if all or part of the updating section or

the revisions to the HCE total compensation requirement do not also go into effect.

The revised HCE total compensation requirement of $151,164 per year set forth in

§ 541.601(a)(1)—the 85th percentile of annualized weekly earnings of full-time nonhourly

workers nationally—can also function sensibly, even if the other provisions of this final rule are

stayed, enjoined, or invalidated. The revision to the HCE total compensation requirement under

the new methodology operates independently of, and does not depend on, either the new

updating provision or the revision to the standard salary level. Accordingly, if, for instance, the

triennial updating of the HCE total compensation requirement were invalidated, the new HCE

total compensation requirement of $151,164 per year would still become effective, and the HCE

total compensation requirement would remain at that amount until the Department undertakes

284

Under these circumstances, the HCE total annual compensation requirement would be

$132,964 per year or, if the initial update to the earnings thresholds under this rule did not go

into effect, the current HCE total annual compensation requirement of $107,432 per year.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

further rulemaking. If the initial update to the HCE total compensation requirement were

invalidated, the revised HCE total compensation requirement would still go into effect, too. And

the revised HCE total compensation requirement would still go into effect and function sensibly

if the revision to the standard salary level were invalidated. In such an event, an employee would

need to be paid the new total annual compensation amount of $151,164 per year to qualify as

exempt under the HCE test, though the total annual compensation would need to include only the

existing standard salary level

285

per week paid on a salary or fee basis. As noted in section V.C,

the HCE test was intended to be limited to those highly paid employees who would almost

invariably meet the standard duties test. The revision to the HCE total compensation requirement

would restore it to a level that is high enough to avoid the unintended exemption of large

numbers of employees in high-wage regions but not so high as to unduly restrict the use of the

HCE test in lower-wage regions and industries, even if the revisions to the standard salary level

and all or part of the updating provision do not go into effect.

The new updating section can also function sensibly, independent of the other provisions

of this final rule. As explained in section V, the updating section provides in § 541.607(a) and (b)

that the Department will update the standard salary level and HCE total compensation

requirement, respectively, initially on July 1, 2024 and every 3 years thereafter, to reflect current

earnings data, in accordance with the methodology used to set each threshold. Both the triennial

updating of the earnings thresholds for exemption and the initial update to these thresholds can

function sensibly on their own.

285

Under these circumstances, the standard salary level would be $844 per week or, if the initial

update to the earnings thresholds under this rule did not go into effect, the current standard salary

level of $684 per week.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The triennial updating of the earnings thresholds for exemption can function sensibly,

even if the new standard salary level and new HCE total compensation requirement are stayed,

enjoined, or invalidated, as the triennial updates are based on the methodology used to set each

threshold that is in place at the time of the update. If all the provisions of this rule do go into

effect (and assuming the Department has not engaged in further rulemaking), as discussed in

section V.A, the triennial updates to the standard salary level and HCE total compensation

threshold will be based on the new methodologies established in this rule: the 35th percentile of

weekly nonhourly earnings in the lowest-wage Census Region and the 85th percentile of

annualized weekly earnings of full-time nonhourly workers nationally, respectively. However,

the updating provision does not depend on the revisions to the standard salary level and HCE

methodologies also going into effect. If, for instance, both the new standard salary level and

HCE total compensation requirement were invalidated, the updating provision would, as the

Administrative Law Professors noted, use the existing methodologies set in the 2019 rule as the

baseline for the each triennial update: the 20th percentile of weekly earnings of full-time

nonhourly workers in the lowest-wage Census Region and/or retail nationally, in the case of the

standard salary level, and the 80th percentile of annualized weekly earnings of full-time

nonhourly workers nationally, in the case of the HCE test. The updating section thus ensures that

the standard salary level and HCE total compensation requirement continue to reflect current

earnings—among the key objectives the Department is seeking to achieve in undertaking this

rulemaking, see section V.A—even if the new methodologies for setting these earnings

thresholds do not go into effect.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The initial update of the earnings thresholds for exemption can function sensibly as well,

even if this rule’s other revisions do not go into effect, as the baseline for the initial update to

each threshold is the current methodology established in 2019. Accordingly, if, for instance, the

new standard salary level, new HCE total compensation requirement, and the triennial updating

provision were invalidated, the standard salary level and HCE total compensation requirement

would still be updated on July 1, 2024 to $844 per week and $132,964 per year, respectively. In

undertaking this rulemaking, the Department sought (among other objectives) to account for the

considerable earnings growth that has taken place since it last updated the earnings thresholds for

exemption.

286

The initial updating of the standard salary level and HCE total compensation

requirement ensures these thresholds reflect earnings growth since the Department’s 2019 rule,

even if the new methodologies for setting the standard salary level and the HCE total

compensation requirement and the future triennial updates to these earnings thresholds do not go

into effect.

In sum, the Department has taken care to draft this final rule such that its provisions

function independently and is including a severability section, § 541.5, to make clear that all the

rule’s provisions are separate and severable and should be given the fullest possible effect. As

the Administrative Law Professors observed, this discussion of severability is not an

acknowledgement of the legal vulnerability of any particular provision. However, since some

commenters have indicated that they may challenge all or part of this rule, see e.g., AFPI,

Chamber, NFIB, and the 2016 and 2019 rules were both subject to legal challenge, the

Department, consistent with ACUS guidance, makes explicit in the regulatory text that it

286

See section V.A.2.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

considers the provisions of this rule to be severable and explains here how the various provisions

of the rule can operate sensibly in the event another provision of the rule is stayed, enjoined, or

declared invalid.

VI. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., and its attendant

regulations, 5 CFR part 1320, require the Department to consider the agency’s need for its

information collections, the information collections’ practical utility, the impact of paperwork

and other information collection burdens imposed on the public, and how to minimize those

burdens. Under the PRA, an agency may not collect or sponsor an information collection

requirement unless it displays a currently valid Office of Management and Budget (OMB)

control number.

287

OMB has assigned control number 1235-0021 to the information collection that gathers

information from complainants alleging violations of the labor standards that WHD administers

and enforces, and OMB has assigned control number 1235-0018 to the information collection,

Records to be kept by Employers—Fair Labor Standards Act. In accordance with the PRA, the

Department solicited public comments on the proposed burden changes to the information

collection under control number 1235-0021 and the proposed burden changes to the information

collection under OMB control number 1235-0018.

288

Because OMB control number 1235-0021

was encumbered by a different rulemaking at the time of submission of the NPRM to OMB, the

Department at that time created a duplicate ICR of 1235-0021 under OMB control number 1235-

287

See 5 CFR 1320.8(b)(3)(vi).

288

See 88 FR 62181.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

0NEW to allow the public to comment on the proposed estimates. The Department submitted a

contemporaneous request for OMB review of the proposed revisions to the existing information

collection and the duplicate ICR in accordance with 44 U.S.C. 3507(d). On October 12, 2023,

OMB issued a notice that assigned the duplicate information collection control number 1235-

0035 and indicated the Department should address comments received during the NPRM

comment period and resubmit for approval at the time of the final rule. Also on October 12,

2023, OMB issued a notice that continued the previous approval of the information collection

under 1235-0018 under the existing terms of clearance and advised the Department to address

any comments received during the NPRM comment period and resubmit at the time of the final

rule.

Circumstances Necessitating this Collection: This rulemaking revises 29 CFR part 541

and affects provisions that could be considered to entail collections of information including (1)

the complaint process under which employees may file a complaint with the Department to

investigate potential violations of the laws administered by the Department, including the FLSA;

and (2) disclosure and recordkeeping requirements for covered employers under the FLSA. This

rulemaking does not impose new information collection requirements. Rather, burdens under the

existing requirements would increase due to the changes in the universe of employees for whom

employers are required to maintain records. The changes adopted in this rulemaking may also

cause an initial increase in burden if more employees file complaints with WHD to collect back

wages under the overtime pay requirements.

Information and technology: There is no particular order or form of records prescribed by

the regulations. A respondent may meet the requirements of this final rule using paper or

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

electronic means. WHD, to reduce burden caused by the filing of complaints that are not

actionable by the agency, uses a complaint filing process in which complainants discuss their

concerns with WHD professional staff. This process allows agency staff to refer complainants

raising concerns that are not actionable under federal wage and hour laws and regulations to an

agency that may be able to assist.

Public comments: The Department invited public comment on its analysis that the rule

would create a slight increase in the paperwork burden associated with the complaint ICR 1235–

0021 (submitted as a duplicate ICR at the NPRM stage under control number 1235-0NEW and

later assigned by OMB as 1235-0035) and on the burden associated with ICR 1235–0018,

Records to be kept by employers—Fair Labor Standards Act. The Department did not receive

comments on the ICRs themselves or any comments submitted regarding the PRA analysis in

particular, including the methodology. No comments were received with respect to the complaint

ICR (1235-0021). However, commenters addressed aspects of the information collections while

commenting on the text of the proposed rule as it relates the records ICR (1235-0018).

For example, Horizon Health Services commented that “[r]equiring supervisors to record

their hours worked and request overtime, as needed, would [be] a disruption to business

operations by adding a significant administrative burden.” The University of Dayton agreed that

a change would require additional administrative burden stating, “new training and systems

would need to be put in place for newly nonexempt employees to record their time and for their

supervisors to track and approve their time. They would have to become accustomed to tracking

their hours, being sure not to work unbudgeted hours and overtime unless approved, and so

forth.” Others, like Argentum & ASHA and Oklahoma Wesleyan University, similarly expressed

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

concerns about the costs associated with having newly nonexempt employees record their time.

SBA Advocacy stated that “DOL should consider” that “small entities face vast administrative

and operational costs to schedule and track employee hours to minimize overtime costs.” In

addition, some commenters expressed concern that the Department’s cost estimates related to

recordkeeping were too low, given among other things that employers would need to adjust their

recordkeeping and payroll systems for newly overtime-eligible employees. See, e.g., NFIB;

PPWO; Seyfarth Shaw. The National Roofing Contractors Association stated that it “is

concerned the proposed regulation would result in dramatically increased labor costs and

additional paperwork burdens for employers, while also reducing workplace flexibility and

compensation for many workers.”

In response to these comments, the Department observes that most employers currently

have both exempt and nonexempt workers and therefore have systems already in place for

employers to track hours. Additionally, commenters did not offer alternatives for estimates or

make suggestions regarding the methodology for calculating the PRA burdens. The actual

recordkeeping requirements are not changing in the final rule. However, the pool of workers for

whom employers will be required to make and maintain records has increased under the final

rule, and as a result the burden hours have increased. Included in this PRA section are the

regulatory familiarization costs for this final rule. However, this is a duplication of the regulatory

familiarization costs contained in section VII, economic impact analysis.

The Department plans to submit these ICR’s to OMB upon publication of the final rule.

The agency will publish a notice in the FEDERAL REGISTER to inform the public of OMB’s

decision.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Total burden for the subject information collections, including the burdens that will be

unaffected by this final rule and any changes, is summarized as follows:

Type of review: Revision to currently approved information collections.

Agency: Wage and Hour Division, Department of Labor.

Title: Employment Information Form.

OMB Control Number: 1235–0021.

Affected public: Private sector, businesses or other for-profits and Individuals or

Households.

Estimated number of respondents: 29,160 (2,150 from this rulemaking).

Estimated number of responses: 29,160 (2,150 from this rulemaking).

Frequency of response: On occasion.

Estimated annual burden hours: 9,720 (717 burden hours due to this rulemaking).

Capital/Start-up costs: $0 ($0 from this rulemaking).

Title: Records to be kept by Employers—Fair Labor Standards Act.

Type of review: Revision to currently approved information collections.

Agency: Wage and Hour Division, Department of Labor.

OMB Control Number: 1235–0018.

Affected public: Private sector, businesses or other for-profits and Individuals or

Households.

Estimated number of respondents: 4,068,419 (0 from this rulemaking).

Estimated number of responses: 42,725,207 (10,320,000 from this rulemaking).

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Frequency of response: on occasion.

Estimated annual burden hours: 1,157,993 (344,000 from this rulemaking).

Capital/Start-up costs: $0 ($0 from this rulemaking).

VII. Analysis Conducted in Accordance with Executive Order 12866, Regulatory Planning

and Review, and Executive Order 13563, Improving Regulation and Regulatory Review

Under Executive Order 12866, OMB’s Office of Information and Regulatory Affairs

(OIRA) determines whether a regulatory action is significant and, therefore, subject to the

requirements of the Executive Order and OMB review. As amended by Executive Order 14094,

section 3(f) of Executive Order 12866 defines a “significant regulatory action” as a regulatory

action that is likely to result in a rule that may: (1) have an annual effect on the economy of $200

million or more; or adversely affect in a material way the economy, a sector of the economy,

productivity, competition, jobs, the environment, public health or safety, or state, local,

territorial, or tribal governments or communities; (2) create a serious inconsistency or otherwise

interfere with an action taken or planned by another agency; (3) materially alter the budgetary

impact of entitlements, grants, user fees or loan programs or the rights and obligations of

recipients thereof; or (4) raise legal or policy issues for which centralized review would

meaningfully further the President’s priorities or the principles set forth in the Executive Order.

OIRA has determined that this rule is a “significant regulatory action” within the scope of section

3(f)(1) of Executive Order 12866.

Executive Order 13563 directs agencies to, among other things, propose or adopt a

regulation only upon a reasoned determination that its benefits justify its costs; that it is tailored

to impose the least burden on society, consistent with obtaining the regulatory objectives; and

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

that, in choosing among alternative regulatory approaches, the agency has selected those

approaches that maximize net benefits. Executive Order 13563 recognizes that some costs and

benefits are difficult to quantify and provides that, when appropriate and permitted by law,

agencies may consider and discuss qualitatively values that are difficult or impossible to

quantify, including equity, human dignity, fairness, and distributive impacts. The analysis below

outlines the impacts that the Department of Labor (Department) anticipates may result from this

rule and was prepared pursuant to the above-mentioned executive orders.

A. Introduction

1. Background

The Fair Labor Standards Act (FLSA or Act) requires covered employers to (1) pay

employees who are covered and not exempt from the Act’s requirements not less than the Federal

minimum wage for all hours worked and overtime premium pay at a rate of not less than one and

one-half times the employee’s regular rate of pay for all hours worked over 40 in a workweek,

and (2) make, keep, and preserve records of their employees and of the wages, hours, and other

conditions and practices of employment.

The FLSA provides a number of exemptions from the Act’s minimum wage and overtime

pay provisions, including one for bona fide executive, administrative, and professional (EAP)

employees. The exemption applies to employees employed in a bona fide executive,

administrative, or professional capacity, as those terms are “defined and delimited” by the

Department.

289

The Department’s regulations implementing these “white-collar” exemptions are

codified at 29 CFR part 541. Since 1940, the regulations implementing the exemption have

289

29 U.S.C. 213(a)(1).

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generally required each of the following three tests to be met: (1) the employee must be paid a

predetermined and fixed salary that is not subject to reduction because of variations in the quality

or quantity of work performed (the salary basis test); (2) the amount of salary paid must meet a

minimum specified amount (the salary level test); and (3) the employee’s job duties must

primarily involve executive, administrative, or professional duties as defined by the regulations

(the duties test).

The Department has updated the salary level test many times since its implementation in

1938. Table 1 presents the weekly salary levels associated with the EAP exemptions since 1938,

organized by exemption and long/short/standard duties tests. From 1949 to 2004, the Department

determined exemption status using a two-test system comprised of a long test (a lower salary

level paired with a more rigorous duties test that limited performance of nonexempt work to no

more than 20 percent for most employees) and a short test (a higher salary level paired with a

less rigorous primary duties requirement that did not have a numerical limit on the amount of

nonexempt work). In 2004, rather than update the two-test system, the Department chose to

establish a new single-test system for determining exemption status, setting the standard salary

level test at $455 a week, which was equivalent to the long test salary level, and pairing it with a

standard duties test that was substantially equivalent to the more lenient short duties test.

Because the single standard duties test was equivalent to the short duties test, employees who

met the long test salary level and previously passed either the more rigorous long, or less

rigorous short, duties test passed the standard duties test. The Department also added a new

highly compensated employee (HCE) test, which used a very minimal duties test and a very high

total compensation test set at $100,000 per year (see section II.B.2 for further discussion). In

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

2016, to address the concern that the standard test exempted lower-paid salaried employees

performing large amounts of nonexempt work who had previously been protected by the more

rigorous long duties test, the Department published a final rule setting the standard salary level at

$913 per week, which was equivalent to the low end of the historic range of short test salary

levels, and the HCE annual compensation level at $134,004. This approach restored overtime

protection for employees performing substantial amounts of nonexempt work who earned

between the long test salary level and the low end of the short test salary range, as they failed the

new standard salary level test. As previously discussed, the U.S. District Court for Eastern

District of Texas held the 2016 rule invalid. In 2019, in part to address the concern raised in the

litigation that the approach taken in the 2016 rulemaking would have prevented employers from

using the exemption for employees who earned between the long test salary level and the low

end of the short test salary range and met the more rigorous long duties test, the Department

returned to the methodology used in the 2004 rule and set the salary level at the 20th percentile

of weekly earnings of full-time salaried workers in the South and in the retail industry nationally.

Applying this method to the earnings data available in 2019 produced a standard salary level that

was below the long test salary level. The current earnings thresholds, as published in 2019, are

$684 a week for the standard salary test and $107,432 per year for the HCE test.

Table 1: Historical Weekly Salary Levels for the EAP Exemptions

Date

Enacted

Long Duties Test

Short Duties

Test

Executive

Administrative

Professional

1938

$30*

$30

1940

$30

$200 (per month)

1949

$55

$75

$100

1958

$80

$95

$125

1963

$100

$115

$150

1970

$125

$140

$200

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

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review process. Only the version published in the Federal Register is the official version.

1975

$155

$170

$250

Standard Duties Test

2004

$455

2019

$684

*Unless otherwise specified, all figures are dollars per week

2. Need for Rulemaking

The goal of this rulemaking is to set effective earnings thresholds to help define and

delimit the FLSA’s EAP exemption. To this end, the Department is finalizing its proposed change

to the standard salary level. Specifically, the Department is adjusting the standard salary level by

setting it equal to the 35th percentile of weekly earnings of full-time salaried workers in the

lowest-wage Census Region (currently the South), based on the most recent year of Current

Population Survey (CPS) data at the time of drafting.

290

Using the Bureau of Labor Statistics

(BLS) 2023 data on percentiles of usual weekly earnings of nonhourly full-time workers, the

standard salary level will be set at $1,128 per week.

291

Additionally, to maintain the effectiveness

of this test, the Department is finalizing an updating mechanism that will update the earnings

thresholds to reflect current wage data initially on July 1, 2024 and every 3 years thereafter.

The Department’s new standard salary level will, in combination with the standard duties

test, better define and delimit which employees are employed in a bona fide EAP capacity in a

one-test system. As explained in greater detail in sections III and V.B, setting the standard salary

290

The Department uses the terms salaried and nonhourly interchangeably in this rule because,

consistent with its 2004, 2016, and 2019 rules, the Department considered data representing

compensation paid to nonhourly workers to be an appropriate proxy for compensation paid to

salaried workers. The Department also notes that the terms employee and worker are used

interchangeably throughout this analysis.

291

BLS publishes quarterly and annual estimates of percentile earnings values beginning with

2022 data at https://www.bls.gov/cps/research/nonhourly/earnings-nonhourly-workers.htm.

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level at or below the long test salary level, as the 2004 and 2019 rules did, results in the

exemption of lower-salaried employees who traditionally were entitled to overtime protection

under the long test either because of their low salary or because they perform large amounts of

nonexempt work, in effect significantly broadening the exemption compared to the two-test

system. Setting the salary level at the low end of the historic range of short test salary levels, as

the 2016 rule did, would have restored overtime protections to those employees who perform

substantial amounts of nonexempt work and earned between the long test salary level and the

low end of the short test salary range. However, it also would have resulted in denying

employers the use of the exemption for lower-salaried employees who traditionally were not

entitled to overtime compensation under the long test, which raised concerns that the Department

was in effect narrowing the exemption. By setting a salary level above the equivalent of the long

test salary level (using current data), the final rule will restore the right to overtime pay for

salaried white-collar employees who prior to the 2019 rule were always considered nonexempt if

they earned below the long test (or long test-equivalent) salary level. And it will ensure that

fewer lower paid white-collar employees who perform significant amounts of nonexempt work

are included in the exemption. At the same time, by setting it well below the equivalent of the

short test salary level (using current data), the rule will allow employers to continue to use the

exemption for many lower paid white-collar employees who were made exempt under the 2004

standard duties test. The new salary level will also more reasonably distribute between

employees and their employers what the Department now understands to be the impact of the

shift from a two-test to a one-test system on employees earning between the long and short test

salary levels.

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As the Department has previously noted, the amount paid to an employee is “a valuable

and easily applied index to the ‘bona fide’ character of the employment for which exemption is

claimed, as well as the “principal[]” “delimiting requirement . . .prevent[ing] abuse” of the

exemption.

292

Additionally, the salary level test facilitates application of the exemption by saving

employees and employers from having to apply the more time-consuming duties analysis to a

large group of employees who will not pass it. For these reasons, the salary level test has been a

key part of how the Department defines and delimits the EAP exemption since the beginning of

its rulemaking on the EAP exemption.

293

At the same time, the salary test’s role in defining and

delimiting the scope of the EAP exemption must allow for appropriate examination of employee

duties.

294

Under the final rule, duties will continue to determine the exemption status for most

salaried white-collar employees.

The Department also will adjust the HCE total annual compensation requirement to the

annualized weekly earnings of the 85th percentile of full-time salaried workers nationally

($151,164 using 2023 data). Though not as high a percentile as the HCE threshold initially

adopted in 2004, which covered 93.7 percent of all full-time salaried workers,

295

the

Department’s new HCE threshold will ensure it continues to serve its intended function, because

the HCE total annual compensation level will be high enough to exclude all but those employees

at the very top of the economic ladder.

292

Stein Report at 19, 24; see also 81 FR 32422.

293

See 84 FR 51237.

294

See 84 FR 51238.

295

See 69 FR 22169 (Table 3).

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review process. Only the version published in the Federal Register is the official version.

In this final rule, the Department is not finalizing its proposal in section IV.B.1 and B.2 of

the NPRM to apply the standard salary level to the U.S. territories subject to the federal

minimum wage and to update the special salary levels for American Samoa and the motion

picture industry.

296

In its three most recent part 541 rulemakings, the Department has expressed its

commitment to keeping the earnings thresholds up to date to ensure that they remain effective in

helping differentiate between exempt and nonexempt employees. Long intervals between

rulemakings have resulted in eroded earnings thresholds based on outdated earnings data that

were ill-equipped to help identify bona fide EAP employees. In contrast, routine updates of the

earnings thresholds to reflect wage growth will bring certainty and stability to employers and

employees alike. Based on its long experience with updating the salary levels, the Department

has determined that adopting a regulatory provision for regularly updating the salary levels, with

an exception for pausing future updates under certain conditions, is the most viable and efficient

way to ensure the EAP exemption earnings thresholds keep pace with changes in employee pay

and thus remain effective in helping determine exemption status. Accordingly, in addition to the

salary level changes discussed above, the Department is including in this rule a mechanism for

updating the salary and compensation levels to reflect current wage data initially on July 1, 2024

and every 3 years thereafter. As explained in greater detail in section V.A, employees and

employers alike will benefit from the certainty and stability of regularly scheduled updates.

296

The Department will address these aspects of its proposal in a future final rule. While the

Department is not finalizing its proposal, it is making nonsubstantive changes in provisions

addressing the territories as a result of other changes in this final rule.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

3. Summary of Affected Workers, Costs, Benefits, and Transfers

The Department estimated the number of affected workers and quantified costs and

transfer payments associated with this final rule using pooled CPS Merged Outgoing Rotation

Group (MORG) data. See section VII.B.2. The Department estimates in the first year after

implementation, there will be 4.3 million affected workers.

297

This includes 4.0 million workers

(1.0 million at the first update and 3.0 million when the new salary level is applied) who meet the

standard duties test and earn at least $684 per week but less than $1,128 per week and will either

become eligible for overtime or have their salary increased to at least $1,128 per week (Table

2).

298

An estimated 292,900 workers will be affected by the increase in the HCE compensation

test from $107,432 per year to $151,164 per year. In Year 10, with triennial updating of the

standard salary and HCE thresholds, the Department projects that 5.0 million workers will be

affected by the change in the standard salary level test and 1.0 million workers will be affected

by the change in the HCE total annual compensation test.

299

297

The term “affected workers” refers to the population of potentially affected EAP workers who

either pass the standard duties test and earn at least $684 but less than the new salary level of

$1,128 per week or pass only the HCE duties test and earn at least $107,432 but less than the

new HCE compensation level of $151,164 per year.

298

Here and elsewhere in this analysis, numbers are reported at varying levels of aggregation,

and are generally rounded to a single decimal point. However, calculations are performed using

exact numbers. Therefore, some numbers may not match the reported totals or the calculations

shown due to rounding of components.

299

In later years, earnings growth will cause some initially affected workers to no longer be

affected because their earnings will exceed the new salary or compensation threshold. This

occurs both in update years (i.e., triennially) and non-update years but will occur to a much

greater degree in non-update years. Additionally, some workers will become newly affected

because their earnings will reach at least $684 per week, and in the absence of this rule they

would lose their overtime protections. To estimate the total number of affected workers over

time, the Department accounts for both of these effects.

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This analysis quantifies three direct costs to employers: (1) regulatory familiarization

costs; (2) adjustment costs; and (3) managerial costs (see section VII.C.3). Total annualized

direct employer costs over the first 10 years were estimated to be $802.9 million, assuming a 7

percent discount rate.

300

This rule will also transfer income from employers to employees in the

form of increased wages. The Department estimated annualized transfers will be $1.5 billion.

Most of these transfers will be attributable to wages paid under the FLSA’s overtime provision; a

smaller share will be attributable to the FLSA’s minimum wage requirement. These transfers also

account for employers who may choose to increase the salary of some affected workers to at

least the new threshold so that they can continue to use the EAP exemption.

The Department also provides a qualitative discussion of the potential benefits and

unquantified transfers of this rule, including strengthened overtime protections for some workers,

increased worker productivity, increased personal time for workers, and reduced reliance on

social assistance programs. See section VII.C.5.

Table 2: Summary of Affected Workers, Regulatory Costs, and Transfers - Standard and HCE

Salary Levels

Impact Year 1

Future Years [a] Annualized Value

Year 2 Year 10

3% Real

Discount

Rate

7% Real

Discount

Rate

Affected Workers (1,000s)

Standard

4,045

3,783

4,978

[b]

HCE

293

323

1,015

[b]

Total

4,337

4,106

5,993

[b]

Costs and Transfers (Millions in $2022) [c]

300

Hereafter, unless otherwise specified, annualized values will be presented using the 7 percent

real discount rate.

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Direct

employer costs

$1,436.2

$641.5

$906.1

$794.0

$802.9

Transfers [d]

$1,509.2

$1,094.3

$2,490.1

$1,565.2

$1,534.1

[a] These cost and transfer figures represent a range over the nine-year span.

[b] Not annualized.

[c] Costs and transfers for affected workers passing the standard and HCE tests are combined.

[d] This is the net transfer from employers to workers. There may also be transfers of hours

and income from some workers to others.

B. Number of Affected EAP Workers

1. Overview

This section explains the methodology used to estimate the number of workers who will

be affected by the final rule. The pool of potentially affected workers is workers who are

currently EAP exempt. In this final rule, as in previous rules, the Department estimated the

current number of EAP exempt workers because there is no data source that identifies workers as

EAP exempt. Employers are not required to report EAP exempt workers to any central data

collection agency or as part of any employee or establishment survey. The methodology

described in this final rule is consistent with the approach the Department used in the 2004,

2016, and 2019 final rules.

301

To estimate the number of workers who will be affected by the

rule, the new standard salary level and the new HCE total annual compensation threshold are

applied to the earnings of current EAP exempt workers.

301

See 69 FR 22196–209; 81 FR 32453–60; 84 FR 51255–60. Where the proposal follows the

methodology used to determine affected workers in the 2004, 2016, and 2019 final rules,

citations to these rules are not always included.

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2. Data

All estimates of numbers of workers used in this analysis were based on data from the

CPS MORG, which is sponsored jointly by the U.S. Census Bureau and BLS.

302

The CPS is a

large, nationally representative sample. Households are surveyed for 4 months, excluded from

the survey for 8 months, surveyed for an additional 4 months, then permanently dropped from

the sample. During the last month of each rotation in the sample (month 4 and month 16),

employed respondents complete a supplementary questionnaire in addition to the regular

survey.

303

The data in this supplement contain the detailed information on earnings necessary to

estimate a worker’s exemption status. Responses are based on the reference week, which is

always the week that includes the 12th day of the month.

Although the CPS MORG is a large-scale survey, administered to approximately 15,000

households monthly representing the entire nation, it is still possible to have relatively few

observations when looking at subsets of employees, such as workers in a specific occupation

employed in a specific industry, or workers in a specific geographic location. To increase the

sample size, the Department pooled 3 years of CPS MORG data (2021-2023). Earnings for each

observation from 2021 and 2022 were inflated to 2023 dollars using the Consumer Price Index

302

In 2015, RAND released results from a survey conducted to estimate EAP exempt workers.

However, this survey does not have the variables or sample size necessary for the Department to

base its regulatory impact analysis (RIA) on this analysis. Rohwedder, S. and Wenger, J.B.

(2015). The Fair Labor Standards Act: Worker Misclassification and the Hours and Earnings

Effects of Expanded Coverage. RAND Labor and Population.

303

This is the outgoing rotation group (ORG); however, this analysis uses the data merged over

12 months and thus it is referred to as MORG.

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for All Urban Consumers (CPI-U).

304

The weight of each observation was adjusted so that the

total number of potentially affected EAP workers in the pooled sample remained the same as the

number for the 2023 CPS MORG. Thus, the pooled CPS MORG sample uses roughly three

times as many observations to represent the same total number of workers in 2023. The

additional observations allow the Department to better characterize certain attributes of the

potentially affected labor force. This pooled dataset is used to estimate all impacts of the final

rule.

Some assumptions and adjustments were necessary to use these data as the basis for the

analysis. For example, the Department eliminated workers who reported that their weekly hours

vary and who provided no additional information on hours worked. This was done because the

Department cannot estimate effects for these workers since it is unknown whether they work

overtime and therefore unknown whether there would be any need to pay for overtime if their

status changed from exempt to nonexempt. The Department reweighted the rest of the sample to

account for this change (i.e., to keep the same total employment estimates).

305

This adjustment

assumes that the distribution of hours worked by workers whose hours do not vary is

304

Previous rulemakings also adjusted salaries in the pooled data using the CPI-U, but the

Department recognizes that the relationship between wage growth and inflation between 2021

and 2023 may not be consistent. During the pandemic, large employment losses in low-wage

industries resulted in stronger wage growth at the aggregate level. In part of the 2021–2023

period, high inflation outpaced overall wage growth. Given these mixed effects, the Department

decided to continue its prior practice of adjusting these observations using CPI-U.

305

The Department also reweighted for workers reporting zero earnings. In addition, the

Department eliminated, without reweighting, workers who reported both usually working zero

hours and working zero hours in the past week.

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representative of hours worked by workers whose hours vary. The Department believes that

without more information, this is an appropriate assumption.

306

3. Number of Workers Subject to the FLSA and the Department’s Part 541 Regulations

As a starting point for the analysis, based on the CPS MORG data, the Department

estimates that there would be 167.3 million wage and salary workers in Year 1. Figure 1

illustrates how the Department analyzed the U.S. civilian workforce through successive stages to

estimate the number of affected workers.

Figure 1: Flow Chart of FLSA Exemptions and Estimated Number of Affected Workers

306

This is justifiable because demographic and employment characteristics are similar across

these two populations (e.g., age, gender, education, distribution across industries, share paid

nonhourly). The share of all workers who stated that their hours vary (but provided no additional

information) is 4.4 percent. To the extent these excluded workers are exempt, if they tend to

work more overtime than other workers, then transfer payments and costs may be

underestimated. Conversely, if they work fewer overtime hours, then transfer payments and costs

may be overestimated.

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review process. Only the version published in the Federal Register is the official version.

Note: The NPRM referred to the group in the top box as “Wage and salary workers.” Because the estimate

in this box includes the unemployed, it has been renamed to “Labor Force” for accuracy.

The Department first excluded workers who are unemployed, not subject to its

regulations, or not covered by the FLSA from the overall total number of wage and salary

workers. Excluded workers include military personnel, unpaid volunteers, self-employed

individuals, clergy and other religious workers, and Federal employees (with a few exceptions

described below).

Many of these workers are excluded from the CPS MORG, including members of the

military on active duty and unpaid volunteers. Self-employed and unpaid workers are included in

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the CPS MORG, but have no earnings data reported and thus are excluded from the analysis. The

Department identified religious workers by their occupation codes: ‘clergy’ (Census occupational

code 2040), ‘directors, religious activities and education’ (2050), and ‘religious workers, all

other’ (2060). Most employees of the Federal Government are covered by the FLSA but not the

Department’s part 541 regulations because the Office of Personnel Management (OPM) regulates

their entitlement to minimum wage and overtime pay.

307

Exceptions exist for U.S. Postal Service

employees, Tennessee Valley Authority employees, and Library of Congress employees.

308

The

analysis identified and included these covered Federal workers using occupation and/or industry

codes and removed other Federal employees.

309

The FLSA also does not cover employees of firms that have annual revenue of less than

$500,000 and who are not engaged in interstate commerce. The Department does not exclude

them from the analysis, however, because there is no data set that would adequately inform an

estimate of the size of this worker population, although the Department believes it is a small

percentage of workers. The 2004, 2016, and 2019 final rules similarly did not adjust for these

workers.

Of the 167.3 million wage and salary workers in the United States, the Department

estimates that 143.7 million are covered by the FLSA and subject to the Department’s regulations

307

See 29 U.S.C. 204(f). Federal workers are identified in the CPS MORG with the class of

worker variable PEIO1COW.

308

See id.

309

Postal Service employees were identified with the Census industry classification for postal

service (6370). Tennessee Valley Authority employees were identified as Federal workers

employed in the electric power generation, transmission, and distribution industry (570) and in

Kentucky, Tennessee, Mississippi, Alabama, Georgia, North Carolina, or Virginia. Library of

Congress employees were identified as Federal workers under Census industry ‘libraries and

archives’ (6770) and residing in Washington DC.

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(85.9 percent). The remaining 23.7 million workers are excluded from FLSA coverage for the

reasons described above.

4. Number of Workers Who Are White-Collar, Salaried, Not Eligible for Another (Non-EAP)

Overtime Exemption

After limiting the analysis to workers covered by the FLSA and subject to the

Department’s part 541 regulations, several other groups of workers were identified and excluded

from further analysis since this final rule is unlikely to affect them. These include blue-collar

workers,

310

workers paid on an hourly basis, and workers who are exempt under certain other

(non-EAP) exemptions.

The Department excluded a total of 90.2 million workers from the analysis for one or

more of these reasons, which often overlapped (e.g., many blue-collar workers are also paid

hourly). For example, the Department estimated that there are 49.1 million blue-collar workers.

These workers were identified in the CPS MORG data following the methodology from the U.S.

Government Accountability Office’s (GAO) 1999 white-collar exemptions report

311

and the

Department’s 2004, 2016, and 2019 regulatory impact analyses.

312

Supervisors in traditionally

blue-collar industries were classified as white-collar workers because their duties are generally

managerial or administrative, and therefore they were not excluded as blue-collar workers. Using

310

“The section 13(a)(1) exemptions and the regulations in [Part 541] do not apply to manual

laborers or other ‘blue collar’ workers who perform work involving repetitive operations with

their hands, physical skill and energy.” § 541.3(a).

311

GAO/HEHS. (1999). Fair Labor Standards Act: White Collar Exemptions in the Modern

Work Place. GAO/HEHS-99-164, 40-41, https://www.gao.gov/assets/230/228036.pdf.

312

See 69 FR 22240–44.

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the CPS variable indicating a respondent’s hourly wage status, the Department determined that

80.3 million workers were paid on an hourly basis in 2023.

313

Also excluded from further analysis were workers who are exempt under certain other

(non-EAP) exemptions. Although some of these workers may also be exempt under the EAP

exemptions, they would independently remain exempt from the FLSA’s minimum wage and/or

overtime pay provisions based on the non-EAP exemptions. The Department excluded an

estimated 3.7 million workers, including some agricultural and transportation workers, from

further analysis because they are subject to another (non-EAP) overtime exemption. See

Appendix A: Methodology for Estimating Exemption Status, contained in the rulemaking docket,

for details on how this population was identified.

Agricultural and transportation workers are two of the largest groups of workers excluded

from the population of potentially affected EAP workers in the current analysis, and with some

exceptions, they were similarly excluded in other recent rulemakings. The 2004 rule excluded all

workers in agricultural industries from the analysis,

314

while more recent analyses only excluded

agricultural workers from specified occupational-industry combinations since not all workers in

agricultural industries qualify for the agricultural overtime pay exemptions. This final rule

followed the more recent analyses and only excluded agricultural workers in certain occupation-

industry combinations.

315

The exclusion of transportation workers matched the method for the

2004, 2016, and 2019 final rules.

316

Transportation workers are defined as those who are subject

313

CPS MORG variable PEERNHRY.

314

69 FR 22197.

315

84 FR 51257; 81 FR 32456, n.114.

316

84 FR 51257; 81 FR 32456–57; 69 FR 22197.

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to the following FLSA exemptions: section 13(b)(1), section 13(b)(2), section 13(b)(3), section

13(b)(6), or section 13(b)(10). The Department excluded 1.0 million agricultural workers and 2.1

million transportation workers from the analysis.

In addition, the Department excluded another 22,700 workers who qualify for one or

more other FLSA minimum wage and overtime exemptions (and are not either blue-collar or

hourly). The criteria for determining exemption status for these workers are detailed in Appendix

After excluding workers not subject to the Department’s FLSA regulations and workers

who are unlikely to be affected by this final rule (i.e., blue-collar workers, workers paid hourly,

workers who are subject to another (non-EAP) overtime exemption), the Department estimated

there are 53.5 million salaried white-collar workers for whom employers might claim either the

standard EAP exemption or the HCE exemption.

5. Number of Current EAP Exempt Workers

To determine the number of workers for whom employers might currently claim the EAP

exemption, the standard EAP test and HCE test were applied. Both tests include earnings

thresholds and duties tests. Aside from workers in named occupations (which are not subject to

an earnings requirement and are discussed in the next subsection), to be exempt under the

standard EAP test, the employee generally must:

 be paid a predetermined and fixed salary that is not subject to reduction because of

variations in the quality or quantity of work performed (the salary basis test);

317

Some computer employees may be exempt even if they are not paid on a salary basis. Hourly

computer employees who earn at least $27.63 per hour and perform certain duties are exempt

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from the published document if minor technical or formatting changes are made during the OFR

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 earn at least a designated salary amount (the standard salary level test, currently $684 per

week); and

 primarily perform exempt work, as defined by the regulations (the standard duties test).

The HCE test allows certain highly paid employees to qualify for exemption if they customarily

and regularly perform one or more exempt job duties (the HCE duties test). The current HCE

annual compensation level is $107,432, including at least $684 per week paid on a salary or fee

basis.

i. Salary Basis

The Department included only nonhourly workers in the analysis based on CPS data.

318

For this NPRM, the Department considered data representing compensation paid to nonhourly

workers to be an appropriate proxy for compensation paid to salaried workers. The Department

notes that it made the same assumption regarding nonhourly workers in the 2004, 2016, and

2019 final rules.

319

The CPS population of “nonhourly” workers includes salaried workers along with those

who are paid a piece rate, day rate, or largely on bonuses or commissions. Data in the CPS are

not available to distinguish between salaried workers and these other nonhourly workers.

under section 13(a)(17) of the FLSA. These workers are considered part of the EAP exemptions

but were excluded from the analysis because they are paid hourly and will not be affected by this

rule (these workers were similarly excluded in the 2004, 2016, and 2019 analyses). Salaried

computer workers are exempt if they meet the salary and duties tests applicable to the EAP

exemptions and are included in the analysis since they will be impacted by this rule.

Additionally, administrative and professional employees may be paid on a fee basis, as opposed

to a salary basis. § 541.605(a). Although the CPS MORG does not identify workers paid on a fee

basis, they are considered nonhourly workers in the CPS and consequently are correctly

classified as “salaried” (as was done in previous rules).

318

The CPS variable PEERNHRY identifies workers as either hourly or nonhourly.

319

See 69 FR 22197; 81 FR 32414; 84 FR 51258.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

However, the Panel Study of Income Dynamics (PSID) provides additional information on how

nonhourly workers are paid.

320

In the PSID, respondents are asked how they are paid on their

main job and are also asked for more detail if their response is other than salaried or hourly.

Possible responses include piecework, commission, self-employed/farmer/profits, and by the

job/day/mile. The Department analyzed the PSID data and found that relatively few nonhourly

workers were paid by methods other than salaried. The Department is not aware of any

statistically robust source that more closely reflects salary as defined in its regulations.

ii. Salary Level

Weekly earnings are available in the CPS MORG data, which allowed the Department to

estimate how many nonhourly workers pass the compensation thresholds.

321

However, the CPS

earnings variable does not perfectly reflect the Department’s definition of earnings. First, the

CPS includes all nondiscretionary bonuses and commissions if they are part of usual weekly

earnings. However, the regulation allows nondiscretionary bonuses and commissions to satisfy

up to 10 percent of the standard salary level. This discrepancy between the earnings variable

used and the regulatory definition of salary may cause a slight overestimation or underestimation

of the number of workers estimated to meet the standard salary level and HCE compensation

tests.

322

Second, CPS earnings data include overtime pay. The Department notes that employers

320

University of Michigan, Institute for Social Research. 2019 PSID. Data available at:

https://simba.isr.umich.edu/data/data.aspx.

321

The CPS MORG variable PRERNWA, which measures weekly earnings, is used to identify

weekly salary.

322

In some instances, this may include too much nondiscretionary bonuses and commissions

(i.e., when it is more than 10 percent of usual earnings). But in other instances, it may not

include enough nondiscretionary bonuses and commissions (i.e., when the respondent does not

count them as usual earnings).

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may factor into an employee’s salary a premium for expected overtime hours worked. To the

extent they do so, that premium would be reflected accurately in the data. Third, the earnings

measure includes tips and discretionary commissions which do not qualify towards the required

salary. The Department believes tips are an uncommon form of payment for these white-collar

workers. Discretionary commissions tend to be paid irregularly and hence are unlikely to be

counted as “usual earnings.” Additionally, as noted above, most salaried workers do not receive

commissions.

Lastly, the CPS annual earnings variable is topcoded at $150,000 through the March 2023

data.

323

Topcoding refers to how data sets handle observations at the top of the distribution and is

performed to protect the confidentiality of data provided by CPS respondents. For the CPS

annual earnings variable, workers earning above $2,884.61 ($150,000 ÷ 52 weeks) per week are

reported as earning $2,884.61 per week. The Department imputed earnings for topcoded workers

in the CPS data to adequately estimate impacts.

324

iii. Duties

The CPS MORG data do not capture information about job duties. Therefore, the

Department used probability estimates of passing the duties test by occupational title to estimate

the number of workers passing the duties test. This is the same methodology used in recent part

541 rulemakings, and the Department believes it continues to be the best available methodology.

323

Beginning in the April 2023 data, the CPS data are topcoded independently each month and

represent the average earnings of the top 3 percent of earnings reported. See

https://www.census.gov/content/dam/Census/programs-surveys/cps/updated-2022-cps-puf-

changes.pdf for additional details.

324

The Department used the standard Pareto distribution approach to impute earnings above the

topcoded value as described in Armour, P. and Burkhauser, R (2013). Using the Pareto

Distribution to Improve Estimates of Topcoded Earnings. Center for Economic Studies (CES).

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from the published document if minor technical or formatting changes are made during the OFR

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The probabilities of passing the duties test are from an analysis performed by WHD in 1998 in

response to a request from the GAO. Because WHD enforces the FLSA’s overtime requirements

and regularly assesses workers’ exempt status, WHD was uniquely qualified to provide the

analysis. The analysis was originally published in the GAO’s 1999 white-collar exemptions

report.

325

WHD examined 499 occupational codes and determined that 251 occupational codes

likely included EAP exempt workers.

326

For each, WHD assigned one of four probability codes

reflecting the estimated likelihood, expressed as ranges, that a worker in that occupation would

perform duties required to meet the EAP duties tests (Table 3). All occupations and their

associated probability codes are listed in Appendix A. Just as in the 2004, 2016, and 2019 final

rules, the Department has supplemented this analysis to account for the HCE exemption. The

Department modified the four probability codes to reflect probabilities of passing the HCE duties

test based on its analysis of the provisions of the highly compensated test relative to the standard

duties test. To illustrate, WHD assigned exempt probability code 4 to the occupation “first-line

supervisors/managers of construction trades and extraction workers” (Census code 6200), which

indicates that a worker in this occupation has a 0 to 10 percent likelihood of meeting the standard

EAP duties test. However, if that worker earned at least $100,000 annually (now $107,432

325

Fair Labor Standards Act: White Collar Exemptions in the Modern Work Place, supra note

311, at 40-41.

326

WHD excluded nine that were not relevant to the analysis for various reasons. For example,

one code was assigned to unemployed persons whose last job was in the Armed Forces, some

codes were assigned to workers who are not FLSA covered, others had no observations.

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annually), they were assigned a 15 percent probability of passing the more lenient HCE duties

test.

327

Table 3: Probability Worker in Category Passes the Duties Tests

Probability

Code

The Standard EAP Test The HCE Test

Lower Bound Upper Bound Lower Bound Upper Bound

0 0% 0% 0% 0%

1 90% 100% 100% 100%

2 50% 90% 94% 96%

3 10% 50% 58.4% 60%

4 0% 10% 15% 15%

The occupations identified in GAO’s 1999 report map to an earlier occupational

classification scheme (the 1990 Census occupational codes).

328

For this final rule, the

Department used occupational crosswalks to map the previous occupational codes to the 2018

Census occupational codes, which are used in the CPS MORG 2021 through 2023 data. If a new

occupation comprises more than one previous occupation, then the new occupation’s probability

code is the weighted average of the previous occupations’ probability codes, rounded to the

closest probability code.

These codes provide information on the likelihood that an employee met the duties tests,

but they do not identify which workers in the CPS MORG met the duties test. For example, for

every ten public relations managers, between five and nine are assumed to meet the standard

327

The HCE duties test is used in conjunction with the HCE total annual compensation

requirement to determine eligibility for the HCE exemption. It is much less stringent than the

standard and short duties tests to reflect that very highly paid employees are much more likely to

be properly classified as exempt.

328

Census occupation codes were also updated in 2002 and 2010. References to occupational

codes in this analysis refer to the 2002 Census occupational codes. Crosswalks and methodology

available at: https://www.census.gov/topics/employment/industry-occupation/guidance/code-

lists.html.

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duties test (based on probability category 2). However, it is unknown which of these ten workers

are exempt; therefore, for the purposes of producing an estimate, the Department must assign a

status to these workers. Exemption status could be randomly assigned with equal probability, but

this would ignore the earnings of the worker as a factor in determining the probability of

exemption. The probability of qualifying for the exemption increases with earnings because

higher paid workers are more likely to perform the required duties.

329

The Department estimated the probability of qualifying for the standard exemption for

each worker as a function of both earnings and the occupation’s exempt probability category

using a gamma distribution.

330

Based on these revised probabilities, each worker was assigned

exempt or nonexempt status based on a random draw from a binomial distribution using the

worker’s revised probability as the probability of success. Thus, if this method is applied to ten

workers who each have a 60 percent probability of being exempt, six workers would be expected

to be designated as exempt.

331

For details, see Appendix A (in the rulemaking docket).

329

For the standard exemption, the relationship between earnings and exemption status is not

linear and is better represented with a gamma distribution. For the HCE exemption, the

relationship between earnings and exemption can be well represented with a linear function

because the relationship is linear at high salary levels (as determined by the Department in the

2004 rule). Therefore, the gamma model and the linear model would produce similar results for

highly compensated workers. See 69 FR 22204–08, 22215–16.

330

The gamma distribution was chosen because, during the 2004 revision, this non-linear

distribution best fit the data compared to the other non-linear distributions considered (i.e.,

normal and lognormal). A gamma distribution is a general type of statistical distribution that is

based on two parameters that control the scale (alpha) and shape (in this context, called the rate

parameter, beta).

331

A binominal distribution is frequently used for a dichotomous variable where there are two

possible outcomes; for example, whether one owns a home (outcome of 1) or does not own a

home (outcome of 0). Taking a random draw from a binomial distribution results in either a zero

or a one based on a probability of “success” (outcome of 1). This methodology assigns exempt

status to the appropriate share of workers without biasing the results with manual assignment.

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review process. Only the version published in the Federal Register is the official version.

As previously discussed in section V.B.5, some commenters challenged the Department’s

use of its probability codes to determine whether a worker meets the duties test. The Department

acknowledges that the probability codes used to determine the share of workers in an occupation

who are EAP exempt are 25 years old. However, the Department believes the probability codes

continue to estimate exemption status accurately given the fact that the standard duties test is not

substantively different from the former short duties tests reflected in the codes. For the 2016

rulemaking, the Department reviewed O*NET

332

to determine the extent to which the 1998

probability codes reflected current occupational duties. The Department’s review of O*NET

verified the continued appropriateness of the 1998 probability codes.

333

The 2019 final rule also

used these probability codes and likewise found that these codes are the best available

methodology to accurately estimate exemption status.

334

The Department estimates that of the existing 53.5 million salaried white-collar workers

considered in the analysis, 37.9 million currently qualify for the EAP exemption.

6. Potentially Affected Exempt EAP Workers

The Department excluded some of the current EAP exempt workers from further analysis

because the final rule will not affect them. Specifically, the Department excluded workers in

named occupations who are not required to pass the salary requirements (although they must still

pass a duties test) and therefore whose exemption status does not depend on their earnings. These

occupations include physicians (identified with Census occupation codes 3010, 3040, 3060,

332

The O*NET database contains hundreds of standardized and occupation-specific descriptors.

See https://www.onetcenter.org.

333

81 FR 32459.

334

84 FR 51259.

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3120), lawyers (2100), teachers (occupations 2200–2550 and industries 7860 or 7870), academic

administrative personnel (school counselors (occupation 2000 and industries 7860 or 7870) and

educational administrators (occupation 0230 and industries 7860 or 7870)),

and outside sales

workers (a subset of occupation 4950). Out of the 37.9 million workers who were EAP exempt,

8.1 million, or 21.4 percent, were expected to be in named occupations. Thus, the changes to the

standard salary level and HCE compensation tests would not affect these workers. The 29.7

million EAP exempt workers remaining in the analysis are referred to in this final rule as

“potentially affected” (17.8 percent of all workers).

Based on analysis of the occupational codes and CPS earnings data (described above), the

Department has concluded there are 29.7 million potentially affected EAP workers.

335

Figure 2: Exemption Status and Number of Affected Workers

335

Of these workers, approximately 16.5 million pass only the standard test, 12.8 million pass

both the standard and the HCE tests, and 446,600 pass only the HCE test.

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As shown in Figure 2 above, 8.1 million of the 53.5 million salaried white-collar workers are in

named occupations and will not be affected by a change in the earnings requirements. The

Department also estimates that of the remaining 45.4 million salaried white-collar workers, about

12.7 million earn below the Department’s new standard salary level of $1,128 per week and

about 32.7 million earn above the Department’s new salary level. Thus, approximately 28

percent of salaried white-collar employees earn below the new salary level, whereas

approximately 72 percent of salaried white-collar employees earn above the salary level and will

have their exemption status turn on their job duties.

7. Number of Affected EAP Workers

The Department estimated that the increase in the standard salary level from $684 per

week to $1,128 per week will affect 4.0 million workers in Year 1 (of these 4.0 million affected

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employees, 1.8 million earn less than the long test salary level ($942)).

336

The Department

estimated that the increase in the HCE annual compensation level from $107,432 to $151,164

will impact 292,900 workers (Figure 3).

337

In total, the Department expects that 4.3 million

workers out of the 29.7 million potentially affected workers will be affected in Year 1. This

estimate of 4.3 million affected workers represents only approximately 10 percent of all salaried

white-collar workers who are not in named occupations (45.4 million).

As illustrated in Figure 1 above, this final rule affects a specific and small portion of all

employed workers. In particular, the number of affected workers is 2.6% of total employed

workers in 2023 and represents about 8 percent of all white-collar salaried workers (including

workers in named occupations). While Figure 1 provides a snapshot of the impacts of this rule in

the context of the broader labor market of 2023, it may also be helpful to understand how the

labor market has grown since the Department first introduced a one-test system in 2004. Broadly,

since 2004 the size of the labor force and the white-collar workforce has grown considerably.

Between 2004 and 2023, total employment grew by 21.8 million, with employment increasing by

nearly 10 million since 2016 and 3.5 million since 2019.

338

Over this period, the size of the

white-collar workforce has also increased considerably. In 2004, the total number of white-collar

336

See section VII.C.8 (Alternative 2). As discussed in section V.B, such employees were always

excluded from the EAP exemption prior to 2019, either by the long test salary level itself, or

under the 2004 rule salary level, which was equivalent to the long test salary level. The

remaining 2.2 million of these affected employees earn between the long test salary level and the

Department’s new standard salary level.

337

This group includes workers who may currently be nonexempt under more protective state

EAP laws and regulations, such as some workers in Alaska, California, Colorado, Maine, New

York, Washington, and Wisconsin.

338

Employment status of the civilian noninstitutional population, 1953 to date. BLS Current

Population Survey. https://www.bls.gov/cps/cpsaat01.htm

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workers who were subject to the Part 541 regulations, including the salary level test, was 31.7

million. By 2016 it had reached 37.4 million; in 2019 it was 39.8 million; and in 2023 it was

nearly 45.4 million.

Figure 3: Pie Chart of Potentially Affected Employees and Their Affected Status

Several commenters stated that the Department’s estimates of affected workers were

incorrect because of the application of the probability codes. For example, NCFC stated that “the

Department’s impact calculations rely on outdated and flawed data” because the “Department’s

predictions as to the probability of employees passing the duties test are based on a 1999 study . .

. which itself relied upon information provided by DOL in the 1990s—more than three decades

ago.” AFPI further added that since the Department’s probability codes were developed,

“occupational codes have changed; the Part 541 duties tests have changed; and litigation has

resulted in thousands of court decisions finding employees to be exempt or non-exempt.”

Affected by

standard

salary level

13.6%

Affected by

HCE only

1.0%

Not affected

85.4%

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Similarly, NRF included a report by Oxford Economics stating that there have been numerous

economics changes since 1998, “includ[ing] increases in automation, virtual work, computerized

scheduling, and the effects of a global pandemic.”

339

The Oxford Economics report also stated

that “if the relationship between salaried [status] and EAP exemption status is tighter than the

[Department] . . . assumes,” the number of affected workers could be as high as 7.2 million.

AFPI asserted that approximately “7.5 million employees would be non-exempt for the first time

based on salary alone[.]” Rachel Greszler stated that the correct figure is as high as 12.3 million

workers.

The Department disagrees with commenters that challenged its use of its probability

codes. The Department has used its probability codes to estimate the number of workers who

meet the duties test in its 2004, 2016, and 2019 rules. The Department reiterates that these codes

have been updated and mapped onto current occupational codes, as explained above. As also

noted above, the standard duties test is not substantively different from the former short duties

tests reflected in the codes. In consequence, the probability codes remain relevant and are

currently the most accurate way to estimate the probability of a worker satisfying the duties test.

Furthermore, while several occupations have changed over time, modifications affecting specific

occupations would only affect the validity of these probability codes if they systematically

339

The Oxford Economics report also noted that there has been a 6-percent rise in “the share of

salaried workers in the economy . . . since 1998.” However, any increase in the number of

salaried workers does not have any bearing on the validity of the probability codes, which the

Department uses to estimate whether a worker passes the duties test. Being paid on a salary basis

is one of the three tests for exemption, see § 541.602(a), and is distinct from the duties test.

Accordingly, the Department only applies the probability codes to nonhourly workers—whom,

as discussed above, the Department considers to be an appropriate proxy for workers paid on a

salary basis.

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affected an occupation’s probability of performing exempt tasks. In contrast, other changes, such

as employees performing remotely the job duties they once performed in-person, do not affect

the validity of these probabilities. Additionally, the probability codes can still effectively predict

whether employees in new industries will meet the duties test insofar as these occupations

existed in other industries. Finally, as previously noted, the Department used the O*NET

database to confirm the appropriateness of the probability codes in 2016. Commenters did not

provide a basis for concluding that the Department’s 2016 evaluation is obsolete or that the

probability codes no longer provide the most reasonable basis for estimating the population of

affected workers.

The Department also does not agree with commenters that stated that it underestimated

the number of affected workers in the NPRM. As discussed above, see section V.B.5.iii,

commenters that asserted the number of affected workers could be much higher generally

referenced estimates of the number of workers earning between the current salary level and the

proposed salary level, regardless of whether they passed the duties test, and then posited that up

to that many workers (e.g., 7.2 million, 7.5 million, or 12.3 million) could be affected. The

position that all workers earning below the new salary level, regardless of their duties, will be

affected by the new salary level fails to account for the fact that that millions of these workers

are already nonexempt because they do not meet the duties test.

C. Effects of Revised Salary and Compensation Levels

1. Overview and Summary of Quantified Effects

The Department is setting the standard salary level using the 35th percentile of earnings

of full-time salaried workers in the lowest-wage Census region (currently the South) and setting

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the HCE compensation level at the annualized weekly earnings of the 85th percentile of full-time

salaried workers nationwide. In both cases the Department used 2023 CPS data to calculate the

levels.

340

Transfers both from employers to employees and between employees, and direct

employer costs, will depend on how employers respond to this rulemaking. Employer response is

expected to vary by the characteristics of the affected EAP workers. Assumptions related to

employer responses are discussed below.

Table 4 presents the estimated number of affected workers, costs, and transfers associated

with increasing the standard salary and HCE compensation levels. The Department estimated

that the direct employer costs of this rule will total $1.4 billion in the first year, with 10-year

annualized direct costs of $802.9 million per year using a 7 percent discount rate.

In addition to these direct costs, this rule will transfer income from employers to

employees. Estimated Year 1 transfers will equal $1.5 billion, with annualized transfers of $1.5

billion per year using the 7 percent real discount rates and $1.6 billion using the 3 percent

discount rate. Potential employer costs due to reduced profits and additional hiring were not

quantified but are discussed in section VII.C.3.v. These estimates encompass in Year 1 both the

impact of the initial update to the earnings thresholds and the change in those thresholds that will

become applicable 6 months later.

341

340

Full-time is defined as 35 or more hours per week.

341

The Department estimates the initial update to the standard salary level will result in 959,000

affected workers earning between $684 and $844 per week. The Department estimates the

adjustment and managerial costs for this update will be $202.3 million and transfers will be

$204.3 million. For the initial update to the HCE total annual compensation threshold, the

Department estimates that the update will result in 223,000 affected workers, $58.7 million in

adjustment and managerial costs, and $164.5 million in transfer payments.

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Table 4: Summary of Affected Workers and Regulatory Costs and Transfers

Impact [a] Year 1

Future Years [b] Annualized Value

Year 2 Year 10

3% Real

Discount

Rate

7% Real

Discount Rate

Affected Workers (1,000s)

Standard

4,045

3,783

4,978

[c]

HCE

293

323

1,015

[c]

Total

4,337

4,106

5,993

[c]

Direct Employer Costs (Millions in $202

)

Regulatory

familiarization

$451.6 $0.0 $68.9 $71.8 $79.3

Adjustment [c]

$299.1 $9.4 $20.9 $44.6 $50.0

Managerial

$685.5 $632.1 $816.3 $677.6 $673.6

Total direct costs [d]

$1,436.2 $641.5 $906.1 $794.0 $802.9

Transfers from Employers to Workers (Millions in $

2023

) [e]

Due to minimum wage

$87.5 $46.5 $22.6 $43.2 $44.8

Due to

overtime pay

$1,421.7

$1,047.8

$2,467.5

$1,522.0 $1,489.3

Total transfers [f]

$1,509.2

$1,094.3

$2,490.1

$1,565.2

$1,534.1

[a] Additional costs and benefits of the rule that could not be quantified or monetized are discussed in the

text.

[b] These costs/transfers represent a range over the nine-year span.

[c] Not annualized.

[d] Adjustment costs occur in all years when there are newly affected workers. Adjustment costs may occur

in years without updated earnings thresholds because some workers’ projected earnings are estimated using

negative earnings growth.

[e] Components may not add to total due to rounding.

[f] This is the net transfer from employers to workers. There may also be transfers between workers.

2. Characteristics of Affected EAP Workers

Table 5 presents the number of affected EAP workers, the mean number of overtime

hours they work per week, and their average weekly earnings. The Department considered two

types of overtime workers in this analysis: regular overtime workers and occasional overtime

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

workers.

342

Regular overtime workers typically worked more than 40 hours per week. Occasional

overtime workers typically worked 40 hours or less per week, but they worked more than 40

hours in the week they were surveyed. The Department considered these two populations

separately in the analysis because labor market responses to overtime pay requirements may

differ for these two types of workers.

The 4.0 million workers affected by the combined effect of the initial update and the

subsequent application of the new standard salary level work on average 1.6 usual hours of

overtime per week and earn on average $948 per week.

343

However, most of these workers

(about 86 percent) usually do not work overtime. The 14 percent of affected workers who usually

work overtime average 11.1 hours of overtime per week. In a representative week, roughly

135,000 (or 3.3 percent) of the 4.0 million affected workers occasionally work overtime; they

averaged 8.5 hours of overtime in the weeks they worked overtime.

344

Finally, 20,000 (or 0.5

percent) of all workers affected by the increase in the standard salary level earn less than the

minimum wage.

345

342

Regular overtime workers were identified in the CPS MORG with variable PEHRUSL1.

Occasional overtime workers were identified with variables PEHRUSL1 and PEHRACT1.

343

CPS defines “usual hours” as hours worked 50 percent or more of the time.

344

This group represents the number of workers with occasional overtime hours in the week the

CPS MORG survey was conducted. Because the survey week is a representative week, the

Department believes the prevalence of occasional overtime in the survey week and the

characteristics of these workers are representative of other weeks (even though a different group

of workers would be identified as occasional overtime workers in a different week).

345

A small proportion (0.5 percent) of all affected EAP workers earn implicit hourly wages that

are less than the applicable minimum wage (the higher of the state or Federal minimum wage).

The implicit hourly wage is calculated as total weekly earnings divided by total weekly hours

worked. For example, workers earning the $684 per week standard salary level would earn less

than the Federal minimum wage if they work 95 or more hours in a week ($684 ÷ 95 hours =

$7.20 per hour).

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The 292,900 workers affected by the change in the HCE compensation level average 2.9

hours of overtime per week and earn an average of $2,397 per week ($124,668 per year). About

73 percent of these workers do not usually work overtime, while the 27 percent who usually

work overtime average 11.0 hours of overtime per week. Among the 2.6 percent who

occasionally work overtime, they averaged 8.2 hours in the weeks that they worked overtime.

Although most affected workers who typically do not work overtime will be unlikely to

experience significant changes in their daily work routine, those who regularly work overtime

may experience significant changes. Moreover, affected EAP workers who routinely work

overtime and earn less than the minimum wage will be most likely to experience significant

changes. Impacts on employee hours and earnings are discussed further in section VII.C.4.

Table 5: Number of Affected EAP Workers, Mean Overtime Hours, and Mean Weekly Earnings,

Year 1

Type of Affected EAP Worker

Affected EAP Workers [a]

Mean

Overtime

Hours

Mean

Usual

Weekly

Earnings

Number

(1,000s)

% of Total

Standard Salary Level

All affected EAP workers

4,045 100% 1.6 $948

Earn less than the minimum wage [b]

20 0.5% 25.8 $828

Regularly work overtime

575 14.2% 11.1 $959

Occasionally work overtime [c]

135 3.3% 8.5

$955

HCE Compensation Level

All affected EAP workers

293 100% 2.9 $2,397

Earn less than the minimum wage [b]

-- -- -- --

Regularly work overtime

78 26.7% 11.0 $2,406

Occasionally work overtime [c]

8 2.6% 8.2 $2,392

Note: Pooled CPS data for 2021–2023 adjusted to reflect 2023.

[a] Estimated number of workers exempt under the EAP exemptions who will be entitled to

overtime protection under the updated salary levels (if their weekly earnings do not increase to

the new salary levels).

[b] The applicable minimum wage is the higher of the Federal minimum wage and the state

minimum wage. These workers all regularly work overtime and are also included in that row.

HCE workers will not be affected by the minimum wage provision.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

[c] Workers who do not usually work overtime but did in the CPS reference week. Mean overtime

hours are actual overtime hours in the reference week. Other workers may occasionally work

overtime in other weeks.

This section characterizes the population of affected workers by industry, occupation,

employer type, location of residence, and demographics. The Department chose to provide as

much detail as possible while maintaining adequate sample sizes.

Table 6 presents the distribution of affected EAP workers by industry and occupation,

using Census industry and occupation codes. The industry with the most affected EAP workers is

professional and business services (827,000), while the industry with the highest percentage of

EAP workers affected is leisure and hospitality (about 24 percent). The occupational category

with the most affected EAP workers is management, business, and financial (2.0 million), while

the occupation category with the highest percentage of EAP workers affected is farming, fishing,

and forestry (about 45 percent).

Potentially affected workers in private-sector nonprofits are more likely to be affected

than workers in private-sector for-profit firms (18.9 percent compared with 13.6 percent).

However, as discussed in section VII.B.3, the estimates of workers subject to the FLSA include

workers employed by enterprises that are not subject to the FLSA under the law’s enterprise

coverage requirements because there is no data set that would adequately inform an estimate of

the size of this worker population in order to exclude them from these estimates. Although failing

to exclude workers who work for non-covered enterprises would only affect a small percentage

of workers generally, it may have a larger effect (and result in a larger overestimate) for workers

in nonprofits because when determining FLSA enterprise coverage only revenue derived from

business operations, not charitable activities, is included.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Table 6: Estimated Number of Workers and Whether They Will be Affected by the New Earnings

Thresholds, by Industry and Occupation, Year 1

Industry / Occupation /

Nonprofit

Workers

subject to

FLSA

(Millions)

Potentially

Affected

EAP

Workers

(Millions)

[a]

Not-

Affected

(Millions)

[b]

Affected

(Millions)

[c]

Affected as

Share of

Potentially

Affected

Total 143.68 29.75 25.41 4.34 14.6%

By Industry [d]

Agriculture, forestry,

fishing, & hunting

1.31 0.06 0.05 0.01 22.8%

Mining 0.59 0.16 0.14 0.02 11.8%

Construction 9.31 1.27 1.08 0.18 14.6%

Manufacturing 15.52 4.06 3.71 0.35 8.6%

Wholesale trade 3.16 0.85 0.74 0.11 13.2%

Retail trade 15.65 1.97 1.59 0.38 19.2%

Transportation &

utilities

8.90 1.07 0.92 0.15 14.3%

Information 2.71 1.08 0.95 0.13 12.2%

Financial activities 9.93 4.35 3.79 0.56 13.0%

Professional &

business services

17.46 7.13 6.30 0.83 11.6%

Education 14.29 1.20 0.96 0.24 20.3%

Healthcare & social

services

21.03 3.75 3.01 0.74 19.8%

Leisure & hospitality 12.53 0.94 0.71 0.23 24.3%

Other services 5.53 0.76 0.60 0.16 21.5%

Public administration 5.75 1.10 0.88 0.23 20.6%

By Occupation [d]

Management,

business, & financial

24.74 15.32 13.33 1.99 13.0%

Professional & related 35.90 10.72 9.23 1.49 13.9%

Services 22.85 0.15 0.10 0.04 28.7%

Sales and related 12.66 2.41 1.96 0.46 18.9%

Office &

administrative support

15.98 0.93 0.61 0.32 34.4%

Farming, fishing, &

forestry

0.91 0.00 0.00 0.00 44.7%

Construction &

extraction

6.97 0.03 0.02 0.01 21.9%

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Installation,

maintenance, & repair

4.58 0.05 0.04 0.01 15.3%

Production 8.18 0.09 0.08 0.01 10.8%

Transportation &

material moving

10.91 0.05 0.04 0.01 24.8%

By Nonprofit and Government Status

Nonprofit, private 10.17 2.44 1.98 0.46 18.9%

For profit, private 114.56 24.95 21.56 3.39 13.6%

Government (state,

local, and

Federal

)

18.95 2.35 1.86 0.48 20.6%

Note: Pooled CPS data for 2021–2023 adjusted to reflect 2023.

[a] Exempt workers who are white-collar, salaried, not eligible for another (non-EAP)

overtime exemption, and not in a

named occupation.

[b] Workers who continue to be exempt after the increases in the salary levels (assuming

affected workers earning below the new salary level do not have their weekly earnings

increased to the new level).

[c] Estimated number of workers exempt under the EAP exemptions who will be entitled to

overtime protection under the updated salary levels (if their weekly earnings do not increase to

the new salary levels).

[d] Census industry and occupation categories.

Table 7 presents the distribution of affected EAP workers based on Census Regions and

Divisions, and metropolitan statistical area (MSA) status. The region with the most affected

workers will be the South (1.9 million), but the South’s percentage of potentially affected

workers who are estimated to be affected is relatively small (17.9 percent). Although 90 percent

of affected EAP workers will reside in MSAs (3.92 of 4.34 million), so do a corresponding 88

percent of all workers subject to the FLSA.

346

Employers in low-wage industries, regions, and in non-metropolitan areas may be more

affected because they typically pay lower wages and salaries. The Department believes the salary

level included in this rule is appropriate for these lower-wage sectors, in part because the

346

Identified with CPS MORG variable GTMETSTA.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

methodology uses earnings data from the lowest-wage census region. Moreover, the duties test

will continue to determine exemption status for the vast majority of workers in low-wage regions

and industries under the rule. For example, as displayed in Table 7, 82.1 percent of potentially

affected EAP workers in the South Census Region earn more than the new salary levels and thus

will not be affected by the rule (8.59 ÷ 10.46). Effects by region and industry are considered in

section VII.C.7.

Table 7: Estimated Number of Workers and Whether They Will be Affected by the New Earnings

Thresholds, by Region, Division, and MSA Status, Year 1

Region / Division /

Metropolitan Status

Workers

subject to

FLSA

(Millions)

Potentially

Affected

EAP

Workers

(Millions)

[a]

Not-

Affected

(Millions)

[b]

Affected

(Millions)

[c]

Affected as

Share of

Potentially

Affected

Total

143.68 29.75 25.25 4.49 15.1%

By Region / Division

Northeast 25.51 6.04 5.30 0.74 12.3%

New England 7.01 1.80 1.61 0.20 11.0%

Middle Atlantic 18.50 4.23 3.69 0.54 12.8%

Midwest 31.14 6.08 5.15 0.93 15.4%

East North Central 21.06 4.14 3.52 0.62 14.9%

West North Central 10.08 1.94 1.63 0.32 16.3%

South 53.18 10.46 8.59 1.87 17.9%

South Atlantic 27.71 5.80 4.77 1.03 17.7%

East South Central 7.92 1.24 0.99 0.25 20.4%

West South Central 17.54 3.42 2.83 0.59 17.2%

West 33.85 7.17 6.38 0.79 11.0%

Mountain 11.12 2.21 1.89 0.32 14.4%

Pacific 22.73 4.95 4.48 0.47 9.5%

By Metropolitan Status

Metropolitan 126.89 27.91 23.98 3.92 14.1%

Non-metropolitan 15.74 1.70 1.32 0.38 22.3%

Not identified 1.05 0.14 0.11 0.03 23.8%

Note: Pooled CPS data for 2021–2023 adjusted to reflect 2023.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

[a] Exempt workers who are white-collar, salaried, not eligible for another (non-EAP)

overtime exemption, and not in a named occupation.

[b] Workers who continue to be exempt after the increases in the salary levels (assuming

affected workers earning below the new salary level do not have their weekly earnings

increased to the new level).

[c] Estimated number of workers exempt under the EAP exemptions who will be entitled to

overtime protection under the updated salary levels (if their weekly earnings do not increase to

the new salary levels).

Table 8 presents the distribution of affected EAP workers by demographics. Potentially

affected women, Black workers, Hispanic workers, young workers, and workers with less

education are all more likely to be affected than other worker types. This is because EAP exempt

workers with these characteristics are more likely to earn within the affected standard salary

range than EAP exempt workers without these characteristics. For example, of potentially

affected workers, women tend to have lower salaries and are therefore more likely to be in the

affected range. Median weekly earnings for potentially affected women are $1,709 compared to

$2,108 for men.

Among potentially affected workers, certain demographic groups—women, Black

workers, Hispanic workers, young workers, and workers with less education—have an increased

likelihood of being affected by this rulemaking, even though workers in these demographic

groups are less likely to be EAP exempt in the first place. Therefore, as a share of all workers,

not just potentially affected workers, workers in these demographic groups may not be more

likely to be affected. For example, when looking at potentially affected workers, 21.7 percent of

potentially affected Black workers are affected, while only 14.5 percent of potentially affected

white workers are affected. However, when looking at total workers, about the same shares of

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

total Black and total white workers would be affected (2.9 percent of Black workers and 3.0

percent of white workers).

Table 8: Estimated Number of Workers and Whether They Will be Affected by the New Earnings

Thresholds, by Demographics, Year 1

Demographic

Workers

subject to

FLSA

(Millions)

Potentially

Affected

EAP

Workers

(Millions)

[a]

Not-

Affected

(Millions)

[b]

Affected

(Millions)

[c]

Affected

as Share

of All

Workers

Affected

as Share of

Potentially

Affected

Total 143.68 29.75 25.41 4.34

3.0%

14.6%

By Sex

Male 74.37 17.38 15.46 1.92

2.6%

11.0%

Female 69.31 12.37 9.95 2.42

3.5%

19.6%

By Race

White only 109.96 22.95 19.63 3.32

3.0%

14.5%

Black only 18.47 2.48 1.94 0.54

2.9%

21.7%

All others 15.25 4.32 3.83 0.48

3.2%

11.2%

By Ethnicity

Hispanic 27.02 2.80 2.25 0.55

2.0%

19.5%

Not Hispanic 116.66 26.95 23.15 3.79

3.3%

14.1%

By Age

16-25 22.34 1.37 0.96 0.40

1.8%

29.6%

26-35 34.25 7.51 6.20 1.30

3.8%

17.4%

36-45 30.91 7.96 6.97 0.99

3.2%

12.4%

46-55 27.89 7.00 6.13 0.87

3.1%

12.4%

56+ 28.30 5.92 5.15 0.77

2.7%

13.1%

By Education

No degree 10.77 0.15 0.09 0.06

0.5%

39.7%

High school diploma 59.52 4.75 3.55 1.19

2.0%

25.1%

Associate’s degree 15.09 2.01 1.56 0.45

3.0%

22.5%

Bachelor's degree 37.05 14.30 12.43 1.86

5.0%

13.0%

Master's degree 16.08 7.11 6.46 0.65

4.0%

9.1%

Professional degree 2.06 0.40 0.36 0.04

2.0%

10.4%

PhD 3.11 1.03 0.95 0.08

2.6%

7.8%

Note: Pooled CPS data for 2021–2023 adjusted to reflect 2023.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

[a] Exempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime

exemption, and not in a named occupation.

[b] Workers who continue to be exempt after the increases in the salary level (assuming affected

workers

’

weekly earnings do not increase to the new salary level).

[c] Estimated number of workers exempt under the EAP exemptions who would be entitled to

overtime protection under the updated salary levels (if their weekly earnings do not increase to

the new salary level).

3. Costs

i. Summary

The Department quantified three direct costs to employers in this analysis: (1) regulatory

familiarization costs; (2) adjustment costs; and (3) managerial costs. These are the same costs

quantified in the 2016 and 2019 rulemakings. The Department estimated that in Year 1,

regulatory familiarization costs will be $451.6 million, adjustment costs will be $299.1 million,

and managerial costs will be $685.5 million (Table 9). Total direct employer costs in Year 1 will

be $1.4 billion. Recurring costs are projected in section VII.C.10. The Department discusses

costs that are not quantified in section VII.C.3.v.

Table 9: Summary of Year 1 Direct Employer Costs (Millions)

Direct Employer Costs

Standard

Salary Level

HCE

Compensation

Level

Total

Regulatory familiarization [a]

-- -- $451.6

Adjustment

$279.0 $20.1 $299.1

Managerial

$626.3 $59.2 $685.5

Total direct costs

$905.4 $79.2 $1,436.2

[a] Regulatory familiarization costs are assessed jointly for the change in the standard

salary level and the HCE compensation level.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

ii. Regulatory Familiarization Costs

This rulemaking will impose direct costs on firms by requiring them to review the

regulation. To estimate these “regulatory familiarization costs,” three pieces of information must

be estimated: (1) the number of affected establishments; (2) a wage level for the employees

reviewing the rule; and (3) the amount of time spent reviewing the rule. The Department

generally used the same methodology for calculating regulatory familiarization costs that it used

in the NPRM and recent rulemakings.

Regulatory familiarization costs can be calculated at an establishment level or at a firm

level. The Department assumed that regulatory familiarization occurs at a decentralized level and

used the number of establishments in its cost estimate; this results in a higher estimate than

would result from using the number of firms. The most recent data on private sector

establishments and firms at the time this rule was drafted are from the 2021 Statistics of U.S.

Businesses (SUSB), which reports 8.15 million establishments with paid employees.

347

Additionally, there were an estimated 90,126 state and local governments in 2017, the most

recent data available.

348

The Department thus estimated 8.24 million entities (the term “entities”

is used to refer to the combination of establishments and governments).

The Department assumes that all entities will incur some regulatory familiarization costs,

even if they do not employ exempt workers, because all entities will need to confirm whether

this rulemaking affects their employees. Entities with more affected EAP workers will likely

spend more time reviewing the regulation than entities with fewer or no affected EAP workers

347

Statistics of U.S. Businesses 2021, https://www.census.gov/programs-surveys/susb.html.

348

2017 Census of Governments. Table 1,

https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

(since a more careful reading of the regulation will probably follow the initial decision that the

entity is affected). However, the Department did not know the distribution of affected EAP

workers across entities, so it used an average cost per entity.

The Department believes an average of 1 hour per entity is appropriate because the

regulated community is likely to be familiar with the content of this rulemaking. EAP

exemptions have existed in one form or another since 1938, and a final rule was published as

recently as 2019. Furthermore, employers who use the exemptions must apply them every time

they hire an employee whom they seek to classify as exempt. Thus, employers should be familiar

with the exemptions. The most significant changes in this rulemaking are setting a new standard

salary level and a new HCE compensation level for exempt workers and establishing a

mechanism for keeping these thresholds up to date. The changed regulatory text is only a few

pages, and the Department will provide summaries and other compliance assistance materials

that will help inform employers that are implementing the final rule. The Department thus

believes, consistent with its approach in the 2016 and 2019 rules, that 1 hour is an appropriate

average estimate for the time each entity will spend reviewing the changes made by this

rulemaking. Additionally, the estimated 1 hour for regulatory familiarization represents an

assumption about the average for all entities in the U.S., even those without any affected or

exempt workers, which are unlikely to spend much time reviewing the rulemaking. Some

businesses, of course, will spend more than 1 hour, and some will spend less.

The Department’s analysis assumes that compensation, benefits, and job analysis

specialists (SOC 13-1141) with a median wage of $32.59 per hour will review the rulemaking.

349,

349

OEWS 2022. Available at: https://www.bls.gov/oes/current/oes131141.htm.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

350

The Department also assumed that benefits are paid at a rate of 45 percent of the base wage

351

and overhead costs are paid at a rate of 17 percent of the base wage,

352

resulting in an hourly rate

of $54.82 in 2023 dollars.

353

The Department thus estimates regulatory familiarization costs in

Year 1 would be $451.6 million ($54.82 per hour × 1 hour × 8.24 million entities).

The Department also conducted a sensitivity analysis. First, as previously noted, the

Department used the number of establishments rather than the number of firms, which results in

a higher estimate of the regulatory familiarization cost. Using the number of firms, 6.4 million,

would result in a reduced regulatory familiarization cost estimate of $350.0 million in Year 1.

Some commenters representing employer interests stated that rule familiarization costs

are underestimated. See, e.g., ABC; IEC; Job Creators Network Foundation; NSBA; SBA Office

of Advocacy. For instance, ABC commented that “compliance with the proposal will not be as

simple as reviewing the salary level and making a one-time decision” and that “82% of recently

surveyed ABC members . . . responded that reviewing the final rule would take three hours or

longer, with 47% saying it would take five hours or more.”

350

Previous related rulemakings used the CPS to estimate wage rates. The Department is using

OEWS data now to conform with standard practice for the Department’s economic analyses.

351

The benefits-earnings ratio is derived from BLS’s Employer Costs for Employee

Compensation (ECEC) data using variables CMU1020000000000D and CMU1030000000000D.

This fringe benefit rate includes some fixed costs such as health insurance. As of when this final

rule was drafted, 2023 ECEC data were available only through the third quarter, so the

Department continued to use the 2022 full-year data to calculate the benefits share.

352

The Department believes that the overhead costs associated with this rulemaking are small

because existing systems maintained by employers to track currently hourly employees can be

used for newly overtime-eligible workers. However, acknowledging that there might be

additional overhead costs, the Department has included an overhead rate of 17 percent.

353

The 2022 fully-loaded hourly wage was adjusted to 2023 using the CPI-U.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

While the Department acknowledges that some employers will spend more than an hour

reviewing the rule, the estimate of 1 hour for rule familiarization is an assumption about the

average representing all establishments, even those without any affected or exempt workers.

Those establishments will likely not need to spend any time reviewing the rule. Employers in

industries with more affected workers may spend more time reviewing the rule, but across all

industries, the Department believes that 1 hour continues to be appropriate. The Department used

the same 1 hour estimate in its 2016 and 2019 rules,

354

and the Department did not receive

comments with concrete data that is representative across all industries from which to conclude

that its average estimate of one hour is incorrect. The Department continues to believe that

businesses are already familiar with this rulemaking. The EAP exemptions have existed for a

long time, and recent rules were published in 2016 and 2019. This rulemaking sets a new

standard salary level and a new HCE compensation level for exempt workers and establishes a

mechanism for keeping these thresholds up to date. However, this rulemaking does not

fundamentally change the existing method for determining whether an employee qualifies for the

EAP exemption. To the extent commenters’ familiarization cost concerns related to time needed

to comply with the rule, these costs are addressed separately under the Department’s managerial

and adjustment cost estimates. As for concerns relating to the hourly wage rate used to calculate

rule familiarization costs, the Department notes that it relies on the standard occupation used in

previous WHD and DOL rulemakings.

354

81 FR 32474; 84 FR 51266.

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

iii. Adjustment Costs

This rulemaking will also impose direct costs on establishments by requiring them to

evaluate the exemption status of employees, update and adapt overtime policies, notify

employees of policy changes, and adjust their payroll systems. For each affected worker who

works overtime, an employer will need to decide whether they will increase their salary, adjust

their hours, or some combination of the two. The Department believes the size of these

“adjustment costs” will depend on the number of affected EAP workers and will occur in any

year when exemption status is changed for any workers. To estimate adjustment costs, three

pieces of information must be estimated: (1) a wage level for the employees making the

adjustments; (2) the amount of time spent making the adjustments; and (3) the estimated number

of newly affected EAP workers. The Department again estimated that the average wage with

benefits and overhead costs for a mid-level human resource worker is $54.82 per hour (as

explained above).

The Department estimated that it will take establishments an average of 75 minutes per

affected worker to make the necessary adjustments. This is the same time estimate as used in the

2016 and 2019 rulemakings, as well as in the NPRM. Little applicable data were identified from

which to estimate the amount of time required to make these adjustments. The estimated number

of affected EAP workers in Year 1 due to the change in the standard salary level to $1,128 per

week and the HCE level to $151,164 per year is 4.3 million (as discussed in section VII.B.7).

However, because the compensation thresholds will undergo an initial update on July 1, 2024

and then an increase using the new methodologies 6 months later, employers may have

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

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review process. Only the version published in the Federal Register is the official version.

additional adjustment costs when the standard salary level is initially updated to $844 per week

and the HCE level is initially updated to $132,964.

Some employers may make two adjustments for affected workers – one at the initial

update to the standard salary level and then again with the salary level adjustment 6 months later.

To estimate the costs associated with multiple adjustments, the Department assumed that at the

initial update, some employers could experience additional adjustment costs for the affected

workers who will have their weekly earnings increased to $844 per week. In order to estimate the

number of affected workers who would have their weekly earnings increased to $844 per week,

the Department looked at EAP exempt workers earning at least $684 per week but less than $844

per week. Using the methodology laid out in the transfer analysis in section VII.C.4.iii, the

Department then estimated the share of these workers who regularly work overtime and would

remain exempt, because it is less expensive for the employer to pay the updated salary level than

to pay overtime (described in that section as Type 4 workers). The Department estimated that

there would be 27,692 workers who earn between $684 and $844 and would have their earnings

increased at the initial update. The Department does not have data to determine how many

employers would increase earnings twice for workers earnings between $684 and $844. For these

workers, unless they are working large numbers of overtime hours, it is likely to be more

economically beneficial for employers to make other changes in response to the rule instead of

increasing their salary to $1,128 a week, such as limiting overtime hours worked. Despite this, in

case there are limited cases in which workers do have their earnings increased twice, the

Department has included these additional adjustment costs in the total adjustment cost estimate.

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review process. Only the version published in the Federal Register is the official version.

Therefore, total estimated Year 1 adjustment costs would be $299.1 million ($54.82 × 1.25 hours

× (4,337,469 + 27,692 workers)).

The Department used a time estimate per affected worker, rather than per establishment,

because the distribution of affected workers across establishments is unknown. However, it may

be helpful to present the total time estimate per establishment based on a range of affected

workers. If an establishment has five affected workers, the time estimate for adjustment costs is

6.25 hours. If an establishment has 25 affected workers, the time estimate for adjustment costs is

31.25 hours. And if an establishment has 50 affected workers, the time estimate for adjustment

costs is 62.5 hours.

A reduction in the cost to employers of determining employees’ exemption status may

partially offset adjustment costs. Currently, to determine whether an employee is exempt,

employers must apply the duties test to salaried workers who earn $684 or more per week.

However, under the final rule, firms will no longer be required to apply the duties test to the 8.7

million employees earning above the current standard salary level of $684 and less than the new

standard salary level of $1,128. While this will be a clear cost savings to employers for these

employees, the Department did not estimate the potential size of this cost savings.

Some commenters representing employer interests stated that the Department

underestimated adjustment costs. See, e.g., NAHB; NSBA; PPWO. NAHB, for instance, stated

that “the Department’s economic analysis,” including its estimate of “75 minutes per affected

worker for adjustment,” “dramatically understate[d] the . . . cost burden on employers,” and

PPWO stated that adjustment costs (and regulatory familiarization and managerial costs) were

“all dramatically understated.” SBA Advocacy and Seyfarth Shaw asserted that the Department

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

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from the published document if minor technical or formatting changes are made during the OFR

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underestimated adjustment costs for small businesses, with both commenters stating that smaller

employers would be more likely than larger ones to hire outside assistance to make needed

adjustments. See also NFIB (“The NPRM underestimates compliance costs for small

businesses[.]”). Some commenters asserted that the Department failed to account for adjustment

costs that employers would need to incur beyond the first year the rule is in effect, such as costs

associated with determining whether an employee remains exempt, reclassifying newly-exempt

employees as hourly, and making other adjustments to time and attendance systems, given that

the earnings thresholds for exemption will be updated on a triennial basis. See PPWO; The 4As.

Additionally, some commenters expressed particular concern with adjustment costs stemming

from the proposed increase in the HCE compensation level, noting that for workers who were

previously exempt under the HCE test but earn below the proposed HCE compensation level,

employers would need to evaluate the worker’s duties to determine whether they remain exempt

under the standard test. See, e.g., HR Policy Association; NAM; PPWO. NAM stated that

“[a]cross the manufacturing sector, the change in the HCE threshold may be as difficult and

consequential as the proposed increases to the standard salary threshold.”

The Department is retaining its estimate of adjustment costs as 75 minutes per affected

worker in the final rule. This estimate is consistent with the Department’s estimate in the 2016

and 2019 rules.

355

The Department notes that the 75-minute-per-worker average time estimate is

an assumption about the average across all workers, and it believes this estimate takes into

account adjustment time for workers affected by the new standard salary level and the smaller

portion of workers affected by the new HCE total compensation threshold. This estimate

355

See 84 FR 51267; 81 FR 32475.

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

assumes that the time is focused on analyzing more complicated situations. For example,

employers are likely to incur relatively low adjustment costs for some workers, such as the 69

percent of affected workers who work no overtime (described below as Type 1 workers). This

leaves more time for employers to spend on adjustment costs for the 31 percent of affected

workers who work overtime either occasionally or regularly. To demonstrate, if the aggregate

time spent on adjustments (75 min × 4.37 million workers) was spread out over only workers

who work overtime, then the time estimate is 4.0 hours per worker. Lastly, the Department did

not receive any comments with data providing a different estimate for the Department to rely on.

Contrary to commenters that stated that the Department failed to take into account

adjustment costs beyond the first year the rule is in effect, the Department’s estimated adjustment

costs include costs in all years for newly affected workers. The Department limits adjustment

costs in projected years to newly affected workers because there is no need to “adjust” for

workers who are already overtime eligible (due to a prior adjustment of the salary level) when

the salary level is updated again. Table 26 provides adjustment (and other) cost projections in

future years due to the updating mechanism.

iv. Managerial Costs

If an employee becomes nonexempt due to the changes in the salary levels, then firms

may incur ongoing managerial costs because the employer may spend more time developing

work schedules and closely monitoring an employee’s hours to minimize or avoid paying that

employee overtime. For example, the manager of a newly nonexempt worker may have to assess

whether the marginal benefit of scheduling the worker for more than 40 hours exceeds the

marginal cost of paying the overtime premium. Additionally, the manager may have to spend

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

more time monitoring the employee’s work and productivity since the marginal cost of

employing the worker per hour has increased. Unlike regulatory familiarization and adjustment

costs, which occur primarily in Year 1, managerial costs are incurred more uniformly every year.

The Department applied managerial costs to workers who (1) become nonexempt,

overtime-protected and (2) either regularly work overtime or occasionally work overtime, but on

a predictable basis—an estimated 911,000 workers (see Table 13 and accompanying

explanation). Consistent with its approach in its 2019 rule and the NPRM, the Department

assumed that management would spend an additional ten minutes per week scheduling and

monitoring each affected worker expected to become nonexempt, overtime-eligible as a result of

this rule, and whose hours would be adjusted.

As discussed in detail below, most affected workers do not currently work overtime, and

there is no reason to expect their hours worked to change when their status changes from exempt

to nonexempt. For that group of workers, management will have little or no need to increase their

monitoring of hours worked; therefore, these workers are not included in the managerial cost

calculation. Under these assumptions, the additional managerial hours worked per week will be

151,800 hours ((10 minutes ÷ 60 minutes) × 911,000 workers).

The median hourly wage in 2022 for a manager was $51.62.

356

Together with a 45

percent benefits rate and a 17 percent overhead cost, this totals $86.82 per hour in 2023

356

OEWS 2022. Available at: https://www.bls.gov/oes/current/oes110000.htm. This may be an

overestimate of the wage rate for managers who monitor workers’ hours because (1) it includes

very highly paid employees such as CEOs, and (2) some lower-level supervisors are not counted

as managers in the data.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

dollars.

357

Thus, the estimated Year 1 managerial costs total $685.5 million (151,835 hours per

week × 52 weeks

358

× $86.82/hour). Although the exact magnitude will vary each year with the

number of affected EAP workers, the Department anticipates that employers would incur

managerial costs annually.

Some commenters expressed concerns that the regulation will increase managerial costs,

with some specifically asserting that the Department’s estimate was too low, see, e.g., PPWO,

SBA Advocacy, NCFC, IEC. Commenter concerns with managerial costs were often tied to the

additional costs they asserted would result from tracking the work hours of newly nonexempt

employees. See, e.g., 16 Republication Representatives; APLU. Commenters specifically

asserted tracking hours of currently exempt employees would increase human resources

paperwork and technology costs for their companies. See, e.g., The Chamber of Commerce for

Greater Philadelphia; John C. Campbell Folk School.

The Department continues to believe that 10 minutes per worker per week is an

appropriate managerial cost estimate. Currently, EAP exempt employees account for about 24

percent of total employment; as such, the Department expects that many employers of EAP

exempt workers also employ nonexempt workers. Those employers already have in place

recordkeeping systems and standard operating procedures for ensuring employees only work

357

The benefits ratio is derived from BLS’ 2022 Employer Costs for Employee Compensation

data using variables CMU1020000000000D and CMU1030000000000D. The fully-loaded

hourly wage rate was inflated to 2023 dollars using the BLS CPI-U.

358

Fifty-two weeks may be an overestimate of the amount of time that an employer would incur

management costs in Year 1. For affected workers who earn below $1,128, but at least $844,

their employers may not incur additional managerial costs until January 1, 2025 if they decide to

wait to make changes in response to the rule. Therefore, these managerial costs would not occur

for the full 52 weeks of the year. Because the Department does not know when employers would

make changes in response to the rule, this estimate of 52 weeks is used for the entire population.

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overtime under employer-prescribed circumstances. Thus, such systems generally do not need to

be created or acquired for managing formerly exempt EAP employees. The Department also

notes that under the FLSA recordkeeping regulations in part 516, employers determine how to

make and keep an accurate record of hours worked by employees. For example, employers may

tell their workers to write their own time records and any timekeeping plan is acceptable if it is

complete and accurate. Additionally, if the nonexempt employee works a fixed schedule, e.g.,

9:00 a.m. – 5:30 p.m. Monday – Friday, the employer may keep a record showing the exact

schedule of daily and weekly hours and merely indicate exceptions to that schedule.

359

The

Department believes its estimate, which tracks the approach taken in its 2019 rule, accurately

predicts management costs, including costs firms may incur for monitoring and managing the

hours of formerly exempt employees.

v. Other Potential Costs

In addition to the costs discussed above, commenters raised other potential costs that

could not be quantified. These potential costs are discussed qualitatively below.

(a) Reduced Scheduling Flexibility

Several commenters claim that this rule would restrict employee workplace flexibility,

such as remote work and flexible scheduling. See, e.g., HR Policy Association; NAM; NRF;

SBA; Chamber. For example, the Chamber stated, “workers will lose their ability to work from

home and the flexibility that they have enjoyed in salaried positions, particularly since the

COVID-19 pandemic changed the face of the American workplace in 2020.” However,

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See Fact Sheet #21: Recordkeeping Requirements under the Fair Labor Standards Act,

available at: https://www.dol.gov/agencies/whd/fact-sheets/21-flsa-recordkeeping.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

commenters did not provide any specific evidence to support this claim. The Department notes

that even those workers that are paid on an hourly basis can still take advantage of workplace

flexibilities such as remote work. According to the CPS data, of all workers who reported

working at home any time in the past week, 74.2 percent of them were categorized as hourly

workers.

To the extent that some employers spend more time monitoring nonexempt workers’

hours than exempt workers’ hours, some employers could respond to this rule by limiting the

ability of newly nonexempt workers to adjust their schedules. However, employers can continue

to offer flexible schedules and require workers to monitor their own hours and to follow the

employers’ timekeeping rules. Additionally, some exempt workers already monitor their hours

for billing purposes and so monitoring their hours as newly nonexempt workers should not be

unduly burdensome. A study by Lonnie Golden found, using data from the General Social

Survey (GSS), that “[i]n general, salaried workers at the lower (less than $50,000) income levels

don’t have noticeably greater levels of work flexibility that they would ‘lose’ if they become

more like their hourly counterparts.”

360

Because there is little data or literature on these potential

costs, the Department did not quantify potential costs regarding scheduling flexibility.

Organizations such as the American Beverage Licensees and educational institutions in

CUPA-HR and APLU, also asserted that the rule would reduce employer flexibility to allocate

work hours based on schedules that include non-traditional work hours. The Hinton Rural Life

Center said that the rule would make it financially unfeasible for nonexempt employees to attend

360

Golden, L. (2014). Flexibility and Overtime Among Hourly and Salaried Workers. Economic

Policy Institute. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2597174.

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

specific activities such as “overnight training sessions or marketing events.” NCFC stated that

because of the increased attention that must be paid to the hours worked by nonexempt

employees, they are likely to be at a competitive disadvantage with exempt employees in the

same role. Under this assumption, they asserted that “many training opportunities” would now

require additional compensation if “those opportunities would put the nonexempt employee into

an overtime situation,” and therefore “access to those opportunities may be limited” for

nonexempt employees. The Department notes that if an employer believes that training

opportunities are sufficiently important, it can ensure employees attend the trainings during their

40-hour workweek or pay the overtime premium where training attendance causes the employee

to work over 40 hours in a workweek. Given this, and because there is no data and literature to

quantify any potential costs to workers, the Department did not quantify these costs.

(b) Preference for Salaried Status

Many commenters contended that the employers of some of the workers who will become

nonexempt as a result of the rule could change their pay basis to hourly status despite the

employee preferring to remain salaried. See, e.g., AHLA; NSBA; SIGMA. Some commenters,

such as SIGMA, stated that conversion of employees to hourly status that will negatively affect

morale, as employees may perceive the change as a demotion or a loss of status because of,

among other reasons, the lost flexibility associated with salaried status. Conversely, commenters

such as the Coalition of State AGs and the Family Caregiving Coalition asserted that the

proposed rule would increase employee satisfaction and retention, improve work-life balance,

reduce stress and health problems, and make jobs more attractive to qualified applicants

primarily because employees will now be compensated for hours worked beyond a standard

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workweek. Notably, a strong majority of the individual commenters who said they would be

personally affected by the proposed rule expressed support for the rule.

If a worker does prefer to be salaried rather than hourly, then the employer changing them

from salaried to hourly may impact the worker. However, the Department believes that for most

employees their feelings of importance and worth come not from their FLSA exemption status,

but from the increased pay, flexibility, fringe benefits, and job responsibilities that traditionally

have accompanied exempt status, and that these factors are not incompatible with overtime

eligibility. And while research has shown that salaried workers (who are not synonymous with

exempt workers, but whose status is correlated with exempt status) are more likely than hourly

workers to receive certain benefits, as discussed below, such research generally does not control

for differences between salaried and hourly workers such as education, job title, or earnings.

Several commenters stated that in response to the proposed salary level employers would

likely decrease employee benefits. See, e.g., PPWO; Rachel Greszler. These and similar

comments were mostly general statements, often listing types of benefits employees may lose.

Others stated that employees would lose benefits due to being reclassified as hourly workers.

See, e.g., Independent Women’s Forum (IWF); NRF. Some commenters stated that these

employees would have reductions in their ability to earn bonuses or other types of incentive

payments, but these commenters generally did not discuss the net impact on these employees’

earnings. See, e.g., NRF. These comments did not provide information that would allow the

Department to estimate the purported impact of the final rule on employee benefits.

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review process. Only the version published in the Federal Register is the official version.

Research has shown that salaried workers are more likely than hourly workers to receive

benefits such as paid vacation time and health insurance

361

and are more satisfied with their

benefits.

362

However, this literature generally does not control for differences between salaried

and hourly workers such as education, job title, or earnings; therefore, this correlation is not

necessarily attributable to hourly status.

If workers become nonexempt and the employer chooses to pay them on an hourly rather

than salary basis, this may result in the employer reducing the workers’ benefits. These newly

nonexempt workers may continue to be paid a salary, as long as that salary is equivalent to a base

wage at least equal to the minimum wage rate for every hour worked, and the employee receives

a 50 percent premium on that employee’s regular rate for any overtime hours each week.

363

Similarly, employers may continue to provide these workers with the same level of benefits as

before, whether paid on an hourly or salary basis. Lastly, the nature of the market mechanism

may be such that employers cannot reduce benefits without risking workers leaving, resulting in

turnover costs to employers. The Department did not quantify potential costs regarding reduction

in workers’ benefits.

(d) Increased Prices

Several commenters such as AAHOA, the Chamber, CUPA-HR, Indiana Chamber of

Commerce, NAHB, and the National Association of Wholesaler-Distributors stated that the

361

Lambert, S. J. (2007). Making a Difference for Hourly Employees. In A. Booth, & A. C.

Crouter, Work-Life Policies that Make a Real Difference for Individuals, Families, and

Communities. Washington, D.C.: Urban Institute Press.

362

Balkin, D. B., & Griffeth, R. W. (1993). The Determinants of Employee Benefits Satisfaction.

Journal of Business and Psychology, 7(3), 323-339.

363

29 CFR 778.113–114.

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

regulation will result in increased prices due to increased employee salaries and other costs to

employers. Some of these commenters assert that employers increasing their workers’ salaries to

maintain their exempt status would induce a general price increase if anticipated wage increases

do not result in productivity increases. See, e.g., Chamber; NAW. NAHB conducted a survey

among its members about the proposal, and 50 percent of survey respondents stated that

finalizing the salary level as proposed would lead them to raise home prices, while 25 percent of

respondents stated that the change would make some projects unprofitable.

The Department acknowledges that, as discussed in the transfers section below,

businesses may be able to help mitigate increased labor costs following this rulemaking by

rebalancing the hours that employees are working. Businesses that are unable to rebalance these

hours and do incur increased labor costs might pass along these increased labor costs to

consumers through higher prices for goods and services. However, because costs and transfers

will be, on average, small relative to payroll and revenues, the Department does not expect the

rule to have a significant effect on prices. The Department estimated that, on average, costs and

transfers make up less than 0.04 percent of payroll and 0.006 percent of revenues, although for

specific industries and firms this percentage may be larger (see Table 24). Therefore, any

potential change in prices related to costs and transfers from this rulemaking would be modest,

and the Department notes that commenter predictions (such as those in the NAHB survey

described above) reflect speculation about what will occur in the future and thus may not reflect

actual economic responses by employers. Further, any significant price increases would not

represent a separate category of effects from those estimated in this economic analysis. Rather,

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

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such price increases (where they occur) would be the channel through which consumers, rather

than employers or employees, bear rule-induced costs (including transfers).

While economic theory suggests that an increase in labor costs in excess of productivity

gains would lead to increases in prices, much of the empirical literature has found that wage

inflation does not predict price inflation.

364

For example, Peneva et al. (2015) explore the

relationship between labor costs and price inflation between 1965 and 2012, finding that the

influence of labor costs on prices has decreased over the past several decades and have made a

relatively small contribution to price inflation in recent years.

365

(e) Reduced Services

Some commenters expressed concern that, by reducing the number of exempt employees,

this rulemaking will negatively impact the amount or quality of services that employers can

provide. See, e.g., ANCOR; Boy Scouts of America; Catholic Charities USA; YMCA. The

National Association of Counties raised similar concerns with respect to county governments. A

number of colleges, universities, and other higher-education stakeholders, such as APLU and

CUPA-HR, similarly asserted that the proposed rule would negatively affect support services for

students. The Department appreciates that employers in some industries have less flexibility than

364

Church, J.D. and Akin, B. (2017). “Examining price transmission across labor compensation

costs, consumer prices, and finished-goods prices,” Monthly Labor Review, U.S. Bureau of

Labor Statistics; Emery, K. & Chang, C. (1996). Do Wages Help Predict Inflation?, Federal

Reserve Bank of Dallas, Economic Review First Quarter 1996.

https://www.dallasfed.org/~/media/documents/research/er/1996/er9601a.pdf; Jonsson, M. &

Palmqvist, S. (2004). Do Higher Wages Cause Inflation? Sveriges Riksbank Working Paper

Series 159. http://archive.riksbank.se/Upload/WorkingPapers/WP_159.pdf.

365

Pevena, E. V. and Rudd, J. B. (2015). “The Passthrough of Labor Costs to Price Inflation,”

Finance and Economics Discussion Series 2015-042. Washington: Board of Governors of the

Federal Reserve System. https://dx.doi.org/10.17016/FEDS.2015.042.

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from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

others to account for new labor costs and that the services provided by such employers could be

negatively affected. However, the Department believes the effect of the rule on public services

will be small. The Department acknowledges that some newly nonexempt employees who

currently work overtime providing public services may see a reduction in hours as an effect of

the rulemaking. But if the services are in demand, the Department believes additional workers

may be hired, as funding availability allows, to make up some of these hours, and productivity

increases may offset some reduction in services. In addition, the Department expects some

employers will adjust base wages downward to some degree so that even after paying the

overtime premium, overall pay and hours of work for many employees will be relatively

minimally impacted. Additionally, many nonprofits are noncovered enterprises because when

determining enterprise coverage only revenue derived from business operations, not charitable

activities, is included.

(f) Reduced Profits

Some commenters asserted that the rule would lead to decreased profits. See e.g., Quad

Cities Chamber of Commerce, ESEI, DT-Trak Consulting. The Department acknowledges that

the increased employer costs and transfer payments as a result of this rule may reduce the profits

of business firms, although (1) some firms may offset some of these costs and transfers by

making payroll adjustments, and (2) some firms may mitigate their reduced profits due to these

costs and transfers through increased prices. Because costs and transfers are, on average, small

relative to payroll revenues, the Department does not expect this rulemaking to have a significant

effect on profits.

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(g) Hiring Costs

To the extent that firms respond to this rule by reducing overtime hours, they may do so

by spreading hours to other workers, including current workers employed for fewer than 40

hours per week by that employer, current workers who remain exempt, and newly hired workers.

If new workers are hired to absorb these transferred hours, then the associated hiring costs would

be a cost of this rule. (However, new employees would likely only be hired if their wages,

onboarding costs, and training costs are less than the cost of overtime pay for the newly

nonexempt workers.) The Department does not know how many new employees would be hired

and thus did not estimate this cost.

(h) Hours-Related Worker Effects

Some employer representatives highlighted the possibility that some workers might work

more hours as a consequence of this rulemaking. For example, Construction Industry

Roundtable commented that employers responding to the increased salary level might “require

the remaining exempt employees to absorb some of the duties of the newly non-exempt

employees—which would be viewed as an unfair burden by the remaining exempt employees

who are at or near capacity already.” See also SIGMA (providing similar statements).

The Department acknowledges that for some affected workers, if their employers respond

to the rule by increasing their salary to keep their exemption status, the change may also be

accompanied by an increase in assigned hours. Additionally, some employers might respond to

this regulation by reducing the overtime hours of affected workers and transferring those hours to

other workers who remain exempt. The Department believes that while some workers may see an

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

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increase in hours, others may see their hours decline (discussed further in the Benefits section

below).

(i) Wage Compression

Some commenters contended that the update to the salary threshold in this rule would

lead to wage compression. For example, PPWO stated that the Department did not account for

this potential cost, stating, “Where employees below the proposed salary minimum have their

salaries raised to meet the new minimum, employees above the new minimum will likewise need

to have their salaries raised to account for the relative value of the work being performed.” See

also, e.g., Seyfarth Shaw.

However, as discussed in section VII.C.4.iii.f., the Department estimates that only 2.2

percent of affected workers will have their earnings increased to the updated salary level. Thus,

in the overwhelming majority of cases wage compression concerns should not arise. The

Department recognizes that there may be some cases in which employers that raise the pay of

affected employees to the new salary level will also choose to increase the earnings of more

highly paid employees to avoid wage compression, but the Department does not have data to

estimate this impact.

4. Transfers

i. Overview

Transfer payments occur when income is redistributed from one party to another. The

Department has quantified two transfers from employers to employees that will result from the

rule: (1) transfers to ensure compliance with the FLSA minimum wage provision; and (2)

transfers to ensure compliance with the FLSA overtime pay provision. Transfers in Year 1 due to

the minimum wage provision were estimated to be $87.5 million. The increase in the HCE

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compensation level does not affect minimum wage transfers because workers eligible for the

HCE exemption earn well above the minimum wage. The Department estimates that transfers

due to the applicability of the FLSA’s overtime pay provision will be $1.4 billion: $1.2 billion

from the increased standard salary level and $255.6 million from the increased HCE

compensation level. Total Year 1 transfers are estimated at $1.5 billion (Table 10).

Table 10: Total Annual Change in Earnings for Affected EAP Workers by Provision, Year 1

(Millions)

Provision Total

Standard

Salary Level

HCE

Compensation

Level

Total

$1,509.2 $1,253.6 $255.6

Minimum wage only

$87.5 $87.5 --

Overtime pay only [a]

$1,421.7 $1,166.1 $255.6

Because the overtime premium depends on the employee’s regular rate of pay, the

estimates of minimum wage transfers and overtime transfers are linked. This can be considered a

two-step approach. The Department first identified affected EAP workers with an implicit regular

hourly wage lower than the minimum wage, and then calculated the wage increase necessary to

reach the minimum wage. Then, the Department estimated overtime payments.

ii. Transfers Due to the Minimum Wage Provision

For this analysis, the hourly rate of pay was calculated as usual weekly earnings divided

by usual weekly hours worked. To earn less than the Federal or most state minimum wages, this

set of workers must work many hours per week. For example, a worker paid $684 per week must

work 94.3 hours per week to earn less than the Federal minimum wage of $7.25 per hour ($684 ÷

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$7.25 = 94.3).

366

The applicable minimum wage is the higher of the Federal minimum wage and

the state minimum wage as of January 1, 2023. Most affected EAP workers already receive at

least the minimum wage; only an estimated 0.5 percent (19,900 in total) earn an implicit hourly

rate of pay less than the Federal minimum wage. The Department estimated transfers due to

payment of the minimum wage by calculating the change in earnings if wages rose to the

minimum wage for workers who become nonexempt.

367

In response to an increase in the regular rate of pay to the minimum wage, employers

may reduce the workers’ hours. In theory, since the quantity of labor hours demanded is inversely

related to wages, a higher mandated wage would, all things being equal, result in fewer hours of

labor demanded. However, the weight of the empirical evidence finds that increases in the

minimum wage that are similar in magnitude to what would be caused by this regulatory

provision have caused little or no significant job loss.

368

Thus, in the case of this regulation, the

Department believes that any disemployment effect due to the minimum wage provision will be

negligible. This is partially due to the small number of workers affected by this provision.

366

The Federal minimum wage has not increased since 2009. Workers in states with minimum

wages higher than the Federal minimum wage could earn less than the state minimum wage

working fewer hours.

367

Because these workers’ hourly wages will be set at the minimum wage after this rule, their

employers will not be able to adjust their wages downward to offset part of the cost of paying the

overtime pay premium (which will be discussed in the following section). Therefore, these

workers will generally receive larger transfers attributed to the overtime pay provision than other

workers.

368

Wolfson, Paul J. and Belman, Dale, 15 Years of Research on U.S. Employment and the

Minimum Wage (December 10, 2016). Tuck School of Business Working Paper No. 2705499.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2705499. Dube, Arindrajit, Impacts of

Minimum Wages: Review of the International Evidence (November 2019).

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file

/844350/impacts_of_minimum_wages_review_of_the_international_evidence_Arindrajit_Dube_

web.pdf.

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According to the Wolfson and Belman (2016) meta-analysis cited above, the consensus range for

labor demand elasticity was -0.05 to -0.12. However for Year 1 of this analysis, the Department

estimated the potential disemployment effects (i.e., the estimated reduction in hours) of the

transfer attributed to the minimum wage by multiplying the percent change in the regular rate of

pay by a labor demand elasticity of −0.2 (years 2 – 10 use a long run elasticity of −0.4).

369, 370

The Department chose this labor demand elasticity because it was used in the 2019 final rule and

is consistent with the labor demand elasticity estimates used when estimating other transfers

further below.

At the new standard salary level, the Department estimated that 19,900 affected EAP

workers will, on average, see an hourly wage increase of $1.57, work 2.1 fewer hours per week

and receive an increase in weekly earnings of $84.73 as a result of coverage by the minimum

wage provisions (Table 11). The total change in weekly earnings due to the payment of the

minimum wage was estimated to be $1.7 million per week ($84.73 × 19,900) or $87.5 million in

Year 1.

Table 11: Minimum Wage Only: Mean Hourly Wages, Usual Weekly Hours and Weekly Earnings

for Affected EAP Workers, Year 1

Time Period

Hourly

Wage [a]

Usual

Weekly

Hours

Usual

Weekly

Earnings

Total

Weekly

Transfer

(1,000s)

Before rule

$12.85

65.8

$827.66

After rule

$14.42

63.6

$912.39

Change

$1.57

2.1

$84.73

$1,683

Note: Pooled data for 2021 – 2023 adjusted to reflect 2023.

369

Labor demand elasticity is the percentage change in labor hours demanded in response to a

one percent change in wages.

370

This elasticity estimate represents a short run demand elasticity for general labor, and is based

on the Department’s analysis of Lichter, A., Peichl, A. & Siegloch, A. (2014). The Own-Wage

Elasticity of Labor Demand: A Meta-Regression Analysis. IZA DP No. 7958.

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[a] The applicable minimum wage is the higher of the Federal minimum wage and the

state minimum wage.

iii. Transfers Due to the Overtime Pay Provision

(a) Introduction

The FLSA requires covered employers to pay an overtime premium to nonexempt

covered workers who work in excess of 40 hours per week. For workers who become

nonexempt, the rulemaking will result in a transfer of income to the affected workers, increasing

the marginal cost of labor, which employers may try to offset by adjusting the wages and/or

hours of affected workers. The size of the transfer will depend largely on how employers choose

to respond to the updated salary levels. Employers may respond by: (1) paying overtime

premiums to affected workers; (2) reducing overtime hours of affected workers and potentially

transferring some of these hours to other workers; (3) reducing the regular rate of pay for

affected workers working overtime (provided that the reduced rates still exceed the minimum

wage); (4) increasing affected workers’ salaries to the updated salary or compensation level to

preserve their exempt status; or (5) using some combination of these responses. How employers

will respond depends on many factors, including the relative costs of each of these alternatives.

In turn, the relative costs of each of these alternatives are a function of workers’ earnings and

hours worked.

(b) Literature on Employer Adjustments

Two conceptual models are useful for thinking about how employers may respond to

when certain employees become eligible for overtime: (1) the “fixed-wage” or “labor demand”

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model, and (2) the “fixed-job” or “employment contract” model.

371

These models make different

assumptions about the demand for overtime hours and the structure of the employment

agreement, which result in different implications for predicting employer responses.

The fixed-wage model assumes that the standard hourly wage is independent of the

statutory overtime premium. Under the fixed-wage model, a transition of workers from overtime

exempt to overtime nonexempt would cause a reduction in overtime hours for affected workers,

an increase in the prevalence of a 40-hour workweek among affected workers, and an increase in

the earnings of affected workers who continue to work overtime.

In contrast, the fixed-job model assumes that the standard hourly wage is affected by the

statutory overtime premium. Thus, employers can neutralize any transition of workers from

overtime exempt to overtime nonexempt by reducing the standard hourly wage of affected

workers so that their weekly earnings and hours worked are unchanged, except when minimum

wage laws prevent employers from lowering the standard hourly wage below the minimum

wage. Under the fixed-job model, a transition of workers from overtime exempt to overtime

nonexempt would have different effects on minimum-wage workers and above-minimum-wage

workers. Similar to the fixed-wage model, minimum-wage workers would experience a

reduction in overtime hours, an increase in the prevalence of a 40-hour workweek at a given

employer (though not necessarily overall), and an increase in earnings for the portion of

minimum-wage workers who continue to work overtime for a given employer. Unlike the fixed-

wage model, however, above-minimum-wage workers would experience no change.

371

See Trejo, S.J. (1991). The Effects of Overtime Pay Regulation on Worker Compensation.

American Economic Review, 81(4), 719–740, and Barkume, A. (2010). The Structure of Labor

Costs with Overtime Work in U.S. Jobs. Industrial and Labor Relations Review, 64(1), 128-142.

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The Department conducted a literature review to evaluate studies of how labor markets

adjust to a change in the requirement to pay overtime. These studies are generally supportive of

the fixed-job model of labor market adjustment, in that wages adjust to offset the requirement to

pay an overtime premium as predicted by the fixed-job model, but do not adjust enough to

completely offset the overtime premium as predicted by the model.

As in the 2016 and 2019 rules, the Department believes the two most important papers in

this literature are the studies by Trejo (1991) and Barkume (2010). Analyzing the economic

effects of the overtime pay provisions of the FLSA, Trejo (1991) found “the data analyzed here

suggest the wage adjustments occur to mitigate the purely demand-driven effects predicted by

the fixed-wage model, but these adjustments are not large enough to neutralize the overtime pay

regulations completely.” Trejo noted, “In accordance with the fixed job model, the overtime law

appears to have a greater impact on minimum-wage workers.” He also stated, “[T]he finding that

overtime-pay coverage status systematically influences the hours-of-work distribution for

nonminimum-wage workers is supportive of the fixed-wage model. No significant differences in

weekly earnings were discovered between the covered and non-covered sectors, which is

consistent with the fixed-job model.” However, “overtime pay compliance is higher for union

than for nonunion workers, a result that is more easily reconciled with the fixed wage model.”

Trejo’s findings are supportive of the fixed-wage model whose adjustment is incomplete largely

due to the minimum-wage requirement.

372

Trejo, S. J. (1991). The Effects of Overtime Pay Regulation on Worker Compensation.

American Economic Review, 81(4), 719-740.

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A second paper by Trejo (2003) took a different approach to testing the consistency of the

fixed-wage adjustment models with overtime coverage and data on hours worked.

373

In this

paper, he examined time-series data on employee hours by industry. After controlling for

underlying trends in hours worked over 20 years, he found changes in overtime coverage had no

impact on the prevalence of overtime hours worked. This result supports the fixed-job model.

Unlike the 1991 paper, however, he did not examine impacts of overtime coverage on

employees’ weekly or hourly earnings, so this finding in support of the fixed-job model only

analyzes one implication of the model.

Barkume (2010) built on the analytic method used in Trejo (1991).

374

However, Barkume

observed that Trejo did not account for “quasi-fixed” employment costs (e.g., benefits) that do

not vary with hours worked, and therefore affect employers’ decisions on overtime hours

worked. After incorporating these quasi-fixed costs in the model, Barkume found results

consistent with those of Trejo (1991): “though wage rates in otherwise similar jobs declined with

greater overtime hours, they were not enough to prevent the FLSA overtime provisions from

increasing labor costs.” Barkume also determined that the 1991 model did not account for

evidence that in the absence of regulation some employers may voluntarily pay workers some

overtime premium to entice them to work longer hours, to compensate workers for unexpected

changes in their schedules, or as a result of collective bargaining. Barkume found that how much

373

Trejo, S. J. (2003). Does the Statutory Overtime Premium Discourage Long Workweeks?

Industrial and Labor Relations Review, 56(3), 375-392.

374

Barkume, A. (2010). The Structure of Labor Costs with Overtime Work in U.S. Jobs.

Industrial and Labor Relations Review, 64(1), 128-142.

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wages and hours worked adjusted in response to the overtime pay requirement depended on what

overtime pay would be in absence of regulation.

In addition, Bell and Hart (2003) examined the standard hourly wage, average hourly

earnings (including overtime), the overtime premium, and overtime hours worked in Britain.

375

Unlike the United States, Britain does not have national labor laws regulating overtime

compensation. Bell and Hart found that after accounting for overtime, average hourly earnings

are generally uniform in an industry because firms paying below-market level straight-time

wages tend to pay above-market overtime premiums and firms paying above-market level

straight-time wages tend to pay below-market overtime premiums. Bell and Hart concluded “this

is consistent with a model in which workers and firms enter into an implicit contract that

specifies total hours at a constant, market-determined, hourly wage rate. Their research is also

consistent with studies showing that employers may pay overtime premiums either in the

absence of a regulatory mandate (e.g., Britain), or when the mandate exists but the requirements

are not met (e.g., United States).

376

On balance, consistent with its 2016 and 2019 rulemakings, the Department finds strong

support for the fixed-job model as the best approximation for the likely effects of a transition of

above-minimum-wage workers from overtime exempt to overtime nonexempt and the fixed-

wage model as the best approximation of the likely effects of a transition of minimum-wage

workers from overtime exempt to overtime nonexempt. In addition, the studies suggest that

375

Bell, D. N. F. and Hart, R. A. (2003). Wages, Hours, and Overtime Premia: Evidence from

the British Labor Market, Industrial and Labor Relations Review, 56(3), 470-480.

376

Hart, R. A. and Yue, M. (2000). Why Do Firms Pay an Overtime Premium? IZA Discussion

Paper No. 163.

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although observed wage adjustment patterns are consistent with the fixed-job model, this

evidence also suggests that the actual wage adjustment might, especially in the short run, be less

than 100 percent as predicted by the fixed-job model. Thus, the hybrid model used in this

analysis may be described as an incomplete fixed-job adjustment model.

To determine the magnitude of the adjustment, the Department accounted for the

following findings. Earlier research had demonstrated that in the absence of regulation some

employers may voluntarily pay workers some overtime premium to entice them to work longer

hours, to compensate workers for unexpected changes in their schedules, or as a result of

collective bargaining.

377

Barkume (2010) found that the measured adjustment of wages and hours

to overtime premium requirements depended on what overtime premium might be paid in

absence of any requirement to do so. Thus, when Barkume assumed that workers would receive

an average voluntary overtime pay premium of 28 percent in the absence of an overtime pay

regulation, which is the average overtime premium that Bell and Hart (2003) found British

employers paid in the absence of any overtime regulations, the straight-time hourly wage

adjusted downward by 80 percent of the amount that would occur with the fixed-job model.

378

When Barkume assumed workers would receive no voluntary overtime pay premium in the

absence of an overtime pay regulation, the results were more consistent with Trejo’s (1991)

findings that the adjustment was a smaller percentage. The Department modeled an adjustment

377

Barzel, Y. (1973). The Determination of Daily Hours and Wages. The Quarterly Journal of

Economics, 87(2), 220–238, demonstrated that modest fluctuations in labor demand could justify

substantial overtime premiums in the employment contract model. Hart, R. A. and Yue, M.

(2000). Why Do Firms Pay an Overtime Premium? IZA Discussion Paper No. 163, showed that

establishing an overtime premium in an employment contract can reduce inefficiencies.

378

Barkume, A. (2010). The Structure of Labor Costs with Overtime Work in U.S. Jobs.

Industrial and Labor Relations Review, 64(1), 128-142.

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process between these two findings. Although it seemed reasonable that some premium was paid

for overtime in the absence of regulation, Barkume’s assumption of a 28 percent initial overtime

premium is likely too high for the salaried workers potentially affected by a change in the salary

and compensation level requirements for the EAP exemptions because this assumption is based

on a study of workers in Britain. British workers were likely paid a larger voluntary overtime

premium than American workers because Britain did not have a required overtime pay regulation

and so collective bargaining played a larger role in implementing overtime pay.

379

In the sections

that follow, the Department uses a method between these two papers to model transfers.

Many commenters representing employer interests indicated that employers would

respond to the changes proposed in the NPRM by making a variety of adjustments to wages,

hours worked, or both. Some commenters responded with results from surveys of their

constituents. Although these surveys may be helpful as background information, they generally

cannot be used in a quantitative analysis due to issues such as insufficient or uncertain sample

sizes, missing sampling methodology, and missing magnitudes. For example, NAHB referenced

results from a survey of an unknown number of its members, asserting that 38 percent of

respondents indicated they would respond to the proposed increase in the salary level by

“[m]inimiz[ing] overtime hours.” The Department agrees that firms may reduce the hours of

some workers and has included this in the quantitative analysis below; however, the modeling

379

Bell, D. N. F. and Hart, R. A. (2003). Wages, Hours, and Overtime Premia: Evidence from

the British Labor Market, Industrial and Labor Relations Review, 56(3), 470-480.

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question is to what degree employers will adjust hours.

380

As discussed below, the Department

estimates that employers will reduce hours for Type 2B and Type 3 workers, which together

make up 21% of all affected workers. The Department’s model is based on worker-specific

adjustments and does not assume that a firm would respond the same way for all affected

workers that they employ. Moreover, such surveys were often sector-specific, making it difficult

to extrapolate economy-wide trends, because the distribution of affected workers varies across

sectors. Also, these surveys were often based not on actual economic responses, but rather on

expressions of intentions. See, e.g., AHLA; ANCOR; NAIS and NBOA; NDA.

Despite the inability to incorporate these survey results into the analysis, select results are

presented here. For instance, according to AHLA, of the members it surveyed, “70%

anticipat[ed] reclassifying workers, 60% anticipat[ed] reducing hours and career development

opportunities to reduce potential overtime costs, and 51% anticipat[ed] position consolidation.”

ANCOR found that “approximately 61 percent of [its constituents] would employ a mitigation

strategy of converting currently exempt salaried workers to hourly workers,” “[f]ifty-six percent .

. . would increase the salary of full-time exempt workers to meet the projected threshold,” “49

percent . . . would prohibit or significantly restrict” permitted overtime, and “33 percent

indicated the necessity of reducing salaried full-time employees.” NAIS and NBOA stated that

13 percent of schools that responded to its survey said they would “raise salaries of those exempt

380

Illustrating the limitations of commenter-provided surveys for this quantitative analysis, the

responses to NAHB’s survey have inconsistencies that make them hard to interpret. For example,

concerning the 2019 rule, NAHB reported that 94 percent of respondents stated that the rule’s

increase in the salary level to $35,568 did not affect anyone on their payroll. Nevertheless, of the

same respondents, 20% stated that they responded to the 2019 rule by minimizing overtime

hours and 18% stated that they raised salaries above the threshold.

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employees who do not meet the new threshold,” 27 percent said they would “convert employees

to non-exempt and limit hours where possible,” 11 percent said they would “convert employees

to non-exempt and pay overtime if hours worked are over 40 in a week” and “47% of schools

said they will enact some combination of the available options.” NAHB stated that, if the

proposed salary threshold were implemented, 38 percent of respondents reported they would

“[m]inimize overtime hours,” as noted above; 24 percent would “[r]aise salaries above the

threshold”; and 9 percent would “[r]educe salaries to compensate for overtime” (among other

changes). And NDA stated that 66 percent of respondents “said they would have to reclassify

exempt employees as hourly employees and restructure jobs if DOL raised the minimum salary

threshold” as proposed in the NPRM.

Regarding the transfer calculations in the NPRM, SBA Advocacy expressed concern

about the Department’s estimates that affected small business establishments would have, on

average, $360 to $2,683 in additional payroll costs in the first year of the proposed rule. SBA

Advocacy stated that “an Arkansas restaurant with four locations stated it would cost almost

$200,000 to increase manager salaries to make them compliant,” and that “small amusement

businesses reported estimated salary increases for their businesses” ranging from $57,000 to

$250,000. It also provided hypothetical examples of potential salary increases that restaurants in

two states would need to make to comply with the proposed rule based on various assumptions,

including different salaries and amounts of overtime performed. These anecdotal reports and

hypothetical examples do not have any information on the actual amount of overtime work being

performed by newly nonexempt workers at these businesses. The Department expects that

businesses that would be faced with large increases in payroll costs if they were to increase

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salaries to the new threshold would instead find other responses more economically beneficial,

such as limiting the number of overtime hours worked by workers who become nonexempt or

paying such workers the overtime premium for hours in excess of 40 per week. Furthermore, this

comment does not explain what methodological approach the Department should use to estimate

transfers; what error(s), if any, the Department made in its transfer estimate in its NPRM; or how

much the Department underestimated such transfers.

Some commenters indicated that employers may follow the fixed-job model rather than

the incomplete fixed-job model used by the Department in the NPRM. See, e.g., AFPI;

Americans for Prosperity. AFPI, for instance, stated that “[r]esearch shows employers primarily

respond to expanded overtime eligibility by reducing base earnings to reflect expected

overtime—leaving total earnings unchanged.” Americans for Prosperity similarly asserted that

“[o]ver time, the natural response of business enterprises of all types to the higher wage costs

occasioned by the proposed rule will be an adjustment in base pay and fringe benefits lower so

that total compensation (base pay, benefits, overtime) does not rise.”

381

The Oxford Economics report included with NRF’s comment pointed to a study by

Quach (2022),

382

which analyzed the effects of the rescinded 2016 rule and the 2019 rule, along

381

In support, AFPI and Americans for Prosperity both cited to reports regarding the NPRM for

the 2016 rule. See James Sherk, Salaried Overtime Requirements: Employers Will Offset Them

with Lower Pay, Heritage Foundation Backgrounder No. 3031, July 2, 2015.

https://thf_media.s3.amazonaws.com/2015/pdf/BG3031.pdf (cited by AFPI); Donald J.

Boudreaux & Liya Palagashvili, An Economic Analysis of Overtime Pay Regulations 17–21

(Apr. 2016), available at https://www.mercatus.org/hayekprogram/research/working-

papers/economic-analysis-overtime-pay-regulations (cited by Americans for Prosperity).

382

Simon Quach, The Labor Market Effects of Expanding Overtime Coverage. This is a working

paper that was published in both 2022 and 2024. The 2024 version can be found linked on Simon

Quach’s website:

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with the impact of state-level increases to the overtime exemption threshold. According to

Oxford Economics, “Quach finds evidence that overtime coverage decreases employment and

increases earnings polarization” and “strong evidence of employee reclassifications from salaried

to hourly status[.]” The Department notes that the revised 2024 version of the working paper did

not find that increasing overtime exemption thresholds decreases employment. In fact, when

summarizing his findings, he says, “I estimate that expansions in overtime coverage actually

have little effect on employment.” He also notes, “while the DOL accurately predicted that

average weekly earnings would rise, they calculated an income effect of only 0.7%, whereas I

show that earnings increased by nearly twice that amount for salaried workers.” While the

Department also reviewed the 2022 study, as discussed further below, it has not incorporated this

study into its analysis as it has multiple limitations, including a reliance on a non-representative

selection of employers, which makes it inappropriate as a model of aggregate effects across the

economy. The Oxford Economics report also claimed that the Department’s analysis in the

NPRM demonstrated “a tendency to assume that which workers are paid on a salaried basis is

determined by an exogenous occupational structure and to ignore the role that the DOL’s

overtime regulations themselves play in determining this.”

The Department’s review of the literature cited above supports a result between the fixed-

job model and the fixed-wage model and thus the results were modeled accordingly. Specifically,

the Department believes the incomplete fixed-job model is most appropriate and consistent with

https://raw.githubusercontent.com/SimonQuach1/Papers/main/Quach_OT.pdf?token=AH2DVM

EDLJGBAWFAVXXUNMDAYGGDQ. The Department believes that Oxford Economics was

citing to the 2022 version of the paper, which is Quach, S. (2022). The Labor Market Effects of

Expanding Overtime Coverage. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3608506.

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of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

the literature. Therefore, the analysis has not been changed. The Department further notes that its

estimates of transfers are informed by its projection that employers will respond to the final rule

in many ways. If, for example, an employer simply pays each affected employee the overtime

premium for each hour worked in excess of 40 hours per week, without making any adjustments

to wages, hours, or duties, such an approach would maximize transfers from employers to

employees. However, as discussed above, the Department believes that employers will respond

to the final rule by adjusting wages, hours, and duties to minimize the cost of the rule.

Accordingly, the actual amount of transfers will fall well short of the transfers that would result

if employers simply paid each affected employee overtime premiums without adjusting wages,

hours, or duties.

(d) Identifying Types of Affected Workers

The Department identified four types of workers whose work characteristics affect how it

modeled employers’ responses to the changes in both the standard salary level and HCE

compensation level:

 Type 1: Workers who do not work overtime.

 Type 2: Workers who do not regularly work overtime but occasionally work overtime.

 Type 3: Workers who regularly work overtime and become overtime eligible

(nonexempt).

 Type 4: Workers who regularly work overtime and remain exempt, because it is less

expensive for the employer to pay the updated salary level than to pay overtime and incur

additional managerial costs.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The Department began by identifying the number of workers in each type. After

modeling employer adjustments, it estimated transfer payments. Type 3 and Type 4 workers were

identified as those who regularly work overtime (CPS variable PEHRUSL1 greater than 40). To

distinguish Type 3 workers from Type 4 workers, the Department first estimated each worker’s

weekly earnings if they became nonexempt, to which it added weekly managerial costs for each

affected worker of $14.47 ($86.82 per hour × (10 minutes ÷ 60 minutes)).

383

Then, the

Department identified as Type 4 those workers whose expected nonexempt earnings plus weekly

managerial costs exceeds the updated standard salary level, and, conversely, as Type 3 those

whose expected nonexempt earnings plus weekly managerial costs are less than the new standard

salary. The Department assumed that firms will include incremental managerial costs in their

determination of whether to treat an affected employee as a Type 3 or Type 4 worker because

those costs are only incurred if the employee is a Type 3 worker.

Identifying Type 2 workers involved two steps. First, using CPS MORG data, the

Department identified those who do not usually work overtime but did work overtime in the

survey week (the week referred to in the CPS questionnaire, variable PEHRACT1 greater than

40). Next, the Department supplemented the CPS data with data from the Survey of Income and

Program Participation (SIPP) to look at likelihood of working some overtime during the year.

Based on 2021 data, the most recent available, the Department found that 31.3 percent of non-

hourly workers worked overtime at some point in a year. Therefore, the Department classified a

share of workers who reported they do not usually work overtime, and did not work overtime in

the reference week, as Type 2 workers such that a total of approximately 31.3 percent of affected

383

See section VII.C.3.iv (managerial costs).

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

workers were Type 2, 3, or 4. Type 2 workers are subdivided into Types 2A and 2B later in the

analysis (Table 12).

Table 12: Types of Affected Workers

Type of Worker Percent of Total

Type 1

69%

Type 2A

Type 2B

Type 3

13%

Type 4

Note: Pooled CPS data for 2021-2023 adjusted to reflect 2023.

*Type 1: Workers who do not work overtime and gain overtime protection.

*Type 2: Workers who work occasional overtime and gain overtime

protection.

 Type 2A: Those who work unexpected overtime hours.

 Type 2B: Those who work expected overtime.

*Type 3: Workers who work regular overtime and gain overtime protection.

*Type 4: Workers who work regular overtime and remain exempt (i.e.,

earnings increase to the updated salary or compensation level).

(e) Modeling Changes in Wages and Hours

The incomplete fixed-job model predicts that employers will adjust wages of regular

overtime workers but not to the full extent indicated by the fixed-job model, and thus some

employees will receive a small increase in weekly earnings due to overtime pay coverage. The

Department used the average of two estimates of the incomplete fixed-job model adjustments to

model impacts of this rule:

384

Both studies considered a population that included hourly workers. Evidence is not available

on how the adjustment towards the fixed-job model differs between salaried and hourly workers.

The fixed-job model may be more likely to hold for salaried workers than for hourly workers

since salaried workers directly observe their weekly total earnings, not their implicit equivalent

hourly wage. Thus, applying the partial adjustment to the fixed-job model as estimated by these

studies may overestimate the transfers from employers to salaried workers.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

 Trejo’s (1991) estimate that the overtime-induced wage change is 40 percent of the

adjustment toward the amount predicted by the fixed-job model, assuming an initial zero

overtime pay premium, and

 Barkume’s (2010) estimate that the wage change is 80 percent of the predicted

adjustment assuming an initial 28 percent overtime pay premium.

This is approximately equivalent to assuming that salaried overtime workers implicitly receive

the equivalent of a 14 percent overtime premium in the absence of regulation (the midpoint

between 0 and 28 percent).

Modeling changes in hourly wages, hours, and earnings for Type 1 and Type 4 workers

was relatively straightforward. Type 1 affected EAP workers will become overtime-eligible, but

because they do not work overtime, they will see no change in their wages, hours, or weekly

earnings. Type 4 workers will remain exempt because their earnings will be raised to at least the

updated EAP level (either the standard salary level or HCE compensation level). These workers’

earnings will increase by the difference between their current earnings and the amount necessary

to satisfy the new salary or compensation level. It is possible employers will increase these

workers’ hours in response to paying them a higher salary, but the Department did not have

enough information to model this potential change.

385

Modeling changes in wages, hours, and earnings for Type 2 and Type 3 workers was

more complex. The Department distinguished those who regularly work overtime (Type 3

385

Cherry, Monica, “Are Salaried Workers Compensated for Overtime Hours?” Journal of Labor

Research 25(3): 485–494, September 2004, found that exempt full-time salaried employees earn

more when they work more hours, but her results do not lend themselves to the quantification of

the effect on hours of an increase in earnings.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

workers) from those who occasionally work overtime (Type 2 workers) because employer

adjustment to the rule may differ accordingly. Employers are more likely to adjust hours worked

and wages for regular overtime workers because their hours are predictable. Conversely, in

response to a transient, perhaps unpredicted, shift in market demand for the good or service such

employers provide, employers are more likely to pay for occasional overtime rather than adjust

hours worked and pay.

The Department treated Type 2 affected workers in two ways due to the uncertainty of the

nature of these occasional overtime hours. The Department assumed that 50 percent of these

occasional overtime workers worked unexpected overtime hours (Type 2A) and the other 50

percent worked expected overtime (Type 2B). Workers were randomly assigned to these two

groups. Workers with expected occasional overtime hours were treated like Type 3 affected

workers (incomplete fixed-job model adjustments). Workers with unexpected occasional

overtime hours were assumed to receive a 50 percent pay premium for the overtime hours

worked and receive no change in base wage or hours (full overtime premium model).

386

When

modeling Type 2 workers’ hour and wage adjustments, the Department treated those identified as

Type 2 using the CPS data as representative of all Type 2 workers.

387

The Department estimated

employer adjustments and transfers assuming that the patterns observed in the CPS reference

386

The Department uses the term “full overtime premium” to describe the adjustment process as

modeled. The full overtime premium model is a special case of the general fixed-wage model in

that the Department assumes the demand for labor under these circumstances is completely

inelastic. That is, employers make no changes to employees’ hours in response to these

temporary, unanticipated changes in demand.

387

As explained in the previous section, to estimate the population of Type 2 workers, the

Department supplemented workers who report working overtime in the CPS reference week with

some workers who do not work overtime in the reference week to reflect the fact that different

workers work occasional overtime in different weeks.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

week are representative of an average week in the year. Thus, the Department assumes total

transfers for the year are equal to 52 times the transfers estimated for a representative week for

which the Department has CPS data. However, these transfers are spread over a larger group

including those who occasionally work overtime but did not do so in the CPS reference week.

388

Since employers will pay more for the same number of labor hours, for Type 2 and Type

3 EAP workers, the quantity of labor hours demanded by employers will decrease. The reduction

in hours is calculated using the elasticity of labor demand with respect to wages. The Department

used a short-term demand elasticity of −0.20 to estimate the percentage decrease in hours worked

in Year 1 and a long-term elasticity of −0.4 to estimate the percentage decrease in hours worked

in Years 2–10. These elasticity estimates are based on the Department’s analysis of Lichter et al.

(2014).

389,

390

Brown and Hamermesh (2019) estimated the elasticity of overtime hours for EAP-

exempt workers.

391

This estimate is based on a difference-in-differences in hours for two groups

388

If a different week was chosen as the survey week, then some of these workers would not

have worked overtime. However, because the data are representative of both the population and

all twelve months in a year, the Department believes the share of Type 2 workers identified in

the CPS data in the given week is representative of an average week in the year.

389

Lichter, A., Peichl, A. & Siegloch, A. (2014). The Own-Wage Elasticity of Labor Demand: A

Meta-Regression Analysis. IZA DP No. 7958.

390

Some researchers have estimated larger impacts on the number of overtime hours worked. For

example, Hamermesh and Trejo (2000) conclude the price elasticity of demand for overtime

hours is at least -0.5. The Department decided to use a general measure of elasticity applied to

the average change in wages since the increase in the overtime wage is somewhat offset by a

decrease in the non-overtime wage as indicated in the fixed-job model.

Hamermesh, D. and S. Trejo. (2000)). The Demand for Hours of Labor: Direct Evidence from

California. The Review of Economics and Statistics, 82(1), 38–47.

391

Brown, Charles C., and Daniel S. Hamermesh. (2019). “Wages and Hours Laws: What Do

We Know? What Can Be Done?” RSF: The Russell Sage Foundation Journal of the Social

Sciences 5(5): 68–87. DOI: 10.7758/RSF.2019.5.5.04.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

of workers between two time periods. However, some groups of workers are incorrectly defined,

so the Department has not used these estimates.

392

For Type 3 affected workers, and the 50 percent of Type 2 affected workers who worked

expected overtime, the Department estimated adjusted total hours worked after making wage

adjustments using the incomplete fixed-job model. To estimate adjusted hours worked, the

Department set the percent change in total hours worked equal to the percent change in average

wages multiplied by the wage elasticity of labor demand.

393

Figure 4 is a flow chart summarizing

the four types of affected EAP workers. Also shown are the effects on exempt status, weekly

earnings, and hours worked for each type of affected worker.

392

For example, the authors defined the “non-exempt 1987-1989” group as workers earning

above $223 but below $455 during this period. Because the salary level for the long test was

$155 or $170 and was $250 for the short test, see section VII.A.1 (Table 1), some of these

workers would be exempt.

393

In this equation, the only unknown is adjusted total hours worked. Since adjusted total hours

worked is in the denominator of the left side of the equation and is also in the numerator of the

right side of the equation, solving for adjusted total hours worked requires solving a quadratic

equation.

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OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Figure 4: Flow Chart of the Rule’s Effect on Earnings and Hours Worked

[a] Those who are exempt under the current EAP exemptions and will gain minimum wage and

overtime protection or receive a raise to the increased salary or compensation level.

[b] The Department used two methods to identify occasional overtime workers. The first

includes workers who report they usually work 40 hours or fewer per week (identified with

variable PEHRUSL1 in CPS MORG), but in the reference week worked more than 40 hours

(variable PEHRACT1 in CPS MORG). The second includes reclassifying some additional

workers who usually work 40 hours or fewer per week, and in the reference week worked 40

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hours or fewer, to match the proportion of workers measured in other data sets who work

overtime at any point in the year.

[c] The amount wages are adjusted downwards depends on whether the fixed-job model or the

fixed-wage model holds. The Department’s primary method uses a combination of the two.

Employers reduce the regular hourly wage rate somewhat in response to overtime pay

requirements, but the wage is not reduced enough to keep total compensation constant.

[d] Based on hourly wage and weekly hours it is more cost efficient for the employer to increase

the worker’s weekly salary to the updated salary level than to pay overtime pay.

[e] On average, the Department’s modeling of regulatory effects yields a result in which

employees’ overall weekly earnings will increase despite a small decrease in average hours

worked. In some limited cases, employers might decrease employees’ hours enough to cause

those employees’ weekly earnings to decrease.

[f] The Department assumed hours would not change; however, it is possible employers will

increase these workers’ hours in response to paying them a higher salary or to avoid paying

overtime premiums to newly nonexempt coworkers.

(f) Estimated Number of and Effects on Affected EAP Workers

The Department estimated the rule will affect 4.3 million workers (Table 13), of which

3.0 million are Type 1 workers (68.7 percent of all affected EAP workers), 704,000 were

estimated to be Type 2 workers (16.2 percent), 558,800 were Type 3 workers (12.9 percent), and

94,100 were estimated to be Type 4 workers (2.2 percent).

Table 13: Affected EAP Workers by Type (1,000s), Year 1

EAP Test Total

Overtime

(T1)

Occasional

Overtime

(T2)

Regular Overtime

Newly

Nonexempt

(T3)

Remain

Exempt

(T4)

Standard salary level 4,044.6 2,778.7 691.3 486.7 87.9

HCE compensation level 292.9 201.4 13.2 72.1 6.2

Total 4,337.5 2,980.2 704.4 558.8 94.1

Note: Pooled CPS data for 2021 – 2023 adjusted to reflect 2023.

*Type 1: Workers who do not work overtime and gain overtime protection.

*Type 2: Workers who work occasional overtime and gain overtime protection.

*Type 3: Workers who work regular overtime and gain overtime protection.

*Type 4: Workers who work regular overtime and remain exempt (i.e., earnings increase to the

updated salary level).

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

The rule will affect some affected workers’ hourly wages, hours, and weekly earnings.

Predicted changes in implicit wage rates are outlined in Table 14, changes in hours in Table 15,

and changes in weekly earnings in Table 16. How these will change depends on the type of

worker, but on average the Department projects that weekly earnings will be unchanged or

increase while hours worked will be unchanged or decrease.

Type 1 workers will have no change in wages, hours, or earnings due to the overtime pay

provision because these workers do not work overtime.

394

For Type 2A workers, the Department assumed employers will be unable to adjust the

hours or regular rate of pay for these occasional overtime workers whose overtime is irregularly

scheduled and unpredictable. These workers will receive a 50 percent premium on their regular

hourly wage for each hour worked in excess of 40 hours per week, and so average weekly

earnings would increase.

395

For Type 3 workers and Type 2B workers (the 50 percent of Type 2 workers who

regularly work occasional overtime, an estimated 969,100 workers), the Department used the

incomplete fixed-job model to estimate changes in the regular rate of pay. These workers will see

a decrease in their average regular hourly wage and a small decrease in hours. However, because

394

It is possible that these workers may experience an increase in hours and weekly earnings

because of transfers of hours from other newly nonexempt workers who do usually work

overtime. Due to the high level of uncertainty in employers’ responses regarding the transfer of

hours, the Department did not have credible evidence to support an estimation of the number of

hours transferred to other workers.

395

Type 2 workers will not see increases in regular earnings to the new salary or compensation

levels (as Type 4 workers do) even if their new earnings in this week exceed those new levels.

This is because the estimated new earnings only reflect their earnings in those weeks when

overtime is worked; their earnings in typical weeks when they do not work overtime do not

exceed the salary or compensation level.

Disclaimer: This final rule has been approved by the Office of Management and Budget’s Office

of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

these workers will receive a 50 percent premium on their regular hourly wage for each hour

worked in excess of 40 hours per week, their average weekly earnings will increase. The

reduction in hours is relatively small and is due to a decrease in labor demand from the increase

in the average hourly wage as predicted by the incomplete fixed-job model (Table 15).

Type 4 workers’ implicit hourly rates of pay and weekly earnings will increase to meet

the updated standard salary level or HCE annual compensation level. Type 4 workers’ hours may

increase to offset the additional earnings, but due to lack of data, the Department assumed hours

would not change.

Table 14: Average Regular Rate of Pay by Type of Affected EAP Worker, Year 1

Time Period Total

Overtime

(T1)

Occasional

Overtime

(T2)

Regular Overtime

Newly

Nonexempt

(T3)

Remain

Exempt

(T4)

Standard Salary Level

Before rule

$24.26

$25.23

$24.61

$18.85

$20.62

After rule

$24.14

$25.23

$24.49

$17.90

$21.21

Change ($)

$0.12

$0.00

$0.12

$0.95

$0.59

Change (%)

0.5%

0.0%

0.5%

5.0%

2.9%

HCE Compensation Level

Before rule

$57.97

$61.80

$59.78

$47.44

$52.13

After rule

$57.25

$61.80

$58.09

$44.74

$52.92

Change ($)

$0.72

$0.00

$1.69

$2.70

$0.78

Change (%)

1.2

0.0%

2.8

5.7%

1.5%

Note: Pooled CPS data for 2021 – 2023 adjusted to reflect 2023.

*Type 1: Workers who do not work overtime and gain overtime protection.

*Type 2: Workers who work occasional overtime and gain overtime protection.

*Type 3: Workers who work regular overtime and gain overtime protection.

*Type 4: Workers who work regular overtime and remain exempt (i.e., earnings increase to

the updated salary level).

Table 15: Average Weekly Hours by Type of Affected EAP Worker, Year 1

Time Period

Total

Regular OT

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of Information and Regulatory Affairs and has been submitted to the Office of the Federal

OFR and publication in the Federal Register. This version of the final rule may vary slightly

from the published document if minor technical or formatting changes are made during the OFR

review process. Only the version published in the Federal Register is the official version.

Overtime

Worked

(T1)

Occasional

OT (T2)

Newly

Nonexempt

(T3)

Remain

Exempt

(T4)

Standard Salary Level [a]

Before rule

41.0

38.9

40.7

50.4

54.7

After rule

40.9

38.9

40.7

50.0

54.7

Change (hours)

0.1

0.0

0.4

0.0

Change (%)

0.1%

0.0%

0.1%

0.8%

0.0%

HCE Compensation Level [a]

Before rule

42.7

39.

44.

50.

56.

After rule

42.6

39.

44.6

50.

56.

Change (hours)

0.1

0.0

0.1

0.3

0.0

Change (%)

0.2%

0.0%

0.3

0.0%

Note: Pooled CPS data for 2021 – 2023 adjusted to reflect 2023.

[a] Usual hours for Types 1, 3, and 4 but actual hours for Type 2 workers identified in the

CPS MORG.

*Type 1: Workers who do not work overtime and gain overtime protection.

*Type 2: Workers who work occasional overtime and gain overtime protection.

*Type 3: Workers who work regular overtime and gain overtime protection.

*Type 4: Workers who work regular overtime and remain exempt (i.e., earnings increase to

the updated salary level).

Table 16: Average Weekly Earnings by Type of Affected EAP Worker, Year 1

Time Period Total

Overtime

(T1)

Occasional

Overtime

(T2)

Regular Overtime

Newly

Nonexempt

(T3)

Remain Exempt

(T4)

Standard Salary Level [a]

Before rule

$947.71

$936.67

$982.87

$934.77

$1,091.89

After rule

$953.67

$936.67

$994.47

$961.31

$1,128.00

Change ($)

$5.96

$0.00

$11.60

$26.53

$36.11

Change (%)

0.6%

0.0%

1.2%

2.8%

3.3%

HCE Compensation Level [a]

Before rule

$2,397.46

$2,375.43

$2,683.04

$2,366.73

$2,864.13

After rule

$2,414.25

$2,375.43

$2,719.10

$2,424.68

$2,907.00

Change ($)

$16.79

$0.00

$36.06

$57.94

$42.87

Change (%)

0.7%

0.0%

1.3%

2.4%

1.5%

Note: Pooled CPS data for 2021 – 2023 adjusted to reflect 2023.

[a] The mean of the hourly wage multiplied by the mean of the hours does not necessarily

equal the mean of the weekly earnings because the product of two averages is not necessarily

equal to the average of the product.