62152 Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Proposed Rules 

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

2See, 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). 

3 In determining earnings percentiles in its part 

541 rulemakings since 2004, the Department has 

consistently looked at nonhourly earnings for fulltime workers from the Current Population Survey 

(CPS) Merged Outgoing Rotation Group (MORG) 

data collected by the Bureau of Labor Statistics 

(BLS). As explained in section VII.B.5, 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 

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: Notice of proposed rulemaking. 

SUMMARY: In this proposal, 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 proposed revisions include 

increasing 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)—$1,059 per week ($55,068 

annually for a full-year worker)—and 

increasing the highly compensated 

employee total annual compensation 

threshold to the annualized weekly 

earnings of the 85th percentile of fulltime salaried workers nationally 

($143,988). The Department is also 

proposing to add to the regulations an 

automatic updating mechanism that 

would allow for the timely and efficient 

updating of all the earnings thresholds. 

DATES: Interested persons are invited to 

submit written comments on this notice 

of proposed rulemaking (NPRM) on or 

before November 7, 2023. 

ADDRESSES: You may submit comments, 

identified by Regulatory Information 

Number (RIN) 1235–AA39, by either of 

the following methods: 

• Electronic Comments: Submit 

comments through the Federal 

eRulemaking Portal at https://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Address written submissions 

to: 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. 

Instructions: Response to this NPRM 

is voluntary. The Department requests 

that no business proprietary 

information, copyrighted information, 

or personally identifiable information be 

submitted in response to this NPRM. 

Commenters submitting file attachments 

on https://www.regulations.gov are 

advised that uploading text-recognized 

documents—i.e., documents in a native 

file format or documents which have 

undergone optical character recognition 

(OCR)—enable staff at the Department to 

more easily search and retrieve specific 

content included in your comment for 

consideration. 

Anyone who submits a comment 

(including duplicate comments) should 

understand and expect that the 

comment, including any personal 

information provided, will become a 

matter of public record and will be 

posted without change to https://

www.regulations.gov. The Department 

posts comments gathered and submitted 

by a third-party organization as a group 

under a single document ID number on 

https://www.regulations.gov. All 

comments must be received by 11:59 

p.m. ET on November 7, 2023, for 

consideration in this rulemaking; 

comments received after the comment 

period closes will not be considered. 

The Department strongly recommends 

that commenters submit their comments 

electronically via https://

www.regulations.gov to ensure timely 

receipt prior to the close of the comment 

period, as the Department continues to 

experience delays in the receipt of mail. 

Please submit only one copy of your 

comments by only one method. 

Docket: For access to the docket to 

read background documents or 

comments, go to the Federal 

eRulemaking Portal at https://

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Amy DeBisschop, 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.’’ 1 The 

exemption is commonly referred to as 

the ‘‘white-collar’’ or executive, 

administrative, or professional (EAP) 

exemption. The statute delegates to the 

Secretary of Labor (Secretary) the 

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.2 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 statute, the Department is 

proposing compensation thresholds that 

will work effectively with the standard 

duties test and the highly compensated 

employee duties test to better identify 

who is employed in a bona fide EAP 

capacity. Specifically, the Department is 

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 ($1,059 

per week or $55,068 annually for a fullyear worker) 3 and the highly 


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uses the terms salaried and nonhourly 

interchangeably in this proposal. The Department 

relied on CPS MORG data for calendar year 2022 

to develop this NPRM, including to determine the 

proposed salary level. In the final rule, the 

Department will use the most recent data available, 

which will change the dollar figures. For example, 

if after consideration of comments received, the 

final rule were to adopt the proposed salary level 

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

region (currently the South), in the fourth quarter 

of 2023 the Department projects that the salary 

threshold could be $1,140 per week or $59,285 for 

a full-year worker. To calculate this, the Department 

applied the Congressional Budget Office projections 

of the employment cost index for wages and salaries 

of workers in private industry growing by 4.5 

percent in 2023 to the 35th percentile of weekly 

earnings of full-time salaried workers in the South 

from the fourth quarter of 2022, which was $1,091 

per week or $56,732 for a full-year worker. As an 

additional example, in the first quarter of 2024, the 

Department projects that the salary threshold could 

be $1,158 per week or $60,209 for a full-year 

worker; the Department applied the 4.5 percent 

growth rate to the 35th percentile of weekly 

earnings of full-time salaried workers in the South 

from the first quarter of 2023, which was $1,108 per 

week or $57,616 for a full-year worker. 

4 69 FR 22121 (April 23, 2004). 

5 84 FR 51230 (Sept. 27, 2019). 

6 81 FR 32391 (May 23, 2016). 

7The 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). 

8See 84 FR 51243–45; 81 FR 32414, 32444–45; 69 

FR 22126–28. 

9 69 FR 22172. 

10 84 FR 51246. 

11See 69 FR 22173–74. 

12 Id. at 22174. 

compensated employee total annual 

compensation threshold at the 

annualized weekly earnings of the 85th 

percentile of full-time salaried workers 

nationally ($143,988). These proposed 

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 over 80 

years. 

The proposed 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 4 and 2019,5 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 2016,6 that 

restored overtime protection to lowerpaid white-collar workers who 

performed significant amounts of 

nonexempt work but also removed from 

the exemption other lower-paid workers 

who historically were exempt under the 

prior test, an approach that received 

unfavorable treatment in litigation.7

Having grappled with these different 

approaches to setting the standard 

salary level, this proposal retains the 

simplified standard test, the benefits of 

which were recognized in the 

Department’s 2004, 2016 and 2019 

rulemakings,8 while updating the 

standard salary level to account for 

earnings growth since the 2019 rule and 

adjusting the salary level methodology 

based on the lessons learned in recent 

rulemakings. 

The Department’s proposed 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 

proposal would ensure that, consistent 

with the Department’s historical 

approach to the exemption, fewer lowerpaid 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 the methodology 

used in 2016, the proposal would allow 

employers to continue to use the 

exemption for many lower-paid whitecollar employees who were made 

exempt under the 2004 standard duties 

test. The combined effect would be a 

more effective test for determining who 

is employed in a bona fide EAP 

capacity. 

The Department is also proposing to 

increase the salary levels in the U.S 

territories, which have not been 

changed since 2004. Traditionally, the 

Department has set special salary levels 

only for territories that were not subject 

to the Federal minimum wage. In the 

2004 rule, the Department 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, and set a 

special salary level only for American 

Samoa, which remained not subject to 

the Federal minimum wage.9 In the 

2019 rule, however, the Department 

elected to preserve the salary level set 

in 2004 ($455 per week) for employees 

in Puerto Rico, Guam, the U.S. Virgin 

Islands, and the Commonwealth of the 

Northern Mariana Islands (CNMI) 

instead of applying the new standard 

salary level of $684 per week that 

applied to employees in the 50 states 

and the District of Columbia.10 In doing 

so, the Department for the first time set 

a special salary level for employees in 

territories that were subject to the 

Federal minimum wage. In accordance 

with the Department’s traditional 

practice, and in the interest of applying 

the FLSA uniformly to areas subject to 

the Federal minimum wage, the 

Department is proposing to apply the 

standard salary level to employees in all 

territories that are subject to the Federal 

minimum wage and to maintain a 

special salary level only for employees 

in American Samoa, because that 

territory remains subject to special 

minimum wage rates. The Department is 

also proposing to update the special 

base rate for employees in the motion 

picture industry. 

The Department is also proposing to 

update 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.11 In this 

rulemaking, the Department is 

proposing to increase the HCE total 

annual compensation threshold to the 

annualized weekly earnings amount of 

the 85th percentile of full-time salaried 

workers nationally ($143,988). The 

proposed HCE threshold is high enough 

to exclude employees who are not ‘‘at 

the very top of [the] economic ladder’’ 12

and would guard against the unintended 

exemption of workers who are not bona 

fide EAP employees, including those in 

high-income regions and industries. 

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 differentiate 

between exempt and nonexempt 

employees. As the Department observed 

in these rulemakings, even a wellcalibrated salary level that is not kept 

up to date becomes obsolete as wages 

for nonexempt workers increase over 


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13 84 FR 51250–51; 81 FR 32430; see also 69 FR 

22212, 22164. 

14 69 FR 22171; 84 FR 51251–52. 

15 81 FR 32430. 

16See 29 U.S.C. 206(a), 207(a). 17See 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.’’). 18See Betterton v. Francis, 432 U.S. 416, 425 n.9 

(1977). 19See Fair Labor Standards Act of 1938, Public 

Law 75–718, 13(a)(1), 52 Stat. 1060, 1067 (June 25, 

1938). 20See National Industrial Recovery Act, Public 

Law 73–67, ch. 90, title II, 206(2), 48 Stat 195, 204– 

5 (June 16, 1933). 

21See Report of the Minimum Wage Study 

Commission, Volume IV, pp. 236 and 240 (June 

1981). 

22See id. 

23See 29 U.S.C. 218(a). 

24 3 FR 2518 (Oct. 20, 1938). 

time.13 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.14 In the 2016 

rule, it included a regulatory provision 

to automatically update the salary 

levels.15 Based on its long experience 

with updating the salary levels, the 

Department has determined that 

adopting a regulatory provision for 

automatically 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. The 

proposed automatic updating 

mechanism would allow for the timely, 

predictable, and efficient updating of 

the earnings thresholds. 

The Department estimates that in Year 

1, 3.4 million currently exempt 

employees who earn at least the current 

salary level of $684 per week but less 

than the proposed standard salary level 

of $1,059 per week would, absent the 

employer paying them at or above the 

new salary level, gain overtime 

protection. For more than half of these 

employees, this proposal would restore 

overtime protections that the employees 

would have been entitled to under every 

rule prior to the 2019 rule. The 

Department also estimates that 248,900 

employees who are currently exempt 

under the HCE test would be affected by 

the proposed increase in the HCE total 

annual compensation level. Absent the 

employer paying these employees at or 

above the new HCE level, the exemption 

status of these employees would 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 of the 

proposed rule quantifies the direct costs 

resulting from the 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 would be $664 million 

with a 7 percent discount rate. This 

rulemaking will also give employees 

higher earnings in the form of transfers 

of income from employers to employees. 

The Department estimates annualized 

transfers would be $1.3 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 one and onehalf times the regular rate of pay for all 

hours worked over 40 in a workweek.16

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 Procedures Act] . . .).’’ 

The FLSA does not define the terms 

‘‘executive,’’ ‘‘administrative,’’ 

‘‘professional,’’ or ‘‘outside salesman,’’ 

but rather delegates that task to the 

Secretary. 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.17 Because Congress 

explicitly delegated to the Secretary the 

authority to define and delimit the 

specific terms of the exemption, the 

regulations so issued have the binding 

effect of law.18

The exemption for executive, 

administrative, or professional 

employees (EAP exemption) was 

included in the original FLSA 

legislation passed in 1938.19 It was 

modeled after similar provisions 

contained in the earlier National 

Industrial Recovery Act of 1933 (NIRA) 

and state law precedents.20 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.21 Second, exempted 

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.22

Although section 13(a)(1) exempts 

covered employees from both the 

FLSA’s minimum wage and overtime 

requirements, its most significant 

impact is its removal of these employees 

from the Act’s overtime protections. An 

employer may employ such employees 

for any number of hours in the 

workweek without paying the minimum 

hourly wage or an overtime premium. 

Some state laws have stricter exemption 

standards than those described above. 

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.23

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 three tests to 

be met 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 issued the first 

version of the part 541 regulations in 

October 1938.24 The Department’s 

initial regulations included a $30 per 


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25 Id. 

26 5 FR 4077 (Oct. 15, 1940). 

27See ‘‘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). 

28 5 FR 4077. 

29See 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). 

30See 14 FR 7705 (Dec. 24, 1949). 

31 Id. at 7706. 

32 19 FR 4405 (July 17, 1954). 33 23 FR 8962 (Nov. 18, 1958). 34 26 FR 8635 (Sept. 15, 1961). 35 28 FR 9505 (Aug. 30, 1963). 36 32 FR 7823 (May 30, 1967). 37 35 FR 883 (Jan. 22, 1970). 38 38 FR 11390 (May 7, 1973). 39 40 FR 7091 (Feb. 19, 1975). 40The 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 Public Law 101–583, 

sec. 2, 104 Stat. 2871 (Nov. 15, 1990). 

41 40 FR 7091. 

42See Public Law 101–157, sec. 2, 103 Stat. 938 

(Nov. 17, 1989). 

43See Public Law 104–188, sec. 2104(b), 110 Stat 

1755 (Aug. 20, 1996). 

44 69 FR 22122. 

45See id. at 22192–93 (acknowledging ‘‘de 

minimis differences in the standard duties tests 

compared to the short duties tests’’). 

46See id. at 22126–28. 

47 Id. at 22167. 

48 Id. at 22126. 

week compensation requirement for 

executive and administrative 

employees, as well as a duties test that 

prohibited employers from using the 

exemption for executive, administrative, 

and professional employees who 

performed ‘‘[a] substantial amount of 

work of the same nature as that 

performed by nonexempt employees of 

the employer.’’ 25

The Department issued the first 

update to its part 541 regulations in 

October 1940,26 following extensive 

public hearings.27 Among other 

changes, the 1940 update added the 

salary basis requirement to the tests for 

executive, administrative, and 

professional employees; newly applied 

the salary level requirement to 

professional employees; and introduced 

a 20 percent cap on nonexempt work for 

executive and professional employees, 

replacing language which prohibited the 

performance of a ‘‘substantial amount’’ 

of nonexempt work.28

The Department conducted further 

hearings on the part 541 regulations in 

1947,29 and issued revised regulations 

in December 1949.30 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.31 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 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 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 employees were, in fact, 

employed in a bona fide 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 1954,32 1958,33 1961,34 1963,35

1967,36 1970,37 1973,38 and 1975.39 The 

Department revised the part 541 

regulations twice in 1992 but did not 

update the salary threshold at that 

time.40 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 

earnings] by the Bureau of Labor 

Statistics . . . in 1975.’’ 41 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,42

which for a 40-hour week 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,43 which for a 40-hour week 

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 issued a final rule in 

April 2004 (the 2004 rule) 44 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 fulltime salaried workers in the lowestwage 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.45

In the 2004 rule, the Department 

acknowledged that the switch from a 

two-test system to a one-test system was 

a significant change in the regulatory 

structure,46 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.’’ 47 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.’’ 48 The Department 

acknowledged, however, that the new 

standard salary level was comparable to 

the 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 


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49 Id. at 22169. The Department last set the long 

and short test salary levels in 1975. Throughout this 

proposal, when the Department refers to the 

relationship of salary levels set in 2004, 2016, and 

2019 to equivalent long or short test salary levels, 

it is referring to salary levels based on current (at 

the relevant point in time) data that, in the case of 

the long test salary level, would exclude the lowestpaid 10 percent of exempt EAP employees in lowwage 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. 

50 69 FR 22169. 

51See id. (Table 3). 

52 Id. at 22172. 

53 Id. at 22171. 

54 81 FR 32550. 

55 Id. 

56 Id. at 32551. 

57See id. 

58See id. at 32550–51 (§ 541.602(a)(3)). 

59 Id. at 32405 (noting the historical range of short 

test salary levels was $889 to $1,231 based on an 

application of the short test methodology to 

contemporaneous data). 

60 Id. at 32444. 

61See Nevada v. U.S. Department of Labor, 218 

F. Supp. 3d 520 (E.D. Tex. 2016). 

62See Nevada, 275 F.Supp.3d 795 (E.D. Tex. 

2017). 

63See 84 FR 10900 (Mar. 22, 2019). 

64See 84 FR 51230. 

65The 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. 84 FR 51246. 

66See id. at 51241–43. 

67See id. at 51242. 

68 Id. at 51244. 

69 Id. at 51251. 

70See id. at 51251–52. 

71A lawsuit challenging the 2019 rule was filed 

in August 2022 and, at the time this proposal was 

drafted, remains pending in the U.S. District Court 

for the Western District of Texas. Mayfield v. U.S. 

Department of Labor, Case No. 1:22–cv–00792. 

data).49 Thus, employees who would 

have been subject to the more rigorous 

long duties test 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 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 

substantial amounts of 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 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.50 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.51 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.52 The 

Department expressed its intent ‘‘in the 

future to update the salary levels on a 

more regular basis, as it did prior to 

1975.’’ 53

In May 2016, the Department issued 

a final rule (the 2016 rule) that retained 

the single test system and the standard 

duties test but increased the standard 

salary level and provided for regular 

updating. The 2016 rule (1) increased 

the standard salary level from the 2004 

salary 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); 54 (2) increased the HCE test 

total annual compensation amount from 

$100,000 to $134,004 per year; 55 (3) 

increased the special salary level for 

EAP workers in American Samoa; 56 (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; 57

and (5) added a mechanism to 

automatically update the part 541 

earnings thresholds every 3 years.58 The 

standard salary level was set at the low 

end of the historical range of short test 

salary levels used in the pre-2004 twotest system.59 The 2016 rule did not 

change any of the standard duties test 

criteria.60 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.61 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.62 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 hold that appeal 

in abeyance while the Department of 

Labor undertook further rulemaking. 

Following an NPRM published on 

March 22, 2019,63 the Department 

published a final rule on September 27, 

2019 (the 2019 rule),64 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 20th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region (the South) and in 

the retail industry nationally; (2) 

increased the HCE total annual 

compensation threshold from $100,000 

to $107,432; (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.65

The 2019 rule did not make changes to 

the standard duties test.66 While 

utilizing 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.67 The Department acknowledged 

that the new salary level was below the 

long test salary level used in the pre2004 two-test system.68 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.’’ 69 The Department noted 

that large gaps between rulemakings did 

not serve employer or employee 

interests and diminished the usefulness 

of the salary level test, and that regular 

increases promoted predictable and 

incremental change.70 The 2019 rule 

took effect on January 1, 2020.71

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 


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72See, e.g., Idaho Sheet Metal, 383 U.S. at 209; 

Walling, 330 U.S. at 547–48. 

73For 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). 

74Alternatively, 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. 

75See §§ 541.303(d); 541.304(d); 541.500(c); 

541.600(e). Such employees are also not subject to 

a fee basis test. 

76See § 541.600(c) and (d). 

77See §§ 541.600(a); 541.601(a)(1). 

78See §§ 541.100; 541.200; 541.300. 

79See id. 

80See § 541.709. 

81 § 541.602(a)(3). 

82 § 541.601. 

83 § 541.601(d). 

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

85Stein Report at 19. 

86 Id.; see also 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.’’). 

87See 84 FR 51237; Weiss Report at 8. 

88Report and Recommendations on Proposed 

Revision of Regulations, Part 541, Under the Fair 

Labor Standards Act, by Harry S. Kantor, Assistant 

Administrator, Office of Regulations and Research, 

Wage and Hour and Public Contracts Divisions, 

U.S. Department of Labor (Mar. 3, 1958) (Kantor 

Report) at 2–3; 69 FR 22165; 84 FR 51280. 

89See 84 FR 51237. 

90See, e.g., Kantor Report at 5. 

91Weiss Report at 9. 

92 84 FR 51235; see also Stein Report at 5, 19; 

Weiss Report at 9. 

sections 13(a)(1) and 13(a)(17). The 

employer bears the burden of 

establishing the applicability of any 

exemption from the FLSA’s pay 

requirements.72 Job titles and job 

descriptions do not determine 

exemption status, nor does merely 

paying an employee a salary rather than 

an hourly rate. 

To satisfy the EAP exemption, 

employees must meet certain tests 

regarding their job duties 73 and 

generally must be paid on a salary basis 

at least the amount specified in the 

regulations.74 Some employees, such as 

doctors, lawyers, teachers, and outside 

sales employees, are not subject to 

salary tests.75 Others, such as academic 

administrative personnel and computer 

employees, are subject to special, 

contingent earning thresholds.76 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 $107,432.77 A 

special salary level of $455 per week 

applies to employees in Puerto Rico, 

Guam, the U.S. Virgin Islands, and the 

CNMI; 78 a special salary level of $380 

per week applies to employees in 

American Samoa; 79 and employers can 

pay a special weekly ‘‘base rate’’ of 

$1,043 per week to employees in the 

motion picture producing industry.80

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.81

Under the HCE test, employees who 

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, 

administrative, or professional 

employee identified in the standard 

tests for exemption.82 The HCE test 

applies only to employees whose 

primary duty includes performing office 

or non-manual work.83 Employees 

qualifying for exemption under the HCE 

test must 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.84

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 this end, the Department 

is proposing to make appropriate 

increases to the standard salary level 

and the HCE test’s total annual 

compensation requirement, apply the 

standard salary level to territories 

subject to the Federal minimum wage, 

and update the special salary levels for 

American Samoa and the motion picture 

industry. The Department is also 

proposing to maintain the effectiveness 

of these earnings thresholds by adding 

a provision to automatically update the 

standard salary level and the HCE 

annual compensation threshold every 3 

years with current wage data (which 

would also have the effect of updating 

the levels in American Samoa and for 

the motion picture industry). The 

updating mechanism would also 

temporarily delay a scheduled 

automatic update if, and while, the 

Department engages in notice-andcomment rulemaking to change the 

salary level methodology and/or the 

updating mechanism. 

The part 541 regulations have always 

included salary requirements. From the 

beginning, 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.’’ 85 Because 

EAP employees ‘‘are denied the 

protection of the Act,’’ they are 

‘‘assumed [to] enjoy compensatory 

privileges’’ which distinguish them 

from nonexempt employees, including 

substantially higher pay.86 The 

Department has long recognized that the 

salary level test is a useful criterion for 

identifying bona fide EAP employees 

and providing a practical guide for 

employers and employees, thus tending 

to reduce litigation and ensuring 

nonexempt employees receive the 

overtime protection to which they are 

entitled.87 The salary level test also 

facilitates application of the exemption 

by saving employees and employers 

from having to apply the more timeconsuming duties analysis to a large 

group of employees who do not meet 

the duties test.88 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.89 However, the Department 

has always recognized that any salary 

level will result in some employees who 

meet the duties test but do not earn 

enough to meet the salary level test, and 

thus are nonexempt and therefore 

eligible for overtime by virtue of their 

pay.90 This is simply a feature of a 

salary level test; it does not undermine 

the efficacy of the salary level test but 

instead is taken into account in 

determining where the salary level is 

set. 

The Department continues to believe 

that the amount paid to an employee is 

important evidence that they are 

employed in a bona fide EAP capacity, 

and that the salary level test ‘‘is a vital 

element in the regulations.’’ 91 The 

salary level test benefits 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.92

The Department’s authority to set a 

salary level is not without limits, and 

the salary test’s role in defining and 

delimiting the scope of the EAP 

exemption must allow for additional 

examination of employee duties for 

employees whose salary exceeds the 


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93 84 FR 51238 (noting salary’s ‘‘useful, but 

limited, role’’). 

94 During the period from 1949 to 2004, 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. The simple average 

of the 15 historical ratios of the short test salary 

level to the long test salary level is 149 and the 

Department calculates the short test salary level as 

149 percent of the long test salary level. See id. at 

32467 & n.149. 

95This number does not include the additional 

8.1 million workers employed in occupations that 

are not subject to the salary level test, such as 

doctors, lawyers, and teachers. Such employees are 

unaffected by this rulemaking because their 

exemption status is always determined by the 

duties test. 

96See 69 FR 22168. 97See id. at 22168–69. 98 Id. at 22214. 99See 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). 

100 81 FR 32405. 

101See 84 FR 10908; 84 FR 51242. 

102See Nevada, 275 F.Supp.3d. at 806. 

salary level.93 Examination of duties for 

such employees is necessary in part 

because the salaries earned by 

employees who do and do not perform 

exempt job duties overlap. As explained 

in greater detail below, the proposed 

standard salary level set at the 35th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region ($1,059 per week, 

$55,068 annually) would, in 

combination with the standard duties 

test, better identify which employees are 

employed in a bona fide EAP capacity 

in a one-test system. By setting a salary 

level above what would currently be the 

equivalent of the long test salary level 

($925 per week), the proposal would 

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 testequivalent) salary level and ensure 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. At the same 

time, by setting the standard salary level 

well below what would currently be the 

equivalent of the short test salary level 

($1,378 per week),94 the proposal would 

address the concerns that have been 

raised about excluding from the EAP 

exemption too many white-collar 

employees solely based on their salary 

level. As discussed in section IV.A.4 

below, the duties test would continue to 

determine exemption status for almost 

three-quarters of all salaried whitecollar employees subject to the part 541 

regulations, allowing employers to 

continue to use the exemption for 24.5 

million salaried white-collar workers 

who earn at least the proposed salary 

level and meet the standard duties 

test.95 The proposed salary level would 

also 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. 

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 single standard 

salary level. In 2004, the Department set 

the new standard 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 ($455 per week).96

This approach produced a salary level 

amount that was equivalent to the lower 

long test salary level under the two-test 

system.97 Because it was equivalent to 

the long test salary level, employees 

who historically earned less than the 

long test salary level continued to be 

entitled to overtime compensation 

because they earned below the new 

standard salary level. However, because 

the new standard duties test was 

substantially equivalent to the less 

rigorous short duties test,98 employees 

who were paid the equivalent of the 

lower long test salary level and who met 

the less rigorous short duties test also 

now met the standard duties test and 

were not entitled to overtime 

compensation. This approach 

broadened the EAP exemption because 

all employees between the long and 

short test salary levels who historically 

had not been considered bona fide EAP 

employees because they did not meet 

the long duties test became exempt. The 

Department followed this same 

methodology to set the standard salary 

level in 2019, although applying the 

2004 rule’s methodology resulted in a 

salary level that was a lower amount 

than what would have been the 

equivalent of the long test salary level.99

This broadened the EAP exemption 

even further by, for the first time, setting 

a salary level that exempted a group of 

white-collar employees earning below 

the equivalent of the long test salary 

level (based on contemporaneous data). 

Both the 2004 and 2019 rules thus 

effectively placed the impact of the shift 

from a two-test to a one-test system on 

lower-salaried white-collar employees— 

both those who earned below the short 

test salary level and were traditionally 

protected by the more rigorous long 

duties test (i.e., because they performed 

substantial amounts of nonexempt 

work), and, in the case of the 2019 rule, 

those who had previously been 

protected by a salary level set at or 

equivalent to the long test salary. 

To address the concern that the 2004 

rule did not provide overtime 

compensation for lower-salaried whitecollar employees performing large 

amounts of nonexempt work who 

historically were not considered bona 

fide EAP employees, 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), 

which produced a salary level that was 

at the low end of the historical range of 

short test salary levels.100 This approach 

restored overtime protection to whitecollar employees who perform 

substantial amounts of nonexempt work 

and earned between the equivalent of 

the long test salary level and the short 

test salary level. However, this approach 

also made nonexempt some employees 

who had previously met the long duties 

test—employees who earned between 

the long test salary level and the low 

end of the short test salary range and 

performed only a limited amount of 

nonexempt work. Until 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, the 

impact of the 2016 rule was that 

employers could not use the exemption 

for certain white-collar employees who 

earned between the long and short test 

salary levels and would have met the 

more rigorous long duties test.101 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.102

Having grappled with the different 

approaches that it has used to set the 

standard salary level since switching to 

a one-test system in 2004, 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, 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 the 

statute, the Department is proposing a 

standard salary level test that would 

work effectively with the standard 

duties test to help achieve these 

objectives and would also reasonably 

distribute the impact of the switch to a 

one-test system across white-collar 


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103See 84 FR 51242. 

104See section IV.A.3. 

105See section VII.C.5 (applying CPS MORG data 

from calendar year 2022). 

106See 69 FR 22169 (Table 3). 

107 Id. at 22174. 

108See id. at 22172. 

109See 84 FR 51246. 

110 69 FR 22171. 

111 84 FR 51251–52. 

employees earning between the long 

and short test salary levels and their 

employers. In 2004 and 2019, setting the 

salary level equivalent to or below the 

lower long test salary level resulted in 

the exemption of lower-salaried 

employees who perform large amounts 

of nonexempt work, in effect 

significantly broadening the exemption 

compared to under the two-test system. 

This approach included in the 

exemption lower-salaried employees 

whom the Department had long 

considered not to be employed in a bona 

fide EAP capacity because they 

performed substantial amounts of 

nonexempt work. Under the 2016 

approach, setting the salary level 

equivalent to the low end of the higher 

short test salary range 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 

levels. However, it also would have 

resulted in denying employers the use 

of the exemption for many lowersalaried employees who traditionally 

were exempt under the long test, which 

raised concerns that the Department was 

in effect narrowing the exemption 

compared to the two-test system.103 In 

this rulemaking, the Department 

proposes setting a standard salary level 

that would better define and delimit the 

EAP exemption by more effectively 

accounting for the switch from a twotest to a one-test system, and 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.104

In addition, consistent with its 

previously stated intent, the Department 

is undertaking this rulemaking to keep 

the earnings thresholds up to date. Four 

years have passed since the 2019 rule, 

during which time salaried workers in 

the U.S. economy have experienced a 

rapid growth in their nominal wages, 

which lessens the effectiveness of the 

current salary level threshold. 

Reapplying the same methodology that 

was used to set the standard salary level 

in 2019 to recent earnings data would 

result in a new threshold of $822 per 

week—a 20.2 percent increase over the 

current $684 per week standard salary 

level.105 Applying the long test salary 

methodology to current data would 

result in a salary threshold of $925 per 

week—a 35.2 percent increase over the 

current salary level. 

The Department is also proposing to 

increase the HCE total annual 

compensation threshold to the 

annualized weekly earnings amount of 

the 85th percentile of full-time salaried 

workers nationally ($143,988). 

Reapplying the 2019 methodology 

(annualized weekly earnings of the 80th 

percentile of full-time salaried workers 

nationally) to current earnings data 

results in a threshold of $125,268 per 

year—a 16.6 percent increase over the 

current threshold of $107,432. Other 

data further supports that the HCE test’s 

current total annual compensation 

requirement has become outdated. 

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.106 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. Today, however, 

the $107,432 HCE threshold is 

approximately the 72nd percentile of 

annual earnings of full-time salaried 

workers nationwide. The Department’s 

proposed increase from the 80th to the 

85th percentile is high enough to 

exclude employees who are not ‘‘at the 

very top of [the] economic ladder’’ 107

and would ensure that this test for 

exemption continues to serve its 

intended function. 

The salary levels applicable to the 

U.S. territories have not increased since 

2004. In 2004, the Department ended 

the use of special salary levels in 

territories that had become subject to 

the Federal minimum wage since the 

salary levels were last set in 1975, and 

applied a special salary level of $380 

per week only to employees in 

American Samoa, who were subject to 

special minimum wage rates below the 

Federal minimum wage.108 In 2019, 

however, the Department established a 

special salary level of $455 per week for 

employees in Puerto Rico, Guam, the 

U.S. Virgin Islands, and the CNMI, for 

the first time setting a special salary 

level in territories that were subject to 

the Federal minimum wage.109 The 

Department also maintained the special 

salary level for American Samoa at $380 

per week, the level set in 2004. There 

is thus a compelling need to increase 

the salary levels applicable to 

employees in U.S. territories, 

particularly employees in those 

territories that are subject to the Federal 

minimum wage. 

Finally, the Department proposes to 

adopt a mechanism to automatically 

update the earnings thresholds in the 

part 541 regulations in future years. In 

its three most recent part 541 

rulemakings, the Department has 

expressed its commitment to keeping 

the salary level tests up to date. In its 

2004 rule, the Department conveyed its 

intent ‘‘in the future to update the salary 

levels on a more regular basis.’’ 110 In its 

2016 rule, the Department adopted a 

mechanism to automatically update the 

salary level on a triennial basis. In 2019, 

after initially proposing to codify its 

commitment to updating the threshold 

every 4 years through rulemaking, the 

Department affirmed in its final rule 

that it ‘‘intends to update these 

thresholds more regularly in the 

future.’’ 111 As noted above, however, 

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 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. As 

explained in greater detail in section 

IV.D, employees and employers alike 

would benefit from the certainty and 

stability of regularly scheduled updates. 

IV. Discussion of Proposed Rule 

Consistent with its statutory duty to 

define and delimit the EAP exemption, 

the Department is proposing increases 

to the earnings thresholds provided in 

the part 541 regulations. As explained 

in greater detail below, the Department 

proposes 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). The Department 

also proposes 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 

additionally proposes raising the HCE 

test’s total annual compensation 


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112See Stein Report at 5, 19. 

113See, 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). 

114Walling, 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.’’). 

115Stein Report at 2. 

116 84 FR 51239 (internal quotation marks 

omitted). 

117Stein Report at 19, 24; see also 81 FR 32422. 

118Stein Report at 19, 24; 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.’’). 

119See 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). 

120The Department has consistently stated that 

salary alone cannot define who is a bona fide EAP 

employee. See 84 FR 51239; 81 FR 32429; 69 FR 

22173. 

121 3 FR 2518. 

requirement to the annual equivalent of 

the 85th percentile of weekly earnings 

of full-time salaried workers nationally 

($143,988). Finally, the Department 

proposes a new mechanism to 

automatically update the standard 

salary level and the HCE total annual 

compensation threshold every 3 years to 

ensure that they remain effective tests 

for exemption. 

While the primary regulatory changes 

proposed are in §§ 541.600, 541.601, 

541.709, and newly-added § 541.607, 

additional conforming changes are 

proposed to update references to the 

salary level throughout part 541. The 

Department is not proposing any 

changes to the salary basis or duties test 

requirements in this rulemaking. The 

Department welcomes comments on all 

aspects of this proposal. 

A. Standard Salary Level 

The salary level test is grounded in 

the text of section 13(a)(1). The 

Secretary’s expressly-delegated 

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,112 and the Department’s authority 

to use a salary test has been repeatedly 

upheld.113

Despite numerous amendments to the 

FLSA over the past 85 years, Congress 

has not restricted the Department’s use 

of the salary level tests. 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 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 salary requirements. 

The FLSA delegates to the Secretary 

the 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.’’ 114 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.’’ 115

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.’’ 116 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.117 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.’’ 118 Employee 

compensation is a relevant indicator of 

exemption status given that 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.119

Consistent with the Department’s 

longstanding approach, the proposed 

rule ensures that the salary level test 

and duties test continue to complement 

each other to define and delimit the 

EAP exemption and that the salary level 

does not play an outsized role in 

determining whether an individual is 

employed in a bona fide EAP 

capacity.120 In part because of the 

overlap in the salaries earned by 

employees who do and do not perform 

exempt job duties, the salary level must 

allow for appropriate examination of 

duties. As discussed in section IV.A.4, 

under the Department’s proposed 

standard salary level, the duties test will 

determine the exemption status for most 

white-collar employees. 

The Department’s proposed 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. By setting a salary 

level above the equivalent of the long 

test salary level, the proposal would 

(unlike the 2004 and 2019 rules) ensure 

that not all 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 included 

in the exemption. At the same time, by 

setting it well below the equivalent of 

the short test salary level, the proposal 

would address potential concerns that 

the salary level test should not be 

determinative of EAP exemption status 

for too many white-collar employees. 

The combined effect would be a more 

effective test for exemption. The 

proposed salary level would 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. 

1. History of the Salary Level 

The first version of the part 541 

regulations, issued in 1938, set a 

minimum compensation requirement of 

$30 per week for executive and 

administrative employees.121 Since 

then, the Department has increased the 


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122See Stein Report at 20–21, 31–32. 

123Weiss Report at 8, 14. 

124 Id. at 22–23. 

125 Kantor Report at 2–3. 

126 Id. at 6, 9. 127 Id. at 6–7. 128 Id. at 2–3; see Weiss Report at 8. 129 28 FR 7002 (July 9, 1963). 130 Id. at 7004. 131 Id. 132See 34 FR 9934, 9935 (June 24, 1969). 133 35 FR 885. 

134 40 FR 7091. 

135 Id. at 7091–92. 

136See 69 FR 22166–67. 

137 Id. at 22168. The 2004 methodology used 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. 

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 NIRA, and Federal 

Government salaries to determine the 

salary level that was a reasonable 

‘‘dividing line’’ between employees 

performing exempt and nonexempt 

work.122

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.123 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 

the administration of the regulations 

without defeating the purposes of 

section 13(a)(1).’’ 124 Employees who 

met only the lower long test salary level, 

and not the higher short test salary 

level, were still 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.’’ 125 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.126 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.127 In laying out 

this methodology, often referred to as 

the ‘‘Kantor’’ methodology and 

generally referenced in this NPRM 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.’’ 128

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.129 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.130 The 

Department noted that these salary 

levels approximated the methodology 

used in 1958 to set the long test salary 

levels.131

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,132 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.133

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 (CPI).134 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 precedent for future salary level 

increases.135 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. 

When the Department updated the 

part 541 regulations in 2004, it opted to 

create a single standard test for 

exemption instead of retaining the twotest 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. In setting the new standard 

salary level, the Department looked at 

nonhourly earnings from the CPS 

MORG data collected by BLS.136 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 current 

data.137

In the 2016 rule, the Department again 

used CPS MORG data but set the 

standard salary level equal to the 40th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region (the South), 


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138 81 FR 32405. 

139See 84 FR 51260 (Table 4). 

140 Id. at 51238. 

141See id. at 51237 (quoting Kantor Report at 2– 

3). 

142See 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[.]’’). 

143See 84 FR 51236. 

144Weiss Report at 22–23. 

145 Id. 

146 69 FR 22214. 

147See id. at 22168–69. 

148See id. 

resulting 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 the 2004 rule 

exempted lower-salaried employees 

performing large amounts of nonexempt 

work who should be covered by the 

overtime compensation requirement.138

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 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 updating the standard salary level 

in 2019, the Department reapplied the 

methodology from the 2004 rule, setting 

the salary level equal to the 20th 

percentile of weekly earnings of fulltime salaried workers in the South and 

in the retail sector nationwide.139 This 

methodology addressed concerns that 

had been raised that the 2016 

methodology excluded too many 

employees from the exemption based on 

their salary alone. 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, this methodology now 

produced a salary level amount that was 

lower than the equivalent of the long 

test salary level using contemporaneous 

data. This methodology produced the 

current standard salary level of $684 per 

week (equivalent to $35,568 per 

year).140

2. Salary Level Test Function and 

Effects 

Since 1940, 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 duties and did 

not have a numerical limit on the 

amount of nonexempt work). The twotest 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[.]’ ’’ 141 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 by the long test salary level 

generally did not meet the other 

requirements for exemption.142 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.143 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, which 

ensured that employees earning lower 

salary levels were, in fact, employed in 

a bona fide EAP capacity by limiting the 

amount of time they could spend on 

nonexempt work. Thus, the Department 

long recognized that lower salaried 

workers should be subject to a test that 

placed significant limits on the amount 

of nonexempt work they perform. 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; 

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).144

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 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 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.145

In 2004, rather than update the twotest 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.146

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 fulltime salaried workers in the South and 

in the retail industry nationwide.147 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.148

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 and employees who historically 

were entitled to overtime compensation 


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149See 69 FR 22126–27. 

150 81 FR 32405. 

151 84 FR 10908. 

152 Id. (quoting Kantor Report at 5). 

153See 84 FR 51243. 

154 Id. at 51260. 

155 Id. at 51244. 

156 Id. at 51243. 

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. The 

single standard duties test was 

equivalent to the short duties test, and 

so 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—in 

particular, those lower-paid employees 

who did not meet the long duties test 

because they performed substantial 

amounts of nonexempt work—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 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. The Department’s discussion of the 

elimination of the long duties test in 

2004 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.149 While asserting that employees 

who were then subject to the long test 

would be better protected under the 

higher salary level of the new standard 

test, the Department 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 

contemporary data and the existing long 

duties test. 

To address the concern that lowersalaried 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.150 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. 

Due to the 2016 rule’s narrowing of 

the exemption, employers were unable 

to use 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 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 employees.151 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 all 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.’’ 152 To address these 

concerns, the Department simply 

returned to the 2004 rule’s methodology 

for setting the salary threshold. In 

responding to comments that the 

proposed salary level did not account 

for the absence of the more rigorous 

long duties test, the 2019 rule reiterated 

the statements made in the 2004 rule 

and asserted that the 2016 rule did not 

adequately account for the absence of 

the lower long test salary level.153

Applying the 2004 method to the 

earnings data available in 2019 

produced a standard salary level of $684 

per week, which was even below the 

equivalent of what the long test salary 

level would have been using 

contemporaneous data ($724 per 

week).154

The 2019 rule thus had the same 

impact as the 2004 rule of exempting all 

employees who earned between the long 

and short test salary levels and who 

performed too much nonexempt work to 

meet the long duties test, but passed 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.155 In response to commenter 

concerns about the 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 (as evidenced 

by the district court’s decisions) 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.156 As in 

the 2004 rule, the Department did not 

address the protection lower salaried 

employees would have received under 

the long test with an updated salary 

level based on contemporary data. 

The Department’s experience with a 

one-test system shows that it is less 

nuanced than the two-test system, 


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157See 5 FR 4077. 

158See 69 FR 22126–27; see also 81 FR 32444– 

45 (discussing widespread employer and employee 

stakeholder opposition to reinstating a two-test 

system). 159 84 FR 51243. 160See 81 FR 32446 (‘‘The Department continues 

to believe that, at some point, a disproportionate 

amount of time spent on nonexempt duties may call 

into question whether an employee is, in fact, a 

bona fide EAP employee.’’); see also Stein Report 

at 17 (noting that ‘‘it would be inconsistent with the 

purposes of the [FLSA]’’ to exempt employees like 

working foremen). In the 2004 rule, the Department 

explained that eliminating the salary level test 

entirely would require significant changes to the 

duties test. See 69 FR 22172. 

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 who 

performed only limited amounts of 

nonexempt work in that earnings range 

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-saving mechanism for employees 

who would likely have met the more 

rigorous long duties test. 

Upon reflection and based on its 

rulemakings over the past 20 years, the 

Department has determined that a onetest system that uses the standard duties 

test, without its limitations on the 

amount of nonexempt work, must use a 

salary level above the long test salary 

level in order to ensure that it is 

effectively identifying bona fide EAP 

employees. 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. One way 

in a one-test system to protect lowersalaried 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, for the reasons discussed in 

this section, the Department is not 

proposing 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 1949,157 when 

the Department replaced this approach 

with its two-test system, and returning 

to it 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, but also to 

build on the lessons learned in its most 

recent rulemakings to more effectively 

define and delimit employees working 

in a bona fide EAP capacity. Consistent 

with its broad authority under section 

13(a)(1), the Department is proposing 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 

perform the initial screening function 

that the salary level has always played 

and also adjust the salary level to 

account for the change to a single test 

system. 

3. Salary Level Methodology 

The Department’s extensive 

regulatory history shows that the twotest system for defining the EAP 

exemption is an effective method of 

determining the exemption status of 

white-collar employees at both lower 

and higher salary levels. With this 

system, the salary and duties 

components of each test balance each 

other and the two tests work in 

combination to efficiently identify 

exempt employees while protecting 

employees who should receive overtime 

compensation. Although the two-test 

system’s effectiveness diminished in its 

later years, this was a consequence of 

the Department’s failure to update the 

salary level tests after 1975, not a flaw 

with the two-test structure itself. Not 

updating the salary levels in a two-test 

system is particularly problematic 

because the real value of the higher 

short test salary level will inevitably 

decrease, expanding the exemption to 

lower-paid white-collar employees who 

previously were not considered bona 

fide EAP employees because they did 

not meet the long duties test and earned 

below the short test salary level, and 

rendering the lower long test salary 

level, with its more rigorous duties 

requirements, less effective in 

differentiating between exempt and 

nonexempt employees. 

The Department has considered 

returning to the two-test system as a 

way to define and delimit the EAP 

exemption without incurring the 

precision-related challenges inherent in 

a one-test system. However, the 

Department believes that a one-test 

system, with a single duties test, 

benefits both employers and employees 

in terms of the increased efficiency and 

simplicity in application. As the 

Department explained in 2004, a twotest system, with the more rigorous long 

duties test determining exemption 

status for many employees, would make 

exemption status determinations more 

complex and less efficient than 

retaining a single-test system with the 

existing duties test.158 The Department 

also continues to be mindful of the post1991 regulatory landscape, which 

remains highly relevant given that the 

two-test system effectively became a 

one-test system in 1991 when the 

Federal minimum wage equaled or 

surpassed the long test salary levels.159

The Department has also considered 

whether to propose changing the 

standard duties test in this rulemaking. 

A test requiring closer scrutiny of 

employee duties would be consistent 

with the statutory text, and a credible 

way to define the exemption.160 Indeed, 

a more rigorous duties test, which 

limited the amount of nonexempt 

work—the long duties test—was 

traditionally the core of the EAP 

exemption in the two-test system. 

Experience under the two-test system 

shows that a more rigorous duties test 

helps to ensure that exempt employees 

are in fact performing EAP duties and 


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161The importance of a rigorous duties test was 

illustrated by the Department’s Burger King 

litigation in the early 1980s, when the short and 

long tests were still actively in use. The Department 

brought two actions arguing that Burger King 

assistant managers were entitled to overtime 

protection. Sec’y of Labor v. Burger King Corp., 675 

F.2d 516 (2d Cir. 1982); Sec’y of Labor v. Burger 

King Corp., 672 F.2d 221 (1st Cir. 1982). One group 

of assistant managers satisfied the higher short test 

salary level and was therefore subject to the less 

rigorous short duties test; the other group was paid 

less and was therefore subject to the long duties test 

with its limit on nonexempt work. Both appellate 

courts found that the higher paid employees were 

not overtime protected—even though they 

performed substantial amounts of nonexempt 

work—because they satisfied the short duties test. 

The lower-paid employees, however, were not 

exempt and therefore entitled to overtime 

compensation because they did not meet the more 

rigorous long duties test. 

162 275 F. Supp. 3d at 806. 

163See 68 FR 15564–68. 

164 69 FR 22126, 22192–94. 

165 84 FR 10904; 82 FR 34618 (July 26, 2017); 80 

FR 38543 (July 6, 2015). 

166See 84 FR 51241. 

167Weiss Report at 8. 

168 Kantor Report at 2–3. 

169 69 FR 22165. 

170See id. at 22167–71 (showing that for all fulltime 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). 

171See id. at 22164. 

172 84 FR 51237 (internal quotation marks 

omitted). 

173 Id. at 51231 (quoting 84 FR 10901). 

are therefore employed in a bona fide 

EAP capacity.161 In this respect, the 

duties test allows for finer calibration 

than the salary level test when 

determining who is employed in a bona 

fide EAP capacity, with a rigorous 

duties test that limits the amount of 

nonexempt work that can be performed 

ensuring that employees are actually 

performing EAP work and not simply 

performing nonexempt work without 

receiving overtime compensation. Were 

the Department to lessen the salary level 

test’s role by adopting a more rigorous 

duties test, the number of employees 

who are nonexempt based on their 

salary alone would decrease, helping 

alleviate concerns about the salary level 

‘‘supplanting an analysis of an 

employee’s job duties’’ in too many 

instances.162 The Department could, for 

instance, return to a duties test that 

explicitly limited the amount of 

nonexempt work that could be 

performed. As discussed above, a 

limitation on nonexempt work was an 

integral part of the long duties test that 

was, for a long time, a critical 

component of the test for EAP 

exemption. 

The Department has ultimately 

decided, however, not to propose any 

changes to the duties test, consistent 

with its decisions in the 2016 and 2019 

rules. This decision was also informed 

by the Department’s experience when it 

established the single-test system in 

2004. In that rulemaking, the 

Department initially considered 

substantive changes to the duties test,163

but ultimately declined to go through 

with most of the proposed changes, 

stating that the final standard duties test 

was substantially the same as the short 

duties test.164 The Department also 

considered changing the duties test in 

both the 2016 and 2019 rulemakings, 

but ultimately chose not to propose any 

such changes.165

At this time, the Department favors 

keeping the current duties test and 

concludes that, paired with an 

appropriate salary level requirement, 

the test can appropriately distinguish 

bona fide EAP employees from 

nonexempt workers. While comments 

received in previous rulemakings and 

during listening sessions show that the 

standard duties test is not universally 

popular, it is well known to employers, 

employees, and the courts, making it 

easier and more efficient for employers 

to implement and for workers to 

understand. Substantive changes to the 

duties test are a possible way to revise 

the regulatory test but they would take 

more time for employers and employees 

to adjust to than an increase in the 

salary level, requiring employers to 

reassess their current exemption 

determinations. 

i. Fully Restoring the Salary Level’s 

Screening Function 

To determine the appropriate salary 

level, the Department first considers 

whether the present methodology 

adequately performs the historical 

screening function of the long test salary 

level and next, the extent to which the 

salary level must be increased above the 

long test salary level to account for the 

switch to a one-test system in 2004. 

The Department first focused on the 

salary level’s historic function of 

screening obviously nonexempt 

employees from the exemption, a 

‘‘principle [that] has been at the heart of 

the Department’s interpretation of the 

EAP exemption for over 75 years.’’ 166

Under the two-test system, 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.’’ 167 When the Department 

updated the long test in 1958, it 

reaffirmed the long test salary’s function 

as a screening tool.168

When the Department moved to a 

one-test system, 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.169 Most significantly, the 

Department used the long test 

methodology to validate its new salary 

level of $455 per week. Even though the 

2004 rule made certain changes from 

that methodology (most significantly, 

setting the salary level equivalent to the 

‘‘lowest 20% of all salaried employees’’ 

instead of the ‘‘lowest 10% of exempt 

salaried employees’’), the Department 

stressed that both ‘‘approaches are 

capable of reaching exactly the same 

endpoint’’ and demonstrated that the 

new method and the long test method 

produced equivalent salary levels at the 

time.170 By setting a salary level 

equivalent to the long test level, the 

Department ensured that employees 

earning at levels whereby they were 

entitled 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. In the 

2004 rule, the Department rejected 

requests from commenters who 

supported a salary level that was $30 to 

$95 lower than the level the Department 

ultimately adopted,171 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.172 The Department 

distinguished the 2016 rule, which the 

Department explained 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.’’ 173 In contrast, 

the Department explained, reapplying 

the 2004 methodology to current 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 ‘‘explained that setting ‘the 

minimum salary level as a floor to 

screen[ ] out the obviously nonexempt 


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174 Id. at 51241 (quoting 275 F. Supp.3d at 806). 

175 Id. at 51244. 

176 During this period the Department used a onetest system that paired a lower salary level with a 

more rigorous duties test. See, e.g., 5 FR 4077. 

177 84 FR 51244, 51260. 

178 Id. at 51244. 

179For the same reason, the Department’s 

approach does not implicate concerns that applying 

the long test method ‘‘requires ‘uncertain 

assumptions’ ’’ to compile a dataset set that 

represents exempt EAP employees. Id. (quoting 69 

FR 22167). Moreover, while it is true that the 

Department must apply its probability codes to 

determine the group of salaried employees who 

pass the duties test, the Department has 

consistently applied these codes since the 2004 

rule. See generally section VII.B.5 (discussing 

probability codes). 

180 84 FR 51244 (quoting 69 FR 22167). 

181See Kantor Report at 2–3. 

182Weiss Report at 22–23. 

employees’ is ‘consistent with 

Congress’s intent.’ ’’ 174

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— 

setting a single salary level test that was 

equivalent to, and thus set the same line 

of demarcation as, the long test salary 

level (although it combined that salary 

level with a duties test that was 

equivalent to the less rigorous short 

duties test). The Department deviated 

from this approach in 2019, setting a 

salary level that was $40 per week 

below the level produced using the long 

test methodology.175 In doing so, the 

Department for the first time expanded 

the exemption to include employees 

who were paid below the long test 

salary level. As an initial step, the 

proposed 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 salary are 

also nonexempt under the standard test. 

Simply restoring the historic screening 

function would require a standard 

salary level amount that is at least equal 

to the long test level (which is $925 per 

week using current data). Such a salary 

level would not, however, account for 

the shift to a one-test system in 2004. 

Increasing the standard salary level to 

at least the long test level would ensure 

that the salary level, at a minimum, 

performs the historical screening 

function it would have performed in a 

two-test system. 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,176 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. 

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. 

In the 2019 rule, the Department 

expressly declined to use the long test 

methodology to set the salary level 

test.177 Because the Department is not 

using the long test methodology to set 

the salary level in this proposal, but is 

instead using it to inform its selection 

of a new salary level methodology, the 

concerns expressed by the Department 

in 2019 do not apply. The Department 

was in part worried that the long test 

method is ‘‘complex to model and thus 

is less accessible and transparent.’’ 178

This concern does not arise here 

because the Department’s proposed 

methodology uses a publicly available 

data set of all full-time nonhourly 

workers in the South to set the salary 

level, as opposed to the long test 

methodology data set (which only 

included exempt workers).179 In 2019, 

the Department also expressed concern 

that the long test methodology presents 

a ‘‘circularity problem’’ because this 

approach ‘‘would determine the 

population of exempt salaried 

employees, while being determined by 

the make-up of that population.’’ 180

This concern is similarly not implicated 

here because, consistent with its 

practice since 2004, the Department is 

setting the salary level using a data set 

of all full-time nonhourly workers, not 

just exempt workers. 

ii. Selecting the Proposed Salary Level 

Methodology 

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. The Department believes that 

the long and short test salary levels 

provide useful parameters informed by 

its historical rulemaking for determining 

how to update the salary level test in 

this rulemaking. As previously 

discussed, the long and short test salary 

levels have served as the foundation for 

nearly all of 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 a one-test 

system. Based on 2022 data, applying 

the long test methodology produces a 

salary level of $925 per week ($48,100 

per year) and the short test methodology 

produces a salary level of $1,378 per 

week ($71,656 per year). 

The long and short test salary levels 

reflected longstanding understandings 

of how an individual’s salary level 

informs the question of whether an 

individual is employed in a bona fide 

EAP capacity. As noted above, the long 

test salary level helped distinguish 

employees who were not employed in a 

bona fide EAP capacity and the 

Department found that employees who 

were screened from exemption by the 

long test salary level generally did not 

meet the other requirements for 

exemption.181 The justification for the 

short test, on the other hand, was that 

employees who met the higher salary 

level were more likely to meet all the 

requirements of the exemption 

(including the long test’s 20 percent 

limit on nonexempt work).182 Moreover, 

because the Department’s rulemakings 

since 2004 have, to varying extents, 

used the long and short tests as 

guideposts for setting the salary level in 

a one-test system, maintaining the same 

orientation in this rulemaking would 

enable the Department to calibrate its 

methodology to better define and 

delimit bona fide EAP employees, and 

evaluate how it impacts employees who 

historically have been entitled to 

overtime compensation and the ability 

of employers to use the exemption to 

exclude from overtime protection 

employees who have historically been 

exempt. 

In its almost 20 years of experience 

with the one-test system, the 

Department has never set a standard 

salary level that falls between the long 

test salary level and the short test range. 

As explained more fully above, the 

Department set the standard salary at (or 

below) the long test salary 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. 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, were exempt under the 

Department’s historical view of the EAP 


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183See 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.’’). 

184The Department has repeatedly recognized 

that increasing salary level tends to correlate with 

the performance of bona fide EAP duties. See 

section IV.A.2 (discussing role of long test and short 

test salary levels); section IV.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. 

185See 84 FR 51238; 81 FR 32404. 

186Consistent with recent rulemakings, in 

determining earnings percentiles the Department 

looked at nonhourly earnings for full-time workers 

from the CPS MORG data collected by BLS. 

187As discussed in the economic analysis, see 

section VII.B.5, this modeling is done using the 

Department’s probability codes. See 84 FR 51244; 

69 FR 22167. 

188See 84 FR 51244 (citing 69 FR 22167). 

189See 81 FR 32410. 

190The 26th percentile in this data set 

corresponds to a salary level of $918 per week and 

the 27th percentile corresponds to a salary level of 

$933 per week. 

exemption, or in raising concerns that 

the salary level is determining the status 

of too many employees. An 

appropriately calibrated salary level 

between the long and short test salary 

levels would better define and delimit 

which employees are employed in a 

bona fide EAP capacity, and thus better 

fulfill the Department’s duty to define 

and delimit the EAP exemption. 

Traditionally, the Department 

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 eliminated the inquiry into 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 were protected by the long duties 

test. The approach taken in the 2016 

rule was challenged and criticized as 

making nonexempt employees earning 

between the long test salary level and 

the low end of the short test salary 

range—including some employees who 

may have performed very little 

nonexempt work and would have been 

exempt under the long test. 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.183 But such a 

result is inherent in setting any salary 

level in a one test system—some 

employees will have EAP status turn on 

salary level. The proposed salary level 

would better identify which employees 

are employed in a bona fide EAP 

capacity—particularly by restoring 

overtime eligibility for individuals who 

perform substantial amounts of 

nonexempt work and historically would 

have been protected by the long duties 

test—while at the same time addressing 

potential concerns that the salary level 

test should not be determinative of 

exemption status for too many 

individuals.184

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 

proposes to set the salary level using 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.185 Specifically, the Department 

proposes to set the salary level using the 

data set of full-time nonhourly 186

workers in the lowest-wage Census 

Region (the South). Like the 

Department’s 2004, 2016, and 2019 

rules, this approach would promote 

transparency because BLS routinely 

compiles this data. It would also 

promote 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.187

For similar reasons, the Department is 

not proposing to add nationwide 

earnings data from specific industries 

(such as retail) to the CPS earnings data 

from the lowest-wage Census Region. 

The Department’s 2019 rule included 

such data to faithfully replicate the 2004 

methodology which considered earnings 

of full-time nonhourly workers in the 

lowest-wage Census Region and the 

retail industry nationally.188 The 

Department’s approach nonetheless 

would yield a salary level that would be 

appropriate in low-wage industries 

because using earnings data from the 

lowest-wage Census Region would 

capture differences across regional labor 

markets without attempting to adjust to 

specific industry conditions.189

Based on 2022 data, applying the long 

test methodology produces a salary level 

of $925 per week ($48,100 per year), 

which equates to between the 26th and 

27th percentiles of weekly earnings of 

full-time, nonhourly workers in the 

lowest-wage Census Region (the 

South).190 This figure provides what the 

Department believes should be the 

lowest boundary of a salary level 

methodology because it would at least 

restore the historical screening function 

that had operated under a two-test 

system. 

The Department is not proposing to 

set the salary level equivalent to the 

long test level in part because doing so 

would perpetuate the problem that has 

become evident under the 2004 and 

2019 rules: that setting the single salary 

level no higher than the long test level 

enables employers to exempt employees 

who were traditionally not considered 

bona fide EAP employees because they 

performed substantial amounts of 

nonexempt work and did not meet the 

long duties test under the two-test 

system. Like these earlier rules, this 

approach would impact white-collar 

employees earning between the long 

and short test salary levels who perform 

substantial amounts of nonexempt 

work—and thus were entitled to 

overtime protection under the two-test 

system—but meet the less rigorous 

standard duties test. 

As discussed above, the Department 

could address this issue by changing the 

duties test to reinstate the long test’s 

limit on nonexempt work. Doing so 

would restore the relationship between 

the salary level and duties tests that 

existed under the two-test system 

whereby the Department paired a lower 

salary level with a more rigorous duties 

test. Paired with a long test-equivalent 

salary level, a stronger duties test would 

ensure that lower-paid employees who 

perform large amounts of nonexempt 

work receive overtime protection, while 

permitting employers to continue using 

the exemption for lower-paid employees 

performing EAP duties. However, for 

the reasons previously discussed, the 

Department proposes to restore the 

relationship between the salary level 

and duties test by keeping the duties 

test unchanged at this time and instead 

increasing the salary level moderately 

above the long test level. This increase 

in the salary level is necessary for the 

Department to effectively fulfill its role 

of defining and delimiting the EAP 

exemption because, without it, the 

employees who were not considered 

bona fide EAPs historically—those 

earnings between the long and short test 


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191Weiss Report at 9. 

192Historically, the Department set the long test 

salary level to exclude from exemption 

approximately the lowest-paid 10 percent of exempt 

salaried employees in the lowest-wage regions and 

industries. In 2004 and 2019, the Department set 

the standard salary level test equivalent to the 20th 

percentile of weekly earnings of full-time salaried 

workers in the South Census Region and in the 

retail industry nationally. In the 2016 rule, the 

Department set the salary level equal to the 40th 

percentile of weekly earnings of full-time salaried 

workers in the lowest-wage Census Region (the 

South). See 84 FR 51236–37 (describing prior 

methodologies). 

193See Nevada, 275 F.Supp.3d at 806–07. 

194See 84 FR 51242. 

salary levels who did not meet the 

historical long duties test—would 

remain exempt from overtime. In other 

words, the Department’s proposed 

salary level methodology will better 

help limit the exemption of lower-paid 

employees who historically were not 

considered bona fide EAP employees 

because they perform substantial 

amounts of nonexempt work, but who 

are not receiving overtime protection 

under the one-test system. 

Although the ‘‘regulations cannot 

have the precision of a mathematical 

formula[,]’’ 191 with only two variables 

to adjust in a one-test system, and with 

the Department deciding to leave one of 

those variables (the duties test) 

unchanged in this rulemaking, the 

Department wanted to look more 

precisely at methods for updating the 

salary level test. The Department has 

therefore looked to employee earnings 

ventiles rather than only deciles as it 

has historically done.192 The earnings 

ventiles between the long test salary 

level (approximately the 26th or 27th 

percentile) and short test salary level 

(approximately the 53rd percentile) are 

the 30th, 35th, 40th, 45th, and 50th 

percentiles of weekly earnings of fulltime salaried workers in the lowestwage Census Region. The Department 

examined these earnings ventiles with 

the goal of more effectively defining and 

delimiting the exemption while 

maintaining the one-test system. 

Setting the salary level at the 40th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region would reduce the 

impact of a one-test system on lowerpaid white-collar employees who 

perform significant amounts of 

nonexempt work. This percentile is 

midway between the 30th and 50th 

percentiles and would produce a salary 

level ($1,145 per week) that is roughly 

the midpoint between the long and 

short test salary levels. Of the 

approximately 10.3 million salaried 

white-collar employees who earn 

between the long and short test salary 

levels, approximately 47 percent earn 

between the long test salary level and 

$1,145 and would receive overtime 

protection by virtue of their salary, 

while approximately 53 percent earn 

between $1,145 and the short test salary 

level and would have their exemption 

status turn on whether they meet the 

duties test. 

The Department remains concerned, 

however, that courts could find this 

approach makes the salary level test 

determinative of overtime eligibility for 

too many employees (i.e., 47 percent of 

those earning between the long and 

short test levels). Setting the salary level 

equal to the 45th or 50th percentile of 

weekly earnings would further amplify 

this concern. In contrast, 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 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 and recognizes that the 2016 

rule (which set the salary level equal to 

the 40th percentile of weekly earnings 

of full-time salaried workers in the 

lowest-wage Census Region) was held 

invalid by the U.S. District Court for the 

Eastern District of Texas for making too 

many employees eligible for overtime 

based on salary alone.193

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 $1,145 per week 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.194 Litigants challenging 

the 2016 rule also 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 

from a two-test to a one-test system on 

the scope of the exemption. Although 

some stakeholders have urged the 

Department to follow the methodology 

from the 2016 rule or set an even higher 

threshold, the Department has chosen a 

salary level that is appreciably lower 

than the midpoint between the short 

and long test salary levels—an approach 

that it believes is an appropriate method 

for identifying bona fide EAP 

employees. This approach would also 

reasonably balance the goal of ensuring 

that employees earning above the long 

test salary level but performing 

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. 

The Department also examined the 

30th and 35th percentiles of weekly 

earnings of full-time salaried workers in 

the lowest-wage Census Region. The 

Department did not consider setting the 

salary level at the 25th percentile of 

weekly earnings of full-time salaried 

workers in the lowest-wage Census 

Region ($901 per week or $46,852 per 

year) because it is lower than the long 

test salary level ($925 per week or 

$48,100 per year, which is 

approximately the 26th or 27th 

percentile). Setting the standard salary 

level at the 30th percentile of weekly 

earnings of full-time salaried workers in 

the lowest-wage Census Region would 

result in a salary level of $975 per week 

($50,700 per year). This salary level is 

roughly the midpoint between the 2004 

methodology (the 20th percentile of 

weekly earnings of full-time salaried 

workers in the lowest-wage Census 

region and in retail nationally, currently 

$822 per week or $42,744 per year), and 

the 2016 methodology (the 40th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region, currently $1,145 

per week or $59,540 per year). While 

setting the salary level equal to the 30th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region would produce a 

salary level that is above the long test 

salary level, it is very close to the long 

test salary level, and the Department is 

concerned it 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 closer 

to the long test salary level, and 

historically were not considered bona 

fide EAP employees under the two-test 

system. Additionally, only 11 percent of 

white-collar employees who earn 

between the long and short test salary 

levels earn below the 30th percentile. 

As noted above, the Department 

believes that the standard salary must 

fulfill the historical screening function 

of the long test salary level and account 

for the shift to a one-test system, and the 


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195Stein Report at 2. 

196 84 FR 51238. 197Walling, 140 F.2d at 831. 

198 Id. 

199 81 FR 32410. 

200See 84 FR 51244. 

201 § 541.602(a)(3). 

202 84 FR 51238. 

Department is concerned that this salary 

level would not fulfill both objectives. 

After careful consideration, the 

Department concludes that setting the 

salary level equal to the 35th 

percentile—which produces a salary 

level of $1,059 per week—will 

effectively define and delimit the scope 

of the EAP exemption. 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[,]’’ 195 the 

Department’s proposed standard salary 

level will, in combination with the 

standard duties test, effectively calibrate 

the scope of the exemption to ensure the 

exemption of 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. 

The Department stated in the 2019 

rule that the primary and modest 

purpose of the salary level is to identify 

potentially exempt employees by 

screening out obviously nonexempt 

employees.196 While this initial 

screening function is the primary effect 

of the salary level, as noted above, each 

update to the salary level has also had 

a secondary effect: it defines the group 

of white-collar employees for whom the 

duties test is determinative of their 

exemption status. Setting the salary 

level equal to the 35th percentile of 

weekly earnings of full-time salaried 

workers in the lowest-wage Census 

Region produces a salary level high 

enough above the long test 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. The salary 

level is 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. Of the 10.3 

million salaried white-collar employees 

earning between the equivalent of the 

long and short test salary levels, 

approximately 31 percent earn between 

$925 (the equivalent of the long test 

salary level) and $1,059 (the proposed 

salary level) and would receive overtime 

protection by virtue of their salary, 

while approximately 69 percent earn 

between $1,059 and $1,378 (the 

equivalent of the short test salary level) 

and would have their exemption status 

turn on whether they meet the duties 

test. 

Comparing the impact of the new 

salary level on white-collar employees 

earning between the long and short test 

salary levels and their employers 

reinforces the reasonableness of the 

Department’s proposed salary level. 

Whereas the 2004 and 2019 rules 

permitted the exemption of such 

employees even if they performed 

significant amounts of nonexempt work, 

and the 2016 rule prevented employers 

from using the exemption for such 

employees earnings below the short test 

salary range even if they performed EAP 

duties, the proposed methodology falls 

between these two methodologies and 

therefore 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. 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 these 

employees and employers is not equal, 

a higher salary level could disrupt 

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 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 strikes a workable 

equilibrium that reasonably balances, 

between employees’ right to receive 

overtime compensation and employers’ 

ability to use the exemption, the impact 

of a one-test system. 

Such reasonable 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, and professional 

employee.’’ 197 This grant of authority 

confers discretion upon the Department 

to reasonably 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.198

The Department recognizes that it 

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.199 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.200 However, as noted 

above, the Department did not fully 

address in that rule the implications of 

the switch from a two-test to a singletest system. Having now grappled with 

those implications, particularly in light 

of the Department’s experience in the 

litigation challenging its 2016 rule, the 

Department has concluded 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. 

The Department is not proposing any 

changes to how bonuses are counted 

toward the salary level requirement. 

Consistent with the current regulations, 

if the salary level is finalized as 

proposed, employers could satisfy up to 

10 percent of the salary level ($105.90 

per week under this proposed rule) 

through the payment of 

nondiscretionary bonuses and incentive 

pay (including commissions) paid 

annually or more frequently.201

4. Assessing the Impact of the Proposed 

Salary Level 

As stated above, the Department 

believes that the salary level test should 

fulfill a ‘‘useful, but limited, role’’ in 

defining and delimiting the EAP 

exemption.202 In proposing to update 

the standard salary level, the 

Department seeks to: preserve the 

primary role of an analysis of employee 

duties in determining EAP exemption 

status, fully restore the initial screening 

function of the salary level, and more 


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203Excluded 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. 

204As discussed further below, see, e.g., section 

VII.B.5, the Department used data representing 

compensation paid to nonhourly white-collar 

workers to estimate compensation paid to salaried 

white-collar employees. 

205Even this estimate is conservative, as it 

excludes 8.1 million white-collar employees 

employed as teachers, attorneys, and physicians, for 

whom there is no salary level requirement under 

the part 541 regulations and whose exemption 

status is therefore always determined by their 

duties. If these employees in ‘‘named occupations’’ 

are included, the percentage of white-collar 

employees for whom exemption status would 

depend on duties, rather than salary, increases to 

77 percent. See §§ 541.303–304. 

206As noted above, see supra note 205, these 

figures do not include the additional 8.1 million 

white-collar employees in occupations for which 

there is no salary level requirement and so duties 

is always determinative of exemption status. 

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. A closer look at the 

expected impact of the proposed salary 

level shows that it meets these 

objectives. 

The Department intentionally chose a 

salary level methodology that, if 

finalized, would ensure that the EAP 

exemption status of the great majority of 

white-collar employees would continue 

to depend on their duties. To evaluate 

whether the proposed methodology 

meets this objective, the Department 

first considered its effect on the 

population of all salaried white-collar 

employees—the universe of employees 

who could potentially be impacted by a 

change in the standard salary level. This 

analysis confirmed that the number of 

white-collar employees who would be 

excluded from the EAP exemption as a 

result of the Department’s proposed 

standard salary level is greatly exceeded 

by the far-larger population of whitecollar employees for whom duties 

would continue to determine their 

exemption status. 

As illustrated in Figure A below, of 

the approximately 43.8 million salaried 

white-collar employees in the United 

States subject to the FLSA,203 about 11.7 

million earn below the Department’s 

proposed standard salary level of $1,059 

per week and about 32.1 million earn 

above the Department’s proposed salary 

level.204 Thus, approximately 27 

percent of salaried white-collar 

employees (most of whom, as discussed 

below, do not perform EAP duties) earn 

below the proposed salary level, 

whereas approximately 73 percent of 

salaried white-collar employees earn 

above the salary level and would have 

their exemption status turn on their job 

duties.205

Scrutinizing these figures more 

closely reinforces the continued 

importance of the duties test under the 

Department’s proposal. Of the 

approximately 11.7 million salaried 

white-collar employees who earn below 

the Department’s proposed standard 

salary level of $1,059 per week, about 

8.5 million earn below the long test 

salary level of $925 per week. As 

explained above, 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 

employees earning below the long test 

salary level. The number of salaried 

white-collar employees for whom salary 

would be determinative of their 

nonexempt status and who earn at least 

the long test salary level—3.2 million— 

is nearly ten times smaller than the 

number of salaried white-collar 

employees for whom job duties would 

continue to be determinative of their 

exemption status because they earn at 

least the proposed standard salary 

level—32.1 million.206


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207 84 FR 51239 (quoting 84 FR 10907). 

208See id. at 51245. 

209See section VII.B.5. 

210As noted above, see supra note 205, these 

figures exclude salaried white-collar workers who 

are not subject to the part 541 salary criteria. 

211Note that these numbers refer only to salaried 

white-collar employees at all salary levels who meet 

the standard duties test, including employees who 

are nonexempt because they earn below the current 

standard salary level. 

In analyzing how the Department’s 

proposed salary level would impact all 

salaried white-collar employees, the 

Department also considered the extent 

to which salaried white-collar 

employees across the income 

distribution perform EAP duties. As 

noted above, the salary level has 

historically served as ‘‘a helpful 

indicator of the capacity in which an 

employee is employed, especially 

among lower-paid employees;’’ 207

however, it should not eclipse the 

duties test.208 The Department’s 

proposed standard salary level meets 

this standard because, according to 

probability codes the Department has 

used in all of its recent part 541 rules,209

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. 

As illustrated in Figure B, of the 11.7 

million salaried white-collar employees 

who earn less than the proposed 

standard salary level of $1,059 per 

week, the Department estimates that 

only 36 percent—about 4.2 million 

employees—meet the standard duties 

test. In contrast, of the 32.1 million 

salaried white-collar employees who 

earn at least $1,059 per week, 76 

percent—about 24.5 million 

employees—meet the standard duties 

test.210 The number of salaried whitecollar workers who meet the standard 

duties test and earn below the proposed 

standard salary level is thus nearly six 

times smaller than the number of 

salaried white-collar workers who meet 

the standard duties test and earn at least 

the proposed standard salary amount. 

And 85 percent of all salaried whitecollar workers who meet the standard 

duties test—24.5 million out of a total 

of approximately 28.7 million—earn at 

least the Department’s proposed 

standard salary level.211

BILLING CODE 4510–27–P 

The Department next evaluated its 

proposed salary level methodology by 

looking at salaried white-collar 

employees who earn between the long 

and short test salary levels. As 

discussed in section IV.A.3.ii, the long 


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212As discussed further below, about 1.6 million 

of the approximately 3.2 million salaried whitecollar employees who earn between the long test 

salary threshold and the Department’s proposed 

salary level (about 49 percent of these employees) 

do not meet the standard duties test. Thus, in effect, 

only 16 percent of salaried white-collar employees 

who earn between the long and short test salary 

levels—1.6 million out of a total of 10.3 million— 

have their exemption status determined solely by 

the proposed standard salary level. 

213Note that the 27.9 million employee figure 

only refers to employees who meet the standard 

EAP exemption and thus differs from the 

population of currently exempt EAP workers 

identified in the economic analysis (28.4 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 employees in the ‘‘named occupations’’ 

who, under the Department’s regulations, are 

exempt based on their duties alone. 

and short test salary levels provide 

appropriate parameters for determining 

how to update the salary level test. 

Under the Department’s proposal, duties 

would continue to be determinative of 

exemption status for a significant 

majority of white-collar employees 

earning between these thresholds. 

As illustrated in Figure C, of the 

approximately 10.3 million salaried 

white-collar employees who earn 

between the long test salary level of 

$925 per week and the short test salary 

level of $1,378 per week, about 31 

percent (3.2 million) earn below the 

Department’s proposed standard salary 

level, and about 69 percent (7.1 million) 

earn at or above the Department’s 

proposed standard salary level. 

Moreover, of the 3.2 million employees 

earning between the long test and the 

proposed standard salary level, 

approximately half do not meet the 

standard duties test.212

BILLING CODE 4510–27–C 

Finally, the Department also looked at 

the impact of the proposed salary level 

on currently exempt EAP employees— 

those salaried white-collar employees 

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 

employees would become nonexempt if 

this proposal were finalized. Of the 

approximately 43.8 million salaried 

white-collar employees in the United 

States, approximately 27.9 million 

currently qualify for the EAP 

exemption.213 Of these 27.9 million 

presently-exempt employees, just 3.4 

million earn at or above the current 

$684 per week standard salary level but 

less than $1,059 per week and would, 

without some intervening action by 

their employers, become entitled to 

overtime protection as a result of the 

Department increasing the standard 

salary level to $1,059 per week. A test 

for exemption that includes a salary 

level component will necessarily result 

in a number of employees who earned 

at or above the prior salary level and 

pass the duties test becoming 

nonexempt when the salary level is 

updated. This is a feature, and not a 

flaw, of a salary level test, and as the 


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214The 3.4 million employees affected by the 

Department’s proposed standard salary level 

represent only 12 percent of the 27.9 million 

salaried white-collar employees who currently 

qualify for the standard EAP exemption. 

215 84 FR 51238. 

216See section IV.A.3.ii. 

217See 84 FR 51260. 

218The potential impact of these four alternatives 

is discussed in greater detail below. See section 

VII.C.8. 

219See section IV.A.3.ii. 

220See id. 

221See id. 

222 84 FR 51260. 

223See section IV.A.2; section IV.A.4. 

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. 

The Department’s proposed standard 

salary level would impact the 

exemption status of two distinct and 

important, but relatively small, groups 

of lower-paid EAP employees. First, the 

Department’s proposal would restore 

overtime protections to 1.8 million 

currently exempt employees who meet 

the standard duties test but earn less 

than the equivalent of the long test 

salary level ($925). As previously 

explained, 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. Fully restoring the 

salary level’s initial screening function 

requires a salary level that would ensure 

all employees who earn below the long 

test level would be excluded from the 

exemption. 

Second, the proposed standard salary 

level would result in overtime 

protections for an additional 1.6 million 

currently exempt employees who meet 

the standard duties test and earn 

between the long test salary level ($925 

per week) and the Department’s 

proposed standard salary level. As 

explained earlier, the Department 

believes it is necessary to set the 

standard salary level above the long test 

level to reasonably distribute the impact 

of the switch from a two-test system to 

a one-test system. The Department’s 

proposal would limit the number of 

affected employees by setting a standard 

salary level towards the lower end of the 

range between the long and short test 

salary levels and by using earnings data 

from the lowest-wage Census region (the 

South). 

Even among the 3.4 million affected 

employees, the fact that a majority of 

these employees earn below the long 

test level underscores the modest role of 

the Department’s proposed standard 

salary level. Beyond these 1.8 million 

employees earning less than the long 

test salary level—to whom this proposal 

would simply restore overtime 

protections that they had under every 

rule prior to 2019—the Department’s 

proposed increase in the standard salary 

level would only affect the exemption 

status of 1.6 million employees. This 

group makes up less than six percent of 

all currently exempt, salaried whitecollar employees and less than four 

percent of all salaried white-collar 

employees.214 That this group is so 

small reinforces the conclusion that the 

Department’s proposed salary level 

methodology would maintain the 

‘‘useful, but limited, role’’ of the salary 

level in defining and delimiting the EAP 

exemption.215

5. Salary Level Alternatives 

In determining which methodology to 

use to update standard salary level, the 

Department considered several 

alternatives to its proposed 

methodology of the 35th percentile of 

weekly earnings of full-time salaried 

workers in the lowest-wage Census 

Region. As discussed, the Department 

believes that the long and short test 

salary levels provide appropriate 

boundaries for assessing potential salary 

levels,216 though it also considered the 

methodology used in the 2019 rule, 

which set the standard salary level 

below the long test level.217 The 

Department also looked at earnings 

ventiles for full-time salaried workers 

falling between the long and short test 

salary levels. The Department analyzed 

four alternative salary levels—two 

methodologies that would produce a 

higher salary level than the proposed 

methodology, and two that would 

produce a lower salary level.218

The Department first considered 

setting the standard salary level at the 

historical average short test salary level 

($1,378 per week or $71,656 per 

year).219 This would ensure that all 

employees who earn between the long 

and short test salary levels and perform 

substantial amounts of nonexempt work 

would be entitled to overtime 

compensation. However, by making 

exemption status for all employees who 

earn between the long and short test 

levels depend entirely on the salary 

paid by the employer, this approach 

would also prevent employers from 

being able to use the EAP exemption for 

employees earning between these salary 

levels who do not perform substantial 

amounts of nonexempt work and thus 

were historically exempt under the long 

test. For this reason, among others, the 

Department has chosen not to propose 

the salary level generated by this 

methodology. 

The Department also considered 

setting the standard salary level at the 

40th percentile of weekly earnings of 

full-time salaried workers in the lowestwage Census Region ($1,145 per week or 

$59,540 per year). This salary level is 

roughly the midpoint between the long 

and short test salary level alternatives 

($925 per week and $1,378 per week, 

respectively). However, as discussed 

above, the Department is concerned that 

this approach could be seen by courts as 

making salary determinative of 

exemption status for too large a portion 

of employees, as this salary level would 

make the salary paid by the employer 

determinative of exemption status for 

roughly half (47 percent) of white-collar 

employees who earn between the long 

and short test salary levels.220 The 

Department is also concerned that this 

approach would generate the same 

concerns that led to the district court 

decision invalidating the 2016 rule 

(which adopted the same 

methodology).221

The Department also considered using 

the 2004 methodology (the 20th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census region and in retail 

nationally), which is currently $822 per 

week ($42,744 per year). This is also the 

methodology that the Department used 

in the 2019 rule.222 However, the salary 

level produced by the 2004 

methodology is below the equivalent of 

the long test salary level ($925 per 

week). As discussed, the Department 

considers the long test to be the lower 

boundary for an appropriate salary level 

since, except for the 2019 rule, 

employees who earn below the long test 

salary level have consistently been 

excluded from the EAP exemption by 

the initial screening function of the 

salary level.223 Accordingly, the 

Department believes that a standard 

salary level produced using the 2004 

methodology would be too low to fully 

effectuate the salary level’s role in 

defining the EAP exemption. 

The Department also considered 

setting the standard salary level at the 

long test level ($925 per week or 

$48,100 per year). Doing so would 

ensure the initial screening function of 

the salary level by restoring overtime 

protections to those employees who 

were consistently 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 set 

equivalent to the long test salary 


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224See section IV.A.1. 225See section IV.A.2. 226 29 U.S.C. 213(f). 

227 69 FR 22172. 

228See Sarah A. Donovan, Cong. Rsch. Serv., 

R42713, The Fair Labor Standards Act (FLSA): An 

Overview, 6 (Mar. 8, 2023). In 1957, Congress 

amended section 13 of the FLSA to clarify that the 

Act’s minimum wage and overtime requirements 

apply to Guam. Public Law 85–231, 71 Stat. 514 

(Aug. 30, 1957) (codified at 29 U.S.C. 213(f)). 

229The CNMI was exempted from the FLSA’s 

minimum wage requirements, but not its overtime 

requirements, under the 1976 Covenant of 

Association with the United States, which 

established the CNMI as a Commonwealth. Public 

Law 94–241, sec. 503(c), 90 Stat. 263, 268 (Mar. 24, 

1976). Congress applied the FLSA’s minimum wage 

requirements to the CNMI for the first time in the 

Fair Minimum Wage Act of 2007, which was 

subsequently amended in 2015; pursuant to this 

legislation, the minimum wage in the CNMI 

gradually increased until it reached the full section 

6(a)(1) minimum wage in 2018. See Public Law 

110–28, sec. 8103, 121 Stat. 112, 188 (May 25, 

2007); Public Law 114–61, sec. 1, 129 Stat. 545 (Oct. 

7, 2015); Minimum Wage in the Northern Mariana 

Islands, WHD, available at: https://www.dol.gov/ 

sites/dolgov/files/WHD/legacy/files/cnmi.pdf. 

230See Public Law 101–157, sec. 4, 103 Stat. 938, 

939–941 (Nov. 17, 1989). 

231 69 FR 22172. 

232 Id. 

233See 81 FR 32444. After the Department 

published the 2016 rule, Congress passed the Puerto 

Rico Oversight, Management, and Economic 

Stability Act (PROMESA), Public Law 114–187, 

which prevented the rule from taking effect in 

Puerto Rico until the Comptroller General of the 

United States produced a report on the impact of 

applying the rule to Puerto Rico and the Secretary 

of Labor determined, based on the report, that 

applying the rule to Puerto Rico would not have a 

negative impact on its economy. The Comptroller 

General published its report in June 2018. See U.S. 

Gov’t Accountability Off., GAO–18–483, Puerto 

Rico: Limited Federal Data Hinder Analysis of 

Economic Condition and DOL’s 2016 Overtime Rule 

(June 29, 2018). The 2016 rule was invalidated and 

so the Department did not have occasion to further 

address this issue. 

234 84 FR 51246. 

235 Id. In the 2019 rule, the Department explained 

that while PROMESA did not apply to rulemakings 

other than the 2016 rule, the considerations that 

motivated PROMESA’s adoption supported setting 

a special salary level in Puerto Rico. See id. As in 

2019, the Department continues to believe that 

PROMESA does not constrain the Department’s 

authority to set a salary level for Puerto Rico in this 

rulemaking. 

236 Id. 

237 Id. 

level.224 However, as explained above, 

setting the standard salary level at the 

long test level would perpetuate the 

problem that has become evident under 

the 2004 and 2019 rules. Specifically, 

this approach would unduly deny 

overtime protections to all employees 

whose entitlement to overtime 

compensation was protected by the 

more rigorous long duties test.225 As 

noted above, however, the Department 

believes that in a one-test system with 

the current duties test it must set the 

salary level above the long test salary 

level in order to better define and 

delimit which employees are employed 

in a bona fide EAP capacity. 

While, for the reasons discussed 

herein, none of these alternatives were 

used as a method to establish the 

proposed salary test level, they confirm 

that the proposed salary level of the 

35th percentile of weekly earnings of all 

full-time salaried employees in the 

lowest-wage Census Region (the South) 

is an appropriate salary level. The 

Department’s proposed salary level 

appropriately would account for the 

shift from a two-test to a one-test system 

for determining exemption status, 

protecting lower-paid white-collar 

employees who traditionally have been 

entitled to overtime protection, while 

allowing employers to use the 

exemption for EAP employees earning 

less than the short test salary level. 

The Department welcomes comments 

on its proposed increase to the standard 

salary level. The Department also 

invites comments on alternate salary 

methodologies and specifically how 

such alternative methodologies would 

better define and delimit bona fide EAP 

employees than the Department’s 

proposed methodology. 

B. Special Salary Levels—U.S. 

Territories and Motion Picture Industry 

1. United States Territories 

The FLSA’s overtime requirements 

and the EAP exemption apply to 

employees in U.S. territories.226

Historically, the Department generally 

applied special, lower salary levels to 

employees in U.S. territories that were 

not subject to the Federal minimum 

wage in section 6(a)(1) of the FLSA. 

Consistent with this principle, as the 

Department explained in the 2004 rule, 

the Department applied lower salary 

levels to employees in Puerto Rico, the 

U.S. Virgin Islands, and American 

Samoa because, until 1989, the FLSA 

permitted the establishment of special 

minimum wage rates below the Federal 

minimum wage in these territories.227

The Department did not set a special 

salary level for employees in Guam, 

where the Federal minimum wage has 

applied since at least 1957,228 or the 

CNMI.229

In 1989, Congress amended the FLSA 

to apply the Federal minimum wage to 

the U.S. Virgin Islands beginning that 

same year and to Puerto Rico beginning 

in 1996, while maintaining special 

minimum wage rates for American 

Samoa.230 When the Department next 

updated the salary level tests in 2004, it 

applied the same salary level to 

employees in Puerto Rico and the U.S. 

Virgin Islands that it applied to 

employees in the 50 states and the 

District of Columbia ($455 per week), 

explaining that because these territories 

were ‘‘now subject to the same 

minimum wage as the U.S. mainland, 

there was no longer a basis for a special 

salary level test[.]’’ 231 The Department 

maintained a special salary level for 

employees in American Samoa equal to 

approximately 84 percent of the 

standard level ($380 per week), since 

American Samoa was not subject to the 

Federal minimum wage. This was 

roughly the same ratio to the U.S. 

mainland salary level that existed prior 

to 2004.232 The Department also 

continued to apply the same salary level 

to employees in Guam and the CNMI 

that it applied to employees in the U.S. 

mainland. 

The Department followed the same 

approach in the 2016 rule. Like the 2004 

rule, the 2016 rule would have 

continued to apply the standard salary 

level to employees in all the U.S. 

territories except for American 

Samoa.233 It also would have 

maintained a special salary level for 

employees in American Samoa, keeping 

it at 84 percent of the standard salary 

level, since American Samoa was still 

subject to special minimum wage rates 

below the Federal minimum wage. 

In the 2019 rule, the Department 

elected to preserve the 2004 standard 

salary level for employees in Puerto 

Rico, Guam, the U.S. Virgin Islands, and 

the CNMI ($455 per week) instead of 

applying the $684 per week salary level 

that applied to employees in the 50 

states and the District of Columbia; 234

in effect, establishing a special salary 

level for employees in territories that 

were subject to the Federal minimum 

wage for the first time. In support of this 

approach, the Department pointed to the 

economic climate in Puerto Rico; stated 

that Guam, the U.S. Virgin Islands, and 

the CNMI, as U.S. territories, also faced 

their own economic challenges; and 

expressed a desire to promote salary 

level consistency across the U.S. 

territories.235 The Department also 

maintained the 2004 special salary level 

for employees in American Samoa ($380 

per week).236 The Department 

determined that a special salary level 

lower than the other four territories was 

warranted for American Samoa because, 

like in 2004 and 2016, the territory was 

subject to special minimum wage rates 

below the Federal minimum wage.237

In § 541.600, the Department proposes 

to return to its longstanding pre-2019 

approach of only setting special salary 

levels for employees in those U.S. 

territories that are not subject to the 

Federal minimum wage. Accordingly, 

the Department proposes to apply the 


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238Special wage rates by industry in American 

Samoa currently range from $5.38 per hour to $6.79 

per hour. See Federal Minimum Wage in American 

Samoa, available at: https://www.dol.gov/sites/ 

dolgov/files/WHD/legacy/files/ASminwage

Poster.pdf. 

239As noted above, the Department set the special 

salary level for American Samoa in the 2004 rule 

at $380 per week, which is approximately 84 

percent of the standard salary level of $455 per 

week. 69 FR 22172. The 2016 rule would have set 

the special salary level for American Samoa at $767 

per week, which is 84 percent of the standard salary 

level of $913 per week. 81 FR 32444. The 2019 rule 

preserved the 2004 salary level of $455 per week 

for employees in Puerto Rico, Guam, the U.S. Virgin 

Islands, and the CNMI, as well as the 2004 salary 

level of $380 per week (approximately 84 percent 

of $455) for employees in American Samoa. 84 FR 

51246. 

240See Public Law 114–61, sec. 1, 129 Stat. 545 

(Oct. 7, 2015). 

241Three U.S. territories have a local minimum 

wage higher than the Federal minimum wage. The 

local minimum wage in Puerto Rico is currently 

$9.50 per hour; the local minimum wage in Guam 

is currently $9.25 per hour; and the local minimum 

wage in the U.S. Virgin Islands is currently $10.50 

per hour. See State Minimum Wage Laws, WHD, 

available at: https://www.dol.gov/agencies/whd/ 

minimum-wage/state. 

242 It is the Department’s intent that the proposal 

to apply the standard salary level to employees in 

territories that are subject to the Federal minimum 

wage is severable from the proposal to raise the 

standard salary level from the current amount ($684 

per week) to the 35th percentile of weekly earnings 

of full-time salaried workers in the lowest-wage 

Census Region ($1,059 per week using current 

data). The Department also intends that the 

proposal to set the special salary level for 

employees in American Samoa equal to 84 percent 

of the standard salary level, and to eliminate the 

special salary level for American Samoa when the 

highest industry minimum wage equals the Federal 

minimum wage, be severable from the proposal to 

raise the standard salary level. The Department has 

an interest in the uniform application of the EAP 

exemption to all employees subject to the Federal 

minimum wage and in adopting a clear and 

objective standard by which to determine whether 

to apply a special salary level to any U.S. territory. 

Accordingly, the Department’s intent is to apply the 

standard salary level to employees in those 

territories that are subject to the Federal minimum 

wage and set a special salary for American Samoa 

equal to 84 percent of the standard salary level until 

the highest minimum wage in the territory reaches 

the Federal minimum wage even if the standard 

salary level amount proposed in this rule does not 

take effect. 

243 § 541.709. 

244 18 FR 2881 (May 19, 1953). 

245The Department calculated this figure by 

dividing the proposed standard salary level ($1,059 

per week) by the current standard salary level ($684 

per week), and then multiplying this result 

(rounded to the nearest hundredth) by the base rate 

set in the 2019 rule ($1,043 per week). This 

produces a new base rate of $1,617 (per week), 

when rounded to the nearest whole dollar. 

246 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.’’). 

247See 69 FR 22173–74. 

standard salary level ($1,059 per week) 

to employees in Puerto Rico, where the 

Federal minimum wage has applied 

since 1996; Guam, where the Federal 

minimum wage has applied since at 

least 1957; the U.S. Virgin Islands, 

where the Federal minimum wage has 

applied since 1989; and the CNMI, 

where the Federal minimum wage has 

applied since 2018. The Department 

proposes to set a special salary level for 

employees in American Samoa equal to 

84 percent of the standard salary level 

($890 per week, based on a proposed 

standard salary level of $1,059 per 

month), since American Samoa remains 

subject to special minimum wage rates 

below the Federal minimum wage.238

This is the same ratio to the standard 

salary level that the Department used in 

the 2004 and 2016 rules, as well as the 

same ratio to the salary level in the 

other four U.S. territories that the 

Department used in the 2019 rule.239

Pursuant to the Fair Minimum Wage 

Act of 2007, as amended, industryspecific special minimum wage rates in 

American Samoa are scheduled to be 

gradually eliminated. Under this 

legislation, barring further 

Congressional action, special wage rates 

in American Samoa will increase by 

$0.40 on September 30, 2024 and every 

3 years thereafter until they equal the 

Federal minimum wage.240 As such, the 

Department also proposes that 90 days 

after the highest industry minimum 

wage for American Samoa equals the 

Federal minimum wage, the full 

standard salary level will apply for all 

EAP employees in all industries in 

American Samoa. 

The Department recognizes that the 

salary levels for the U.S. territories have 

not changed since 2004, and it 

understands that U.S. territories face 

their own economic challenges. 

However, the FLSA’s EAP exemption 

should apply equally to employees 

subject to the Federal minimum wage in 

section 6(a)(1) of the FLSA—including 

in the U.S. territories, to which this 

provision explicitly applies—absent a 

special minimum wage for the territory, 

which the Department has interpreted 

as an indication of Congressional intent 

to treat employees in the territory 

differently. As noted above, except for 

the 2019 rule, the Department has taken 

the position that a special, lower salary 

level should only be set for employees 

in those U.S. territories that are not 

subject to the Federal minimum wage, a 

group which is currently limited to 

employees in American Samoa.241 This 

approach provides a clear and objective 

standard by which to determine 

whether to apply the standard salary 

level or a special, lower salary level. 

Thus, in accordance with the 

Department’s longstanding practice, and 

in the interest of applying the FLSA 

uniformly to all employees subject to 

the Federal minimum wage, the 

Department proposes to apply the 

standard salary level to employees in 

Puerto Rico, Guam, the U.S. Virgin 

Islands, and the CNMI, and to maintain 

a special salary level for employees in 

American Samoa equal to 84 percent of 

the standard salary level until the 

highest industry minimum wage rate 

applicable in the territory equals the 

Federal minimum wage.242

The Department seeks comments on 

the proposed salary levels for the U.S. 

territories. 

2. Motion Picture Producing Industry 

The Department permits employers to 

classify as exempt employees in the 

motion picture producing industry who 

are paid a specified base rate per week 

(or a proportionate amount based on the 

number of days worked), so long as they 

meet the duties tests for the EAP 

exemption.243 This exception from the 

salary basis requirement was created in 

1953 to address the ‘‘peculiar 

employment conditions existing in the 

[motion picture producing] industry,’’ 

and applies, for example, when a 

motion picture producing industry 

employee works less than a full 

workweek and is paid a daily base rate 

that would yield the weekly base rate if 

6 days were worked.244 Consistent with 

its practice since the 2004 rule, the 

Department proposes in § 541.709 to 

increase the required base rate in 

proportion to the Department’s 

proposed increase in the standard salary 

level test, resulting in a proposed base 

rate of $1,617 per week (or a 

proportionate amount based on the 

number of days worked).245

The Department seeks comments on 

the proposed base rate for the motion 

picture industry. 

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.246 The HCE test’s primary 

purpose is thus 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.247

As outlined in § 541.601, to be exempt 

under the HCE test, an employee must 


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248Although § 541.602(a)(3) allows employers to 

use nondiscretionary bonuses 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 nondiscretionary bonuses 

to satisfy the weekly standard salary level 

requirement for HCE workers. Employers may use 

commissions, nondiscretionary bonuses, and other 

nondiscretionary compensation to satisfy the 

remaining portion of the HCE total annual 

compensation amount. See 84 FR 51249. 

249 § 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. 

250 69 FR 22269 (§ 541.601(a)). 

251See id. at 22169 (Table 3). 

252See 81 FR 32429. 

253See Nevada, 275 F. Supp. 3d at 808. The 

district court’s decision did not specifically discuss 

the HCE test; however, the decision invalidated the 

entire 2016 rule. 

254See 84 FR 51307 (§ 541.601(a)(1)); see also id. 

at 51249–50. 

255 69 FR 22174. 

256 It is the Department’s intent that the increase 

in the HCE total annual compensation threshold is 

independent of, and severable from, the proposed 

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). 

257See 69 FR 22174 (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.’’). 

258See 84 FR 51250. 

259See 69 FR 22169–70 (Tables 3 and 4). 

260 84 FR 51250–51; 81 FR 32430; see also 69 FR 

22122, 22164. 

earn at least the amount specified in the 

regulations in total annual 

compensation, of which at least the 

standard salary amount per week must 

be paid on a salary or fee basis,248 and 

must customarily and regularly perform 

any one or more of the exempt duties or 

responsibilities of an executive, 

administrative, or professional 

employee. The HCE test applies only to 

employees whose primary duty includes 

performing office or non-manual work. 

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.249 Total annual 

compensation does not include board, 

lodging, or other facilities, and does not 

include payments for medical 

insurance, life insurance, retirement 

plans, or other fringe benefits. An 

employer is permitted to make a final 

‘‘catch-up’’ payment during the last pay 

period or within one month after the 

end of the 52-week period to bring an 

employee’s compensation up to the 

required level. 

The 2004 rule set the HCE total 

annual compensation amount at 

$100,000,250 which exceeded the annual 

earnings of approximately 93.7 percent 

of salaried workers.251 In the 2016 rule, 

the Department set the total annual 

compensation requirement for the HCE 

test at the annualized weekly earnings 

of the 90th percentile of full-time 

salaried workers nationally, which was 

$134,004.252 As previously noted, 

however, the 2016 rule was enjoined 

before its effective date and was 

subsequently invalidated in 

litigation.253 In 2019, the Department set 

the HCE total annual compensation 

threshold at the 80th percentile of fulltime salaried worker earnings 

nationwide, resulting in a HCE 

threshold of $107,432 per year.254

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 qualify as EAPs, the HCE total 

annual compensation level must be high 

enough to exclude all but those 

employees ‘‘at the very top of [the] 

economic ladder.’’ 255

Accordingly, the Department 

proposes 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. Consistent 

with its prior rules, the Department is 

setting the HCE test level using 

nationwide data, rather than a regional 

data set. This approach results in a HCE 

threshold of $143,988, of which at least 

$1,059 per week (the proposed standard 

salary level) must be paid on a salary or 

fee basis.256

The Department considered updating 

the current HCE threshold (the 80th 

percentile) with current data (which 

would result in a compensation level of 

$125,268), but is 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.257

The Department also considered setting 

the HCE threshold at the 90th 

percentile, like in its 2016 rule. 

However, the Department is concerned 

that the resulting compensation level 

($172,796) could unduly restrict the use 

of the HCE exemption for employers in 

lower-wage regions and industries.258 In 

contrast, setting the HCE compensation 

level at the 85th percentile would be a 

reasonable increase, particularly in 

comparison to the HCE threshold 

initially adopted in 2004, which 

covered 93.7 percent of all full-time 

salaried workers.259 The Department 

believes that setting the HCE threshold 

at the annualized weekly earnings of the 

85th percentile of full-time salaried 

workers nationwide would be sufficient 

to 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. 

Under the proposed rule, employers 

that are currently using the HCE test to 

exempt more highly paid employees 

would instead need to apply the 

standard salary and duties test for 

employees earning between the current 

HCE threshold ($107,432) and the 

annualized weekly earnings of the 85th 

percentile of full-time salaried workers 

nationwide. The Department estimates 

that there are approximately 248,900 

salaried white-collar workers earning 

between $107,432 and the proposed 

HCE total annual compensation level 

($143,988) who meet the HCE duties test 

but do not meet the standard duties test, 

and who therefore would become 

nonexempt without some intervening 

action by their employers. 

As with other earning thresholds in 

the part 541 regulations, the Department 

is proposing to automatically update the 

HCE total compensation amount every 3 

years to reflect current earnings data, as 

discussed in greater detail in section 

IV.D.4. Automatic updates to the HCE 

threshold would ensure that the 

threshold remains at an appropriate 

level in future years. 

The Department welcomes comment 

on its proposed increase to the HCE 

threshold. 

D. Automatic Updates to the Salary and 

Total Annual Compensation Levels 

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 differentiate 

between exempt and nonexempt 

employees. As the Department observed 

in these rulemakings, even a wellcalibrated salary level that is not kept 

up to date becomes obsolete as wages 

for nonexempt workers increase over 

time.260 Long intervals between 


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261The Federal minimum wage was increased to 

$4.25 on April 1, 1991, equaling $170 for a 40-hour 

week, the same amount as the higher long test 

salary level for professional employees. On 

September 1, 1997, the Federal minimum wage was 

increased to $5.15, equaling $206 for a 40-hour 

week, which was close to the $250 short test salary 

level. See History of Federal Minimum Wage Rates 

Under the Fair Labor Standards Act, 1938–2009, 

WHD, available at: https://www.dol.gov/agencies/ 

whd/minimum-wage/history/chart; 40 FR 7091–92. 

262 69 FR 22171; 84 FR 51251–52; 81 FR 32430. 

263 35 FR 884. 

264 Id. 

265 69 FR 22171. 

266 Id. 

267 81 FR 32430, 32443. 

268 Id. at 32430. 

269Nevada, 275 F. Supp.3d at 808. 

270 84 FR 10914. 

271 Id. 

272 Id. at 10914–15. 

273See id. at 10915 n.140 (explaining how the 

Department could codify its proposed approach). 

274 84 FR 51252. 

275 Id. 

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 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 

earnings of a worker paid the Federal 

minimum wage exceeded the long test 

salary level for a 40-hour week and 

came close to equaling the short test 

salary level.261

To address this problem, in the 2004 

and 2019 rules the Department 

expressed its commitment to regularly 

updating the salary levels, and in the 

2016 rule it included a regulatory 

provision to automatically update the 

salary levels.262 Based on the 

Department’s experience with updating 

the salary levels, as well as additional 

considerations discussed below, the 

Department has concluded that 

adopting a regulatory provision for 

automatically updating the standard 

salary level and the HCE total annual 

compensation requirement to reflect 

current wage data, with the ability to 

pause future updates under certain 

conditions, would be the most viable 

and efficient way to ensure the EAP 

exemption salary levels remain up to 

date. 

1. Background 

The Department introduced a 

regulatory provision for automatically 

updating the salary level tests in its 

2016 rulemaking. Prior to the 2016 rule, 

the Department addressed the subject of 

automatic updating twice in response to 

comments by some stakeholders calling 

for its adoption. In its 1970 rulemaking, 

the Department stated that a comment 

‘‘propos[ing] to institute a provision 

calling for an annual review and 

adjustment of the salary tests . . . 

appears to have some merit, particularly 

since past practice has indicated that 

approximately 7 years elapse between 

amendment of the salary level 

requirements.’’ 263 Despite recognizing 

the potential value of this approach, the 

Department ultimately determined that 

‘‘such a proposal will require further 

study.’’ 264 Later, in its 2004 rule, the 

Department declined to adopt 

commenter requests for automatic 

increases to the salary level, reasoning 

in part that ‘‘the salary levels should be 

adjusted when wage survey data and 

other policy concerns support such a 

change’’ and that ‘‘the Department finds 

nothing in the legislative or regulatory 

history that would support indexing or 

automatic increases.’’ 265 In remarking 

on the lack of historical guidance 

related to the automatic updating of 

salary levels, the Department did not 

otherwise discuss its authority to 

promulgate such an approach through 

notice-and-comment rulemaking. 

Instead, the Department expressed its 

intent ‘‘in the future to update the salary 

levels on a more regular basis, as it did 

prior to 1975.’’ 266 Despite its best 

intentions, the Department’s next 

rulemaking to update the salary levels 

did not occur for over a decade. The 

difficulty in achieving its goal of 

regularly updating the salary levels 

caused the Department to examine in 

greater detail in its 2016 rulemaking the 

possibility of automatically updating the 

salary levels. 

In the 2016 rule, the Department 

introduced a new regulatory provision 

establishing a mechanism for 

automatically updating the standard 

salary test, the total annual 

compensation requirement for highly 

compensated employees, and the 

special salary levels for American 

Samoa and the motion picture 

industry.267 Under this provision, future 

automatic updates would have occurred 

triennially, using the same 

methodologies that were used to 

initially set these earnings thresholds in 

the 2016 rule. The Department 

explained that the adopted automatic 

updating mechanism would ‘‘ensure 

that the salary level test is based on the 

best available data (and thus would 

remain a meaningful, bright-line test), 

produce more predictable and 

incremental changes in the salary 

required for the EAP exemption, and 

therefore provide certainty to employers 

and promote government efficiency.’’ 268

The district court decision invalidating 

the 2016 rule did not separately 

examine the merits of the automatic 

updating provision or the Department’s 

authority to automatically update the 

salary levels. Rather, the court stated, 

‘‘Having determined the [2016] Final 

Rule is unlawful . . ., the Court 

similarly determines the automatic 

updating mechanism is unlawful.’’ 269

In its 2019 rulemaking, the 

Department reaffirmed that ‘‘the need to 

update the part 541 earnings thresholds 

on a regular basis is clear.’’ 270 The 

Department elaborated that ‘‘[a]s 

employees’ earnings rise over time, they 

begin surpassing the earnings thresholds 

set in the past’’ and make the thresholds 

‘‘a less useful measure of employees’ 

relative earnings, and a less useful 

method for identifying exempt 

employees.’’ 271 Rather than adopt an 

automatic updating mechanism, the 

Department initially proposed to keep 

the earnings thresholds up to date by 

publishing an NPRM in the Federal 

Register every 4 years seeking comment 

on whether to update the earnings 

thresholds using the existing 

methodology, with the understanding 

that the Department could forestall 

issuing such a proposal due to economic 

or other factors.272 However, the 

Department declined to codify this 

approach in its final rule 273 or 

implement a mechanism for 

automatically updating the salary levels 

as suggested by some commenters, 

stating that doing so could deprive the 

Department of flexibility to adapt to 

unanticipated circumstances.274

Instead, the Department reaffirmed its 

intention to update the salary levels 

more regularly through notice-andcomment rulemaking.275

2. The Department’s Authority To 

Automatically Update the Salary Level 

Tests 

The Department’s authority to 

automatically update the salary level 

tests for the EAP exemption is grounded 

in section 13(a)(1), which expressly 

gives the Secretary broad authority to 

define and delimit the scope of the 

exemption. During the 2016 and 2019 

rulemakings, some stakeholders 

questioned the Department’s authority 

to automatically update the salary 

levels, asserting, among other points, 

that unlike other statutes that expressly 

provide for indexing, section 13(a)(1)’s 

silence indicates that Congress did not 

intend the salary level to be 

automatically updated, and that an 

automatic updating mechanism would 


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276See 81 FR 32430, 32432; 84 FR 51251. 

277 29 U.S.C. 213(a)(1). 

278See section II.B.1–2. 

279See Public Law 101–583, sec. 2, 104 Stat. 2871 

(Nov. 15, 1990) (directing the Secretary to 

promulgate regulations that permit computer 

systems analysts, computer programmers, software 

engineers, and other similarly skilled professional 

workers as defined in the regulations to qualify as 

EAP exempt employees under section 13(a)(1), 

including those paid on an hourly basis if paid at 

least 6-and-a-half times the Federal minimum 

wage). 

280 Despite what some commenters asserted in the 

2016 rulemaking, the Department’s automatic 

updating mechanism does not conflict with section 

13(a)(1)’s ‘‘time to time’’ language. See 81 FR 32431. 

Adopting a mechanism to ensure that the part 541 

earnings thresholds continue screening out the 

same percentage of salaried workers over time 

would in no way preclude the Department from 

revisiting this methodology from ‘‘time to time’’ 

should cumulative changes in job duties, 

compensation practices, and other relevant working 

conditions indicate that changes to the proposed 

earnings thresholds are warranted. 

281 Long Island Care at Home, Ltd. v. Coke, 551 

U.S. 158, 165 (2007) (quoting Chevron, U.S.A., Inc. 

v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 

(1984)). 

282 69 FR 22171. 

283See 81 FR 32432–33 (noting that ‘‘instituting 

an automatic updating mechanism . . . is an 

appropriate modernization and within the 

Department’s authority.’’). 

284 84 FR 51252. 

circumvent the Administrative 

Procedure Act (APA).276

As the Department has previously 

explained, Congress did not specifically 

set forth precise criteria for defining the 

EAP exemption, but instead authorized 

the Secretary to define and delimit the 

terms of the exemption.277 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. 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 twotest system in 1949, and switching to 

the single standard test and adding the 

new HCE test in 2004.278 Despite having 

amended the FLSA numerous times 

over the years, Congress has not 

amended section 13(a)(1) to alter these 

regulatory salary requirements. 

Other than directing the Department 

in 1990 to include in the EAP 

regulations certain computer employees 

paid at least six-and-a-half times the 

Federal minimum wage on an hourly 

basis,279 Congress has never amended 

the FLSA in a manner that limits the use 

of the salary level tests.280 Just as the 

Department has authority under section 

13(a)(1) to establish and update the 

salary level tests, it likewise has 

authority to adopt a regulatory 

mechanism for automatically updating 

the salary levels to ensure that the tests 

remain effective. This interpretation is 

consistent with the well-settled 

principle that agencies have authority to 

‘‘‘fill any gap left, implicitly or 

explicitly, by Congress.’’’ 281 Further, 

the Department has determined that an 

automatic updating mechanism would 

better fulfill its statutory duty to define 

and delimit the EAP exemption because 

it will maintain the effectiveness of the 

salary levels, which have previously 

become eroded during large gaps 

between regulatory updates. 

The Department’s decision not to 

institute an automatic updating 

mechanism in its 2004 and 2019 

rulemakings in no way suggests that it 

lacks 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.282 As the 

Department elaborated in its 2016 

rulemaking, there was likewise no such 

authority disfavoring automatic 

updating.283 The 2004 rule did not 

discuss the Department’s authority to 

promulgate an automatic updating 

mechanism through notice-andcomment rulemaking or explore in 

detail whether automatic updates to the 

salary levels posed a viable solution to 

problems created by lapses between 

rulemakings. 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,’’ 284

and not because it lacked authority to 

do so. While the Department decided 

not to institute an automatic updating 

mechanism in its 2019 rule, the 

Department did not assert that it lacked 

the legal authority for such a 

mechanism. And, as noted above, in its 

2019 rule the Department reaffirmed its 

intention to update the salary levels 

more regularly. Consistent with this 

stated objective, and upon further 

consideration, the Department has 

concluded that the best method to 

ensure the standard salary level and 

HCE total compensation threshold 

remain up to date is an automatic 

updating mechanism that maintains the 

Department’s flexibility to adapt to 

different circumstances and change 

course as necessary. 

3. Rationale for Automatically Updating 

the Salary Level Tests 

A regulatory mechanism for 

automatically updating the part 541 

earnings thresholds would ensure that 

the levels keep pace with changes in 

employee earnings and thus remain 

effective in helping determine 

exemption status. As the Department’s 

long experience has shown, earnings 

thresholds are only a strong measure of 

exempt status if they are kept up to date, 

and if left unchanged, such thresholds 

become substantially less effective in 

identifying exempt EAP employees as 

wages for workers increase over time. 

The Department’s regulatory history, 

marked in many instances by lengthy 

gaps between rulemakings, underscores 

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 test. Through 

the proposed automatic updating 

mechanism, the Department can 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 noticeand-comment rulemaking to set these 

thresholds, while a change to those 

methodologies would be effectuated 

through new notice-and-comment 

rulemaking. The proposed automatic 

updating mechanism would allow for 

regular and more predictable updates to 

the earnings thresholds, which would 

benefit both employers and employees 

and better fulfill the Department’s 

statutory duty to define and delimit the 

EAP exemption by preventing the 

erosion of those levels over time. 

As the Department explained in the 

2016 rule, automatically updating the 

part 541 earnings thresholds would also 

prevent the more drastic and 

unpredictable threshold increases 

associated with less frequent updates. 

For example, between 1940 and 2019, 

the time between salary level updates 

ranged from 5 to 29 years. In part as a 

result of these breaks, long test salary 

level increases between 1940 and 1975 

ranged from roughly 5 to 50 percent, the 

2004 standard salary level test 

represented a 180 percent increase from 

the 1975 long test salary levels, and the 

2019 standard salary level test 

represented an approximately 50 

percent increase from the 2004 standard 

salary level. Automatically updating the 

part 541 earnings thresholds at a 

predetermined frequency using the 

same methodology would ensure that 

future salary level increases occur at a 


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285See 81 FR 32438. 

286See, e.g., 84 FR 51251–52. 

287 During the 2016 rulemaking, 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. See 81 FR 32438–41. 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), observing 

that the objectives that justify setting the salary 

level using a fixed percentile methodology also 

supported updating the thresholds using the same 

methodology. See id. at 32440. For this and other 

reasons discussed in detail in the 2016 rule, the 

Department concludes that updating the earnings 

thresholds by applying the same methodology used 

to set the initial levels instead of indexing them for 

inflation best ensures that the earnings thresholds 

continue to fulfill their objective of effectively 

differentiating between bona fide EAP employees 

and those who are entitled to overtime pay, and 

work appropriately with the duties test. 

288 Id. at 32551. 

known interval and in more gradual 

increments. 

The Department is proposing for 

automatic updates to occur triennially 

(i.e., every 3 years). The Department 

realizes that because employee earnings 

are constantly changing, annual or 

biennial automatic updates would keep 

the salary level more up to date and 

thereby may better serve the purpose of 

using earnings thresholds to help 

identify exempt employees. However, 

the Department is concerned about the 

potential burden that possible changes 

to the tests for exemption on an annual 

or biennial basis would impose on 

employers and believes that triennial 

updates are frequent enough to ensure 

that the part 541 earnings thresholds 

fulfill their purpose. This frequency is 

also consistent with the interval chosen 

in the 2016 rule following extensive 

public comment on this issue.285

In proposing to automatically update 

the earnings thresholds, the Department 

is mindful of previous statements from 

stakeholders, and the Department’s own 

prior statements, about the need to 

preserve flexibility to adapt to 

unanticipated circumstances and 

prevailing economic conditions when 

setting the salary level.286 Events since 

the Department’s 2019 rule, including 

the COVID pandemic and its 

widespread impact on workplaces, have 

served to further validate these 

concerns. To address these concerns, 

the Department proposes to include in 

the regulatory provision the ability for 

the Department to temporarily delay a 

scheduled automatic update where 

unforeseen economic or other 

conditions warrant. This feature, which 

is a refinement of the automatic 

updating mechanism in the 2016 rule, 

would afford the Department added 

flexibility to adapt to unforeseen 

circumstances without sacrificing the 

benefits provided by automatic 

updating. 

4. Proposal for Automatically Updating 

the Salary Level Tests 

The Department proposes to add a 

new § 541.607 that would establish a 

mechanism for automatically updating 

the standard salary level and the HCE 

total annual compensation requirement. 

Specifically, the Department proposes to 

automatically update the standard 

salary level and the total annual 

compensation requirement for highly 

compensated employees every 3 years to 

reflect current earnings data. 

Under this proposal, the Department 

would automatically update the 

standard salary level by adjusting it to 

remain at the 35th percentile of weekly 

earnings of full-time nonhourly workers 

in the lowest-wage Census Region 

(currently the South), as set out in 

section IV.A.3. The HCE test’s total 

annual compensation requirement 

would be reset triennially at the 

annualized weekly earnings of the 85th 

percentile of full-time nonhourly 

workers nationally, as discussed in 

section IV.C. This approach, as opposed 

to other methods such as indexing these 

thresholds for inflation, would 

eliminate the risk that future levels will 

deviate from the underlying salary 

setting methodology established through 

rulemaking.287 The Department 

proposes to update both thresholds 

using the most recent available four 

quarters of data, as published by BLS, 

preceding the publication of the 

Department’s notice to automatically 

update the thresholds. Although the 

2016 rule called for automatic updates 

based on a quarter of data,288 relying on 

a full year of data would be consistent 

with the approach used to set the salary 

level in this proposal. Furthermore, 

relying on a year of data, rather than a 

quarter, would balance the Department’s 

goal of accounting for current economic 

conditions with avoiding variations 

based on short-term fluctuations. 

Under the proposed regulation, 

automatic updates would occur every 3 

years, computed from the last day of the 

month in which this rulemaking take 

effect. Because under proposed 

§§ 541.600 and 541.709 both the special 

salary level for American Samoa and the 

base rate for the motion picture industry 

are set in relation to the standard salary 

level, those earnings thresholds would 

also reset at the time the standard salary 

level is updated. At least 150 days 

before the date of the update of the 

standard salary level and the HCE total 

annual compensation requirement, the 

Department would publish in the 

Federal Register and on WHD’s website 

a notice with the new earnings levels 

described above. Consistent with the 

2016 rule, the Department is proposing 

this interval to provide employers 

ample notice and sufficient time to 

make any necessary adjustments. A 

period substantially longer than 150 

days could hinder the Department’s 

ability to ensure that the thresholds that 

take effect are based on the most up to 

date data. 

Finally, the Department’s proposal 

includes a provision delaying a 

scheduled automatic update while the 

Department engages in notice-andcomment rulemaking to change the 

earnings requirements and/or updating 

mechanism, where economic or other 

conditions merit. The delay occurs only 

if the Department publishes an NPRM 

proposing to change the salary level 

methodology (for example, changing the 

earnings percentile) and/or modify the 

automatic updating mechanism (for 

example, changing the updating 

frequency) before the date on which it 

publishes the notice of the revised 

salary and compensation levels under 

the regulations. The notice must state, 

in addition to the updated levels, that 

the automatic 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 by that time the Department 

finalizes a rule changing the salary level 

methodology and/or automatic updating 

mechanism. Accordingly, this proposal 

provides for 270 days—150 days before, 

and 120 days after, the effective date for 

the scheduled automatic update—to 

complete this process. The Department 

chose this interval to provide time for a 

public comment period and to issue a 

final rule. If the Department does not 

issue a final rule by the prescribed 

deadline, the pause on the scheduled 

automatic update would be lifted and 

the new salary levels would take effect 

on the 121st day after they were 

originally scheduled to take effect. So as 

not to disrupt the automatic updating 

schedule and given the relative 

shortness of the delay, the 120-day 

pause would not affect the date for the 

next scheduled automatic update. The 

next automatic update, therefore, would 

occur 3 years from the date the delayed 

automatic update would have been 

originally effective. 

As discussed in section V below, the 

Department intends for the proposed 

automatic updating mechanism to be 

severable from the increases to the 

earnings thresholds proposed in this 


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289See 5 U.S.C. 801(a)(3)(A); 5 U.S.C. 553(d). 

rulemaking. Regardless of the 

methodology used to set the standard 

salary level and HCE total compensation 

requirement, the utility of these 

thresholds as a means of distinguishing 

exempt from nonexempt employees 

necessarily erodes over time unless they 

are regularly updated. Automatically 

updating the standard salary level and 

HCE total compensation requirement 

based on current earnings data and on 

a set schedule would ensure that the 

thresholds remain effective into the 

future and thus better fulfill the 

Department’s statutory duty to define 

and delimit the EAP exemption. 

Therefore, even if the increases to the 

standard salary level and the HCE total 

annual compensation threshold in this 

proposal are determined to be invalid, 

the Department intends for the 

automatic updating mechanism to apply 

to the existing compensation thresholds. 

For example, it is the Department’s 

intent that if the proposed increase to 

the standard salary level to the 35th 

percentile of weekly earnings of salaried 

white collar workers in the lowest-wage 

Census region is invalidated, the 

automatic update to the standard salary 

level would occur using the same 

methodology that is in effect on the date 

the Department publishes the required 

notice of the revised salary and 

compensation levels—which, as noted 

above, must be no less than 150 days 

before the scheduled update. 

The Department welcomes comments 

on all aspects of the proposed automatic 

updating mechanism. 

E. Effective Date 

The Department is proposing that all 

aspects of this proposed rule would 

become effective 60 days after 

publication of a final rule. This 

proposed effective date is consistent 

with the 60 days mandated for a ‘‘major 

rule’’ under the Congressional Review 

Act and exceeds the 30-day minimum 

required under the APA.289 The 

Department recognizes that the 60-day 

proposed effective date is shorter than 

the effective dates for the 2004, 2016, 

and 2019 rules, which were between 

approximately 90 and 180 days. The 

Department believes that a 60-day 

effective date is 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 seeks 

comments on the proposed effective 

date. It also seeks comments on whether 

to apply different effective dates to 

different provisions of the proposed 

rule. 

As discussed in detail below in 

sections VII.B–C, the Department’s 

proposal to increase the HCE total 

annual compensation threshold to the 

annualized weekly earnings of the 85th 

percentile of full-time salaried workers 

nationwide would result in employers 

applying the standard duties test to 

some employees who are currently 

subject to the streamlined HCE duties 

test. However, employers are familiar 

with the standard duties test and only 

approximately 248,900 employees who 

earn between the current and proposed 

HCE compensation thresholds would 

not meet the standard duties test and be 

affected by this change. Accordingly, 

the Department believes the proposed 

60-day effective date for the proposed 

increase to the HCE total compensation 

threshold would provide sufficient time 

for stakeholders to adjust. The 

Department seeks comments on the 

proposed effective date for the HCE 

compensation threshold increase. 

As discussed below in sections 

VII.B.C, the Department’s proposed 

standard salary level—the 35th 

percentile of weekly earnings of fulltime nonhourly workers in the lowestwage Census Region—would affect 3.4 

million employees who earn between 

the current salary threshold of $684 per 

week and the proposed threshold of 

$1,059 per week. As discussed above, 

the Department believes it is important 

to update the standard salary level, both 

to account for earnings growth since the 

Department last updated the salary level 

in the 2019 rule and to build on the 

lessons learned in the Department’s 

most recent rulemakings to better define 

and delimit employees working in a 

bona fide EAP capacity. The Department 

has also deliberately selected a 

proposed standard salary level that 

would ensure that duties remain 

determinative of exemption status for a 

significant majority of salaried whitecollar employees and that would affect 

the exemption status of a relatively 

small group of currently exempt 

employees, more than half of whom 

earn below the long test salary level 

using contemporary data. At the same 

time, the Department recognizes that it 

updated the regulations approximately 4 

years ago, economic conditions have 

changed significantly since then, and its 

proposed standard salary level would be 

a meaningful increase from the current 

standard salary level. 

The Department seeks comments on 

whether the effective date for the 

increase of the standard salary level 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 increase should be made effective 

at some later date, such as 6 months or 

a year after publication of a final rule. 

If the effective date were longer than 60 

days, the Department seeks 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). Additionally, the 

Department seeks comments on the 

methodology it could use for such an 

initial update, were it to follow such an 

approach. In particular, the Department 

invites 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). 

The Department also seeks comments 

on whether its proposed application of 

the standard salary level to employees 

in Puerto Rico, Guam, the U.S. Virgin 

Islands, and the CNMI, its proposed 

update to the special salary level for 

employees in American Samoa, and its 

proposed update to the special salary 

level for employees in the motion 

picture production industry, should also 

go into effect 60 days after a final rule 

as proposed, or if any of these changes 

should instead go into effect at a later 

date, such as 6 months or a year after 

publication. If the effective date for 

these provisions were longer than 60 

days, the Department seeks comments 

on whether it should make an initial 

adjustment to these levels 60 days after 

publication of a final rule and, if so, 

what methodology should be used for 

the initial adjustment. 

Finally, the Department is proposing 

that the first automatic update to the 

proposed compensation levels be 

effective 3 years after the proposed 60- 

day effective date. The Department 

seeks comments on whether the date for 

the first automatic update should be 

adjusted if it were to make an initial 

adjustment to any of these levels as 

discussed above. 

V. Severability 

The Department proposes to include a 

severability provision in part 541 so that 

if one or more of the provisions of part 

541 is held invalid or stayed pending 


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further agency action, the remaining 

provisions would remain effective and 

operative. The Department proposes to 

add this provision as § 541.5. 

It is the Department’s intent that any 

final rule following from this proposal 

apply to its greatest extent even if one 

or more provisions of such rule are 

invalidated or stayed. For example, as 

noted above, it is the Department’s 

intent that the proposed automatic 

updating mechanism be effective even if 

the proposed increase in the standard 

salary level is invalidated. Similarly, it 

is the Department’s intent that the 

increase in the HCE total annual 

compensation requirement be effective 

even if the increase in the standard 

salary level is invalidated. It is also the 

Department’s intent that the standard 

salary level apply in territories subject 

to the Federal minimum wage even if 

the increase in the standard salary level 

in this rulemaking is invalidated. 

Additionally, it is the Department’s 

intent that the earnings thresholds set in 

this rulemaking apply even if the 

mechanism for automatically updating 

them in the future is determined to be 

invalid. In all circumstances, whether or 

not specifically discussed, it is the 

Department’s intent that the provisions 

of any final rule be construed to give the 

maximum effect to the provisions 

permitted by law, and that any 

invalidated provisions be considered 

severable from part 541 and not affect 

the remainder of a final rule. 

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, their practical utility, the 

impact of paperwork and other 

information collection burdens imposed 

on the public, and how to minimize 

those burdens. The PRA typically 

requires an agency to provide notice and 

seek public comments on any proposed 

collection of information contained in a 

proposed rule. See 44 U.S.C. 

3506(c)(2)(B); 5 CFR 1320.8. 

This rulemaking would revise the 

burdens for the existing information 

collection previously approved under 

OMB control number 1235–0018, 

Records to be kept by Employers—Fair 

Labor Standards Act and under OMB 

control number 1235–0021, 

Employment Information Form. The 

information collection approved under 

OMB control number 1235–0021 is 

currently encumbered by another 

rulemaking. As a result, the Department 

has created a duplicate information 

collection under OMB control number 

1235–0NEW to allow the public to 

comment on the burden estimates 

associated with this collection. The 

Department anticipates that at the time 

of publication of any potential final rule 

associated with this NPRM, no 

encumbrance will exist. Should a final 

rule be published, the Department will 

revert to the collection currently 

approved under OMB control number 

1235–0021. As required by the PRA, the 

Department has submitted information 

collections as revisions to existing 

collections to OMB for review to reflect 

changes to existing burdens that will 

result from the implementation of this 

rulemaking. The Department has 

incorporated the increased universe of 

employers and employees (from Figure 

1 and Table 32 of this NPRM) since the 

last PRA submission as well as the 

number of affected workers from Table 

4 into the PRA burden analysis found in 

the supporting statements referenced 

below. 

Summary: FLSA section 11(c) 

requires all employers covered by the 

FLSA to make, keep, and preserve 

records of employees and of wages, 

hours, and conditions of employment. 

An FLSA-covered employer must 

maintain the records for such period of 

time as prescribed by regulations issued 

by the Secretary. The Department has 

promulgated regulations at 29 CFR part 

516 establishing the basic FLSA 

recordkeeping requirements. This 

NPRM, if finalized, would not impose 

any new information collection 

requirements; rather burdens under 

existing requirements would change as 

more employees become entitled to 

minimum wage and overtime 

protections. 

Purpose and use: This proposed rule, 

which would revise 29 CFR part 541, 

affects the following provisions that 

could be considered to entail collections 

of information: (1) disclosure and 

recordkeeping requirements for covered 

employers; and (2) the complaint 

process under which employees may 

file a complaint with the Department to 

investigate potential violations of the 

FLSA. The proposed rule could 

potentially affect the number of 

employees for whom employers may 

need to maintain records and could 

potentially affect the number of 

complaints the Department receives 

from employees. 

WHD obtains PRA clearance under 

OMB control number 1235–0018 for an 

information collection with respect to 

recordkeeping. An Information 

Collection Request (ICR) has been 

submitted to revise the approval and 

adjust the burdens for this collection. 

WHD obtains PRA clearance under 

control number 1235–0021 for an 

information collection covering 

complaints alleging violations of various 

labor standards that the agency already 

administers and enforces. As noted, for 

the purpose of this NPRM, the 

Department has created a duplicate ICR 

(1235–0NEW) to allow the public to 

comment. An ICR has been submitted to 

revise the approval to revise the burdens 

applicable to complaints in this 

proposed rule. 

Information and technology: There is 

no particular order or form of records 

prescribed in the current regulations or 

in the proposed rule. An employer may 

meet the requirements of this proposed 

rule using paper or electronic means. 

WHD, to reduce the 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 offer assistance. 

WHD uses employer records to 

determine compliance with various 

FLSA requirements. Employers use the 

records to document compliance with 

the FLSA, including demonstrating 

qualification for various exemptions. 

WHD uses the Employment Information 

Form (1235–0021) to document 

allegations of non-compliance with 

labor standards the agency administers. 

To allow the public to comment, the 

Department has created duplicate ICR 

1235–0NEW. 

Minimizing Small Entity Burden: 

Although the FLSA recordkeeping 

requirements involve small entities, 

including small state and local 

government agencies, the Department 

minimizes respondent burden by 

requiring no specific order or form of 

records in responding to this 

information collection. Burden is 

reduced on complainants by providing 

a template to guide answers. 

Public comments: As part of its 

continuing effort to reduce paperwork 

and respondent burden, the Department 

conducts a preclearance consultation 

program to provide the general public 

and Federal agencies with an 

opportunity to comment on proposed 

and continuing collections of 

information in accordance with the 

PRA. This program helps to ensure that 

requested data can be provided in the 

desired format, reporting burden (time 

and financial resources) is minimized, 

collection instruments are clearly 

understood, and the impact of collection 

requirements on respondents can be 


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properly assessed. The Department 

seeks comments on its analysis 

(contained in the supporting statements 

referenced below) that this NPRM 

creates a slight increase in paperwork 

burden associated with ICR 1235–0021, 

Employment Information Form 

(reflected in duplicate ICR 1235– 

0NEW), and affects the recordkeeping 

requirements and burdens on the 

regulated community in ICR 1235–0018, 

Records to be kept by Employers—Fair 

Labor Standards Act. Commenters may 

send their views on the Department’s 

PRA analysis in the same way they send 

comments in response to the NPRM as 

a whole (e.g., through the 

www.regulations.gov website), including 

as part of a comment responding to the 

broader NPRM. Alternatively, 

commenters may submit a comment 

specific to this PRA analysis by sending 

an email to WHDPRAComments@

dol.gov. While much of the information 

provided to OMB in support of the 

information collection request appears 

in the preamble, interested parties may 

obtain a copy of the supporting 

statements for the affected ICRs by 

sending a written request to the mail 

address shown in the ADDRESSES section 

at the beginning of this preamble. 

Alternatively, a copy of the ICR 

applicable supporting documentation, 

including a description of the likely 

respondents, proposed frequency of 

response, and estimated total burden, 

may be obtained free of charge from the 

RegInfo.gov website. Similarly, the 

complaint process ICR is available by 

visiting http://www.reginfo.gov/public/ 

do/PRAMain. 

OMB and the Department are 

particularly interested in comments 

that: 

• Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

functions of the agency, including 

whether the information will have 

practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

proposed collection of information, 

including the validity of the 

methodology and assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

• Total burden for the recordkeeping 

and complaint process information 

collections, including the burdens that 

will be affected by this proposed rule 

and any changes, are summarized 

below. For the complaint ICR, the 

Department used actual data from FY22 

and added additional burden related to 

this rulemaking using the number of 

affected workers from Table 4 of the RIA 

and multiplying by .05%. This is an 

approximate estimate of potential new 

complaints should the rule become final 

(please see the draft supporting 

statements referenced above for an 

explanation of how these estimates were 

derived). With respect to the FLSA 

recordkeeping ICR, the Department first 

revised the overall burden for the 

collection as the baseline number of 

employers and employees within the 

U.S. economy has changed since the 

collection was last submitted to OMB. 

The Department then added the newly 

affected workers described in the NPRM 

(see Table 4 of the RIA) to account for 

additional burden employers could 

potentially be subject to when a final 

rule is published. 

Type of review: New collection 

(duplicate ICR to allow for public 

comment revising a currently approved 

information collection). 

Agency: Wage and Hour Division, 

Department of Labor. 

Title: Employment Information Form. 

OMB Control Number: 1235–0NEW. 

Affected public: Private sector, 

businesses or other for-profits and 

Individuals or Households. 

Estimated number of respondents: 

28,824 (1,824 from this rulemaking). 

Estimated number of responses: 

28,824 (1,824 from this rulemaking). 

Frequency of response: On occasion. 

Estimated annual burden hours: 9,608 

(608 burden hours due to this NPRM). 

Estimated annual burden costs 

(capital/startup): $0 ($0 from this 

rulemaking). 

Estimated annual burden costs 

(operations/maintenance): $0 ($0 from 

this rulemaking). 

Estimated annual burden costs: $0 ($0 

from this rulemaking). 

Type of Review: Revision to a 

currently approved information 

collection. 

Title: Records to be kept by 

Employers—Fair Labor Standards Act. 

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. 

Estimated number of responses: 

41,160,4 07 (8,971,488 from this NPRM). 

Frequency of response: Various. 

Estimated annual burden hours: 

1,105,833 (299,050 from this NPRM). 

Estimated annual burden costs: 

$51,277,476. 

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 proposed 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 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 proposed rule, if 

finalized, and was prepared pursuant to 

the above-mentioned executive orders. 


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Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Proposed Rules 62183 

290 29 U.S.C. 213(a)(1). 

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.290 The Department’s 

regulations implementing these ‘‘whitecollar’’ exemptions are codified at 29 

CFR part 541. Since 1940, the 

regulations implementing the 

exemption have 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 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 fulltime 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 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) ... $200 (per month) ... ........................

1949 .......................................................................................... 55 $75 ......................... $75 ......................... $100 

1958 .......................................................................................... 80 $95 ......................... $95 ......................... 125 

1963 .......................................................................................... 100 $100 ....................... $115 ....................... 150 

1970 .......................................................................................... 125 $125 ....................... $140 ....................... 200 

1975 .......................................................................................... 155 $155 ....................... $170 ....................... 250 

Standard duties test 

2004 .......................................................................................... $455 

2019 .......................................................................................... $684 

* Unless otherwise specified, all figures are dollars per week. 


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291The 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. 

292MORG is a supplement to the CPS and is 

conducted on approximately one-fourth of the CPS 

sample monthly to obtain information on weekly 

hours worked and earnings. The Department relied 

on CPS MORG data for calendar year 2022 to 

develop this NPRM. The Department will update 

the data used in any final rule resulting from this 

proposal. 

293Stein Report at 19, 24; see also 81 FR 32422. 

294See 84 FR 51237. 

295See 84 FR 51238. 296See 69 FR 22169 (Table 3). 

2. Need for Rulemaking 

The goal of this rulemaking is not 

only to update the single standard salary 

level to account for earnings growth 

since the 2019 rule, but also to build on 

the lessons learned in the Department’s 

most recent rulemakings to more 

effectively define and delimit 

employees working in a bona fide EAP 

capacity. Specifically, the Department is 

proposing to update the standard salary 

level by setting it equal to the 35th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region (currently the 

South), based on the most recent 

Current Population Survey (CPS) 

data.291 Using 2022 CPS Merged 

Outgoing Rotation Group (MORG) 292

data, the salary level would be set at 

$1,059 per week. 

The Department’s proposed 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 IV.A., 

above, setting the standard salary 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 what would 

currently be the equivalent of the long 

test salary level, the proposal would 

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 testequivalent) salary level. And it would 

ensure that fewer lower paid whitecollar employees who perform 

significant amounts of nonexempt work 

are included in the exemption. At the 

same time, by setting it well below what 

would currently be the equivalent of the 

short test salary level, the proposal 

would 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 proposed salary level would 

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. 

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.’’ 293

Additionally, the salary level test 

facilitates application of the exemption 

by saving employees and employers 

from having to apply the more timeconsuming 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.294 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.295

Under the Department’s proposal, duties 

would continue to determine the 

exemption status for most salaried 

white-collar employees, addressing the 

legal concerns that have been raised 

about excluding from the EAP 

exemption too many white-collar 

employees solely based on their salary 

level. 

The Department also proposes to 

update the HCE total annual 

compensation requirement to the 

annualized weekly earnings of the 85th 

percentile of full-time salaried workers 

nationally ($143,988 in 2022). Though 

not as high a percentile as the HCE 

threshold initially adopted in 2004, 

which covered 93.7 percent of all fulltime salaried workers,296 the 

Department’s proposed increase to the 

HCE threshold would ensure it 

continues to serve its intended function, 

because the HCE total annual 

compensation level would be high 

enough to exclude all but those 

employees at the very top of the 

economic ladder. 

In accordance with the Department’s 

traditional practice, and in the interest 

of applying the FLSA uniformly to areas 

subject to the Federal minimum wage, 

the Department is also proposing to 

apply the standard salary level to all 

territories that are subject to the Federal 

minimum wage and to update the 

special salary levels for American 

Samoa and the motion picture industry 

in relation to the new standard salary 

level. Having not increased these levels 

since 2004, there is a need to increase 

the salary levels in U.S. territories, 

particularly for employees in those 

territories that are subject to the Federal 

minimum wage. 

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. This rulemaking is 

motivated in part by the need to keep 

the part 541 earnings thresholds up to 

date. Based on its long experience with 

updating the salary levels, the 

Department has determined that 

adopting a regulatory provision for 

automatically 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, the Department is 

including in this proposed rule a 

mechanism for automatically updating 

the salary and compensation levels 

every 3 years. As explained in greater 

detail in section IV.D., employees and 

employers alike would benefit from the 


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297The 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 $1,059 

per week, or pass only the HCE duties test and earn 

at least $107,432 but less than the new HCE 

compensation level of $143,988 per year. 298Here 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 is possible in both 

non-update and update years but is much more 

likely to occur 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 proposed rule they would 

have lost their overtime protections. To estimate the 

total number of affected workers over time, the 

Department accounts for both of these effects. 

300Hereafter, unless otherwise specified, 

annualized values will be presented using the 7 

percent real discount rate. 

301See 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. 

certainty and stability of regularly 

scheduled updates. 

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 proposed rule using 

pooled CPS MORG data. See section 

VII.B.2. The Department estimates in the 

first year after implementation, there 

would be 3.6 million affected 

workers.297 This includes 3.4 million 

workers who meet the standard duties 

test and earn at least $684 per week but 

less than $1,059 per week and would 

either become eligible for overtime or 

have their salary increased to at least 

$1,059 per week (Table 2).298 An 

estimated 248,900 workers would be 

affected by the proposed increase in the 

HCE compensation test from $107,432 

per year to $143,988 per year. In Year 

10, with automatic updating, the 

Department estimates that 4.3 million 

workers would be affected by the 

proposed change in the standard salary 

level test and 768,700 workers would be 

affected by the proposed change in the 

HCE total annual compensation test.299

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 $663.6 million, 

assuming a 7 percent discount rate.300

This proposed rule would also transfer 

income from employers to employees in 

the form of increased wages. The 

Department estimated annualized 

transfers would be $1.3 billion. Most of 

these transfers would be attributable to 

wages paid under the FLSA’s overtime 

provision; a smaller share would 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 of this proposed 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 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 ............................................................................... 3,399 2,999 4,288 (b) (b) 

HCE ...................................................................................... 249 269 769 (b) (b) 

Total .............................................................................. 3,648 3,268 5,057 (b) (b) 

Costs and Transfers (Millions in $2022) c

Direct employer costs .......................................................... $1,202.8 $508.3 $748.0 $656.4 $663.6 

Transfers [d] ......................................................................... 1,234.2 949.0 1,981.2 1,318.1 1,294.3 

aThese 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. 

dThis 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 would be 

affected by the proposed rule. Workers 

who are currently EAP exempt are 

potentially affected by the proposed 

rule. In this proposed 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 agency or as part of any 

employee or establishment survey. The 

methodology described here is 

consistent with the approach the 

Department used in the 2004, 2016, and 

2019 final rules.301 To estimate the 

number of workers who would be 

affected by the rule, the proposed 

standard salary level and proposed HCE 

total annual compensation threshold are 

applied to the earnings of current EAP 

exempt workers. 


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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. 

303This is the outgoing rotation group (ORG); 

however, this analysis uses the data merged over 12 

months and thus it is referred to as MORG. 

304Previous 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 2020 

and 2022 may not be consistent. During the 

pandemic, large employment losses in low-wage 

industries resulted in stronger wage growth at the 

aggregate level. In the latter part of the 2020–2022 

period, high inflation outpaced wage growth. Given 

these mixed effects, the Department decided to 

continue its prior practice of adjusting these 

observations using CPI–U. 

305The 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. 

306This 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 4.5 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. 

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 Bureau of Labor Statistics 

(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 This 

supplement contains 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 largescale 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 (2020–2022). 

Earnings for each observation from 2020 

and 2021 were inflated to 2022 dollars 

using the Consumer Price Index 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 2022 CPS MORG. Thus, 

the pooled CPS MORG sample uses 

roughly three times as many 

observations to represent the same total 

number of workers in 2022. 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 

proposed rulemaking. 

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 

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 166.2 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. 

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307See 29 U.S.C. 204(f). Federal workers are 

identified in the CPS MORG with the class of 

worker variable PEIO1COW. 

308See id. 

309Postal 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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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, selfemployed 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 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 166.2 million wage and salary 

workers in the United States, the 

Department estimates that 139.4 million 

are covered by the FLSA and subject to 

the Department’s regulations (83.9 

percent). The remaining 26.8 million 

workers are excluded from FLSA 

coverage for the reasons described 

above. 

4. Number of Workers Who Are WhiteCollar, 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, 


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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. 

312See 69 FR 22240–44. 

313CPS MORG variable PEERNHRY. 

314 69 FR 22197. 

315Some 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 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 proposed 

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 proposed 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). 

316The CPS variable PEERNHRY identifies 

workers as either hourly or nonhourly. 

317See 69 FR 22197; 81 FR 32414; 84 FR 51258. 

318University of Michigan, Institute for Social 

Research. 2019 PSID. Data available at: https://

simba.isr.umich.edu/data/data.aspx. 

several other groups of workers were 

identified and excluded from further 

analysis since this proposed 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 

87.5 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 47.5 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 whitecollar workers because their duties are 

generally managerial or administrative, 

and therefore they were not excluded as 

blue-collar workers. Using the CPS 

variable indicating a respondent’s 

hourly wage status, the Department 

determined that 77.8 million workers 

were paid on an hourly basis in 2022.313

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 3.8 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 proposed rule followed the more 

recent analyses and only excluded 

agricultural workers in certain 

occupation-industry combinations. The 

exclusion of transportation workers 

matched the method for the 2004, 2016, 

and 2019 final rules. Transportation 

workers are defined as those who are 

subject 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 1.1 million 

agricultural workers and 2.0 million 

transportation workers from the 

analysis. 

In addition, the Department excluded 

another 21,800 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 

A. 

After excluding workers not subject to 

the Department’s FLSA regulations and 

workers who are unlikely to be affected 

by this proposed rule (i.e., blue-collar 

workers, workers paid hourly, workers 

who are subject to another (non-EAP) 

overtime exemption), the Department 

estimated there are 51.9 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); 315

• 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.316 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.317

The CPS population of ‘‘nonhourly’’ 

workers includes salaried workers along 

with those who are paid on a piece-rate, 

a 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. However, the Panel 

Study of Income Dynamics (PSID) 

provides additional information on how 

nonhourly workers are paid.318 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 


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319The CPS MORG variable PRERNWA, which 

measures weekly earnings, is used to identify 

weekly salary. 

320 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). 

321The 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). 

322Fair Labor Standards Act: White Collar 

Exemptions in the Modern Work Place, supra note 

311, at 40–41. 

323WHD 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. 

324The 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. 

325Census 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. 

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.319 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.320 Second, CPS earnings data 

include overtime pay. The Department 

notes that employers 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 earning.’’ 

Additionally, as noted above, most 

salaried workers do not receive 

commissions. 

Lastly, the CPS annual earnings 

variable is topcoded at $150,000. 

Topcoding refers to how data sets 

handle observations at the top of the 

distribution. 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.321

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. 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.322

WHD examined 499 occupational 

codes and determined that 251 

occupational codes likely included EAP 

exempt workers.323 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 annually), they were assigned 

a 15 percent probability of passing the 

more lenient HCE duties test.324

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).325 For 

this proposed 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 2020 through 

2022 data. If a new occupation 

comprises more than one previous 

occupation, then the new occupation’s 

probability code is the weighted average 

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326For 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. 

327The 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). 

328A 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. 

329The O*NET database contains hundreds of 

standardized and occupation-specific descriptors. 

See http://www.onetcenter.org. 

330 81 FR 32459. 

331Of these workers, approximately 16.0 million 

pass only the standard test, 11.9 million pass both 

the standard and the HCE tests, and 420,000 pass 

only the HCE test. 

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 the 

workers in the CPS MORG who passed 

the test. For example, for every ten 

public relations managers, between five 

and nine are assumed to pass the 

standard 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.326

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.327

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.328

For details, see Appendix A (in the 

rulemaking docket). 

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 329 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.330

The Department estimates that of the 

existing 51.9 million salaried whitecollar workers considered in the 

analysis, 36.4 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 proposed 

rule would 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, 

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 

36.4 million workers who were EAP 

exempt, 8.1 million, or 22.1 percent, 

were expected to be in named 

occupations. Thus, the proposed 

changes to the standard salary level and 

HCE compensation tests would not 

affect these workers. The 28.4 million 

EAP exempt workers remaining in the 

analysis are referred to in this proposed 

rule as ‘‘potentially affected’’ (17.1 

percent of all workers). 

Based on analysis of the occupational 

codes and CPS earnings data (described 

above), the Department has concluded 

there are 28.4 million potentially 

affected EAP workers.331

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332See section VII.C.8 (Alternative 2). As discuss 

in section IV.A, 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 1.6 million 

of these affected employees earn between the long 

test salary level and the Department’s proposed 

standard salary level. 

333This 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. 

As shown in Figure 2 above, 8.1 

million of the 51.9 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 43.8 million salaried 

white-collar workers, about 11.7 million 

earn below the Department’s proposed 

standard salary level of $1,059 per week 

and about 32.1 million earn above the 

Department’s proposed salary level. 

Thus, approximately 27 percent of 

salaried white-collar employees earn 

below the proposed salary level, 

whereas approximately 73 percent of 

salaried white-collar employees earn 

above the salary level and would have 

their exemption status turn on their job 

duties. 

7. Number of Affected EAP Workers 

The Department estimated that the 

proposed increase in the standard salary 

level from $684 per week to $1,059 per 

week would affect 3.4 million workers 

in Year 1 (of these 3.4 million affected 

employees, 1.8 million earn less than 

the long test salary level ($925)).332 The 

Department estimated that the proposed 

increase in the HCE annual 

compensation level from $107,432 to 

$143,988 would impact 248,900 workers 

(Figure 3).333 In total, the Department 

expects that 3.6 million workers out of 

the 28.4 million potentially affected 

workers would be affected in Year 1. 


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334The Department was unable to estimate 

transfer payments in the territories because of the 

additional assumptions that would be necessary. 

335OEWS 2022. https://www.bls.gov/oes/ 

tables.htm. 

336CBP includes total quarterly payroll and the 

number of employees, but no information about the 

distribution of these earnings. 

337The Government Accountability Office 

assessed the impacts of the 2016 rulemaking in 

Puerto Rico using the Puerto Rico Community 

Survey. GAO. (2018). Limited Federal Data Hinder 

Analysis of Economic Condition and DOL’s 2016 

Overtime Rule. https://www.gao.gov/assets/700/ 

693309.pdf. 

BILLING CODE 4510–27–C 

8. Supplemental Analysis on the 

Number of Affected Workers in the 

Territories 

The Department is proposing to apply 

the standard salary level to all territories 

that are subject to the Federal minimum 

wage, including the Commonwealth of 

the Northern Mariana Islands (CNMI), 

Guam, Puerto Rico, and the U.S. Virgin 

Islands, and to update the special salary 

level for American Samoa in relation to 

the new standard salary level. In 

American Samoa, the salary level would 

be set at 84 percent of the new standard 

salary level, or $890 per week ($1,059 x 

84 percent). In the other territories, the 

salary level would be set at the 

proposed standard salary level of the 

35th percentile of weekly nonhourly 

earnings in the lowest wage Census 

region (currently the South), or $1,059 

per week. The salary levels in the 

territories have not been updated since 

2004, when the salary level for Puerto 

Rico, Guam, the U.S. Virgin Islands, and 

the CNMI was set to $455 per week and 

the salary level for American Samoa was 

set to $380 per week. Therefore, the 

increases in those salary levels will be 

more pronounced than in the 50 states 

and the District of Columbia. This may 

lead to larger impacts resulting from the 

increased standard salary level in the 

territories. Unfortunately, data are not 

available to conduct a full analysis of 

impacts in the territories. Therefore, the 

Department applied reasonable 

assumptions to the available data to 

estimate the number of affected workers 

in the territories.334

The CPS data used for the impact 

analysis does not include data for the 

territories, and no other data source 

provides individual level data on 

earnings, occupation, and pay basis (i.e., 

hourly or salaried). The Department 

identified several data sources with 

pertinent information on the territories: 

• BLS Occupational Employment and 

Wage Statistics (OEWS) 

• The Puerto Rico Community Survey 

• The Census of Island Areas 

• The Economic Census 

• County Business Patterns (CBP) 

For Puerto Rico, Guam, and the U.S. 

Virgin Islands the Department used 

OEWS data.335 The OEWS does not 

include American Samoa or the CNMI; 

the Department used CBP (discussed 

below) data on the number of workers 

for these territories. The Department 

believes OEWS is more appropriate for 

this analysis than CBP because it 

provides the number of white-collar 

workers and information about earnings, 

which CBP does not.336 The Puerto Rico 

Community Survey provides individuallevel earnings information for Puerto 

Rico that is not available in the 

OEWS.337 However, the Department 

chose to use OEWS because it includes 

data on additional territories, and to 

limit the number of data sets used for 

consistency. The Department welcomes 

comments on the choice of data set for 

this analysis, and the overall 

methodology for estimating the impact 

on territories. The Department also 

welcomes recommendations for 

additional sources of data on workers in 

the territories. 

The OEWS reports the number of 

workers by detailed occupation, to 

which the Department applied the 


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338The Department also excluded workers who 

are unlikely to be affected by this rulemaking, 

including workers in named occupations and 

workers exempt under another non-EAP overtime 

exemption. 

339The Department interpolated values between 

the reported percentiles by assuming a uniform 

distribution for each segment (e.g., between the 

10th and the 25th percentiles the Department 

assumed the earnings distribution is linear). The 

Department assumed a minimum value of $100 and 

a maximum value of three times the 90th percentile. 

340 In particular, ‘‘The OEWS survey excludes the 

majority of the agricultural sector, with the 

exception of logging (NAICS 113310), support 

activities for crop production (NAICS 1151), and 

support activities for animal production (NAICS 

1152). Private households (NAICS 814) also are 

excluded. OEWS Federal Government data include 

the U.S. Postal Service and the Federal executive 

branch only. All other industries, including state 

and local government, are covered by the survey.’’ 

See https://www.bls.gov/oes/current/oes_tec.htm. 

341American Samoa has lower current and 

proposed salary thresholds. However, earnings are 

also lower in American Samoa. Therefore, the 

Department believes to estimate American Samoa 

impacts, it is more appropriate to use the salary 

thresholds in the other territories when applied to 

wage data for those territories, rather than using the 

lower American Samoa thresholds combined with 

the higher earnings data for other territories. 

probability codes to estimate the 

number of white-collar workers who 

meet the duties test requirements for the 

EAP exemption. The OEWS does not 

have information on the share of 

employees in each occupation who are 

salaried. In order to estimate this share, 

the Department calculated the share of 

workers in the 50 states and DC who 

meet the duties requirement in the CPS 

data who are salaried, controlling for the 

distribution of workers across 

occupations in each of the three 

territories.338 The Department then 

multiplied the share of workers who 

meet the duties requirement who are 

salaried in each occupation by the 

number of workers who meet the duties 

requirements in that territory. 

The OEWS also reports select 

percentiles of the earnings distribution 

for each occupation (10th, 25th, 50th, 

75th, and 90th). This allows the 

Department to estimate an earnings 

distribution for each occupation and 

approximate the number of workers 

who earn between the old and new 

salary levels.339 These calculations are 

summarized in Table 4. 

TABLE 4—ESTIMATED NUMBER OF AFFECTED WORKERS IN TERRITORIES USING OEWS 

Population or parameter Puerto Rico Guam U.S. Virgin 

Islands 

Workers a ..................................................................................................................................... 907,930 51,340 27,860 

Workers who meet duties requirements ...................................................................................... 169,241 10,413 5,808 

Share of workers meeting duties requirements who are salaried b c .......................................... 54% 60% 57% 

Salaried workers meeting duties requirements ........................................................................... 91,919 6,285 3,333 

Share between salary thresholds ($455–$1,059) ....................................................................... 49% 38% 32%

Salaried workers meeting duties requirements between thresholds (i.e., affected workers) ..... 44,881 2,407 1,071 

a Limited to wage and salary workers in nonfarm establishments. 

bAlso removes workers unlikely to be impacted by this rulemaking such as workers in named occupations and workers exempt under another 

non-EAP overtime exemption. c Ratio calculated from CPS data for employees in the 50 states and the District of Columbia while controlling for occupation distribution. 

There are several reasons why the 

estimated number of workers calculated 

from the OEWS may over or 

underestimate the true number of 

affected workers. The Department does 

not know the size of the biases and so 

does not know which dominate. First, 

the share of workers who are salaried in 

the territories may differ from in the 50 

states and the District of Columbia. If 

the share is higher in the territories than 

the states, then the Department’s 

approach will underestimate the 

number of affected workers but 

overestimate the number if the share is 

lower. Second, the OEWS is limited to 

wage and salary workers in nonfarm 

establishments which may lead to an 

undercount of affected workers.340

The Department used 2021 CBP data 

to estimate the number of affected 

workers in American Samoa and the 

CNMI. The methodology is largely the 

same as for the analysis using OEWS 

data. Table 5 shows estimates using CBP 

data for all five territories to facilitate a 

comparison of OEWS and CBP results 

for Puerto Rico, Guam, and the U.S. 

Virgin Islands. 

CBP provides employment data for 

each territory. To estimate the number 

of workers who may be exempt, the 

Department calculated the share of 

workers in the OEWS analysis who meet 

the duties requirements and are salaried 

in each of the other three territories and 

applied that weighted average to 

American Samoa and the CNMI. The 

Department also calculated the share of 

exempt workers who earn between the 

current and proposed salary thresholds 

in the three territories covered by the 

OEWS data and applied them to 

American Samoa and the CNMI. The 

Department then multiplied the number 

of workers by these two shares to 

estimate the number of affected 

workers.341

TABLE 5—ESTIMATED NUMBER OF AFFECTED WORKERS IN TERRITORIES USING CBP 

Population or parameter Puerto Rico Guam U.S. Virgin 

Islands 

American 

Samoa CNMI 

Workers ................................................................................ 660,654 49,876 25,652 7,808 12,763 

Share who are salaried and meet duties requirements a .... 10% 12% 12% 10% 10% 

Salaried workers meeting duties requirements ................... 66,885 6,106 3,069 803 1,313 

Share between salary thresholds b ...................................... 49% 38% 32% 48% 48% 

Salaried workers meeting duties requirements between 

thresholds (i.e., affected workers) .................................... 32,657 2,339 986 383 625 

a Ratio calculated from OEWS data for Puerto Rico, Guam, and U.S. Virgin Islands. Average used for American Samoa and the CNMI. Excludes workers unlikely to be impacted by this rulemaking such as workers in named occupations and workers exempt under another non-EAP 

overtime exemption. b ‘‘Excludes workers unlikely to be impacted by this rulemaking such as workers in named occupations and workers exempt under another 

non-EAP overtime exemption. 


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342 In particular, ‘‘CBP covers most NAICS 

industries excluding crop and animal production; 

rail transportation; Postal Service; pension, health, 

welfare, and vacation funds; trusts, estates, and 

agency accounts; office of notaries; private 

households; and public administration. CBP also 

excludes most establishments reporting government 

employees.’’ See https://www.census.gov/programssurveys/cbp/about.html. 

343Full-time is defined as 35 or more hours per 

week. 

In general, the same potential biases 

apply here as with the OEWS analysis. 

However, employment coverage differs 

slightly between the OEWS and CBP. 

The CBP excludes government workers 

(including state and local workers) and 

covered workers in a few select NAICS, 

resulting in a downward bias in the 

number of affected workers.342

Additionally, the estimates for 

American Samoa and the CNMI assume 

the share of workers in these territories 

who meet the duties requirements and 

are salaried, and the share of these 

workers who earn between the current 

and proposed salary thresholds, are 

similar to those shares in Puerto Rico, 

Guam, and the U.S. Virgin Islands. 

As a sensitivity analysis, the 

Department compared the results from 

the CBP analysis to the OEWS analysis 

for Puerto Rico, Guam, and the U.S. 

Virgin Islands. The two estimates of the 

number of affected workers are within 

10 percent for both Guam and the U.S. 

Virgin Islands. The Puerto Rico 

estimates differ by a larger amount 

because the CBP number of workers in 

Puerto Rico is smaller than the OEWS 

number due to differences in the 

covered population. 

Table 6 includes the estimated 

number of affected workers by area 

using the preferred data source for each 

(i.e., OEWS for Puerto Rico, Guam, and 

U.S. Virgin Islands and CBP for 

American Samoa and the CNMI). The 

share of workers affected by the rule 

ranges from 3.8 to 4.9 percent for each 

territory, with an average of 4.9 percent 

over all territories, which is higher than 

the average of 2.2 percent estimated for 

the 50 states and the District of 

Columbia. The effect is larger in the 

territories than the states for two 

reasons. First, the increase in salary 

level will be larger since the salary level 

wasn’t increased for these territories in 

the 2019 rulemaking. Second, earnings 

tend to be lower in the territories, and 

so more workers may fall within the 

impacted salary range. 

TABLE 6—SUMMARY OF NUMBER OF AFFECTED WORKERS BY TERRITORY

Territory All workers 

Number of 

affected 

workers 

Affected as 

share of all 

workers 

(%) 

Puerto Rico .................................................................................................................................. 907,930 44,881 4.9 

Guam ........................................................................................................................................... 51,340 2,407 4.7 

U.S. Virgin Islands ....................................................................................................................... 27,860 1,071 3.8 

American Samoa ......................................................................................................................... 7,808 383 4.9 

CNMI ............................................................................................................................................ 12,763 625 4.9 

Total ...................................................................................................................................... 1,007,701 49,367 4.9 

Although the share of affected 

workers to total workers in the 

territories is larger, these workers still 

comprise only a fraction of the 

workforce. As is true for the mainland 

U.S., the Department believes that many 

of these workers are unlikely to work 

regular overtime. The Department 

welcomes comments and data on the 

prevalence of overtime work in the 

territories. 

The Department has not included this 

supplemental estimate of affected 

workers in the territories in the larger 

analysis of affected workers due to the 

limitations of the estimates and the 

inability to estimate transfers. Even if 

this supplemental estimate were to be 

included in the broader analysis, the 

total number of affected workers would 

be little changed, as the number of 

affected workers in the territories 

(49,367) is less than 1.5% of our affected 

workers estimate (3.6 million). 

C. Effects of Revised Salary and 

Compensation Levels 

1. Overview and Summary of Quantified 

Effects 

The Department is proposing to set 

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 

to set 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 2022 CPS data to 

calculate the levels.343 The levels 

presented in this analysis are likely 

lower than the corresponding levels 

would be at the time a final rule is 

published, given that the Department 

would use the most recent data 

available. However, the economic 

impacts estimated here are an 

appropriate proxy for the effects likely 

to occur at the time of implementation 

if the proposal is finalized. 

Both transfers from employers to 

employees and between employees, and 

direct employer costs, would 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 7 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 

proposed rule, if finalized, would total 

$1.2 billion in the first year, with 10- 

year annualized direct costs of $664 

million per year using a 7 percent 

discount rate. 

In addition to these direct costs, this 

proposed rule would transfer income 

from employers to employees. Estimated 

Year 1 transfers would equal $1.2 

billion, with annualized transfers of 

$1.3 billion per year using both the 3 

percent and 7 percent real discount 

rates. Potential employer costs due to 

reduced profits and additional hiring 

were not quantified but are discussed in 

section VII.C.3.v. 


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344Regular overtime workers were identified in 

the CPS MORG with variable PEHRUSL1. 

Occasional overtime workers were identified with 

variables PEHRUSL1 and PEHRACT1. 

345CPS defines ‘‘usual hours’’ as hours worked 50 

percent or more of the time. 

346This 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). 347A small proportion (0.2 percent) of 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). 

348 Increasing employees’ salaries to the updated 

salary level would be less common for affected 

workers earning below the minimum wage and 

more generally would be inversely correlated with 

baseline salary and compensation. 

TABLE 7—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 ............................................................................... 3,399 2,999 4,288 (c) (c) 

HCE ...................................................................................... 249 269 769 (c) (c) 

Total .............................................................................. 3,648 3,268 5,057 (c) (c) 

Direct Employer Costs (Millions in $2022) 

Regulatory familiarization ..................................................... $427.2 $0.0 $65.1 $67.9 $75.0 

Adjustment c ......................................................................... $240.8 $8.1 $15.0 $35.7 $40.0 

Managerial ........................................................................... $534.9 $500.2 $667.9 $552.8 $548.5 

Total direct costs d ........................................................ $1,202.8 $508.3 $748.0 $656.4 $663.6 

Transfers from Employers to Workers (Millions in $2022) e

Due to minimum wage ......................................................... $48.6 $27.1 $17.2 $25.2 $25.9 

Due to overtime pay ............................................................ $1,185.6 $921.8 $1,963.9 $1,292.9 $1,268.5 

Total transfers f ............................................................. $1,234.2 $949.0 $1,981.2 $1,318.1 $1,294.3 

aAdditional costs and benefits of the rule that could not be quantified or monetized are discussed in the text. 

bThese costs/transfers represent a range over the nine-year span. 

c Not annualized. 

dAdjustment 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. 

fThis is the net transfer from employers to workers. There may also be transfers between workers. 

2. Characteristics of Affected EAP 

Workers 

Table 8 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 workers.344 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 3.4 million workers affected by 

the increase in the standard salary level 

work on average 1.6 usual hours of 

overtime per week and earn on average 

$914 per week.345 However, most of 

these workers (about 85 percent) usually 

do not work overtime. The 15 percent of 

affected workers who usually work 

overtime average 11.0 hours of overtime 

per week. In a representative week, 

roughly 121,000 (or 3.6%) of the 3.4 

million affected workers occasionally 

work overtime; they averaged 8.7 hours 

of overtime in the weeks they worked 

overtime.346 Finally, 8,000 (or 0.2%) of 

all workers affected by the increase in 

the salary level earn less than the 

minimum wage. 

The 248,900 workers affected by the 

change in the HCE compensation level 

average 3.1 hours of overtime per week 

and earn an average of $2,355 per week 

($122,460 per year). About 72 percent of 

these workers do not usually work 

overtime, while the 28 percent who 

usually work overtime average 11.1 

hours of overtime per week. Among the 

3.8% who occasionally work overtime, 

they averaged 12.7 hours in the weeks 

that they worked overtime. 

Although most affected workers who 

typically do not work overtime would 

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 would be most 

likely to experience significant 

changes.347

Employers might respond by paying 

overtime premiums; reducing or 

eliminating overtime hours; reducing 

employees’ regular wage rates to keep 

overall compensation consistent 

(provided that the reduced rates still 

exceed the minimum wage); increasing 

employees’ salaries to the updated 

earnings threshold to preserve their 

exempt status); 348 or using some 

combination of these responses. 


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TABLE 8—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 ................................................................................. 3,399 100 1.6 $914 

Earn less than the minimum wage b ................................................................ 8 0.2 33.2 809 

Regularly work overtime .................................................................................. 494 14.5 11.0 917 

Occasionally work overtime c ........................................................................... 121 3.6 8.7 914 

HCE Compensation Level 

All affected EAP workers ................................................................................. 249 100 3.1 2,355 

Earn less than the minimum wage b ................................................................ ........................ ........................ ........................ ........................

Regularly work overtime .................................................................................. 70 28.3 11.1 2,332 

Occasionally work overtime c ........................................................................... 9 3.8 12.7 2,347 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aEstimated 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). bThe 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. cWorkers 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 9 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 

(687,000), while the industry with the 

highest percentage of EAP workers 

affected is agriculture, forestry, fishing, 

and hunting (about 22 percent). The 

occupational category with the most 

affected EAP workers is management, 

business, and financial (1.6 million), 

while the occupation category with the 

highest percentage of EAP workers 

affected is services (about 31 percent). 

Potentially affected workers in 

private-sector nonprofits are more likely 

to be affected than workers in privatesector for-profit firms (16.8 percent 

compared with 12.0 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. 

TABLE 9—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, 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 ..................................................................................... 139.40 28.36 24.71 3.65 12.9 

By Industry d

Agriculture, forestry, fishing, & hunting ................................ 1.33 0.06 0.04 0.01 22.1 

Mining ................................................................................... 0.62 0.17 0.16 0.01 7.3 

Construction ......................................................................... 8.91 1.19 1.03 0.15 13.0 

Manufacturing ...................................................................... 15.13 3.90 3.58 0.32 8.1 

Wholesale trade ................................................................... 3.23 0.85 0.75 0.10 12.2 

Retail trade ........................................................................... 15.38 1.85 1.54 0.31 16.7 

Transportation & utilities ...................................................... 8.51 1.03 0.91 0.12 11.5 

Information ........................................................................... 2.56 0.96 0.84 0.12 12.3 

Financial activities ................................................................ 9.85 4.25 3.77 0.48 11.3 

Professional & business services ........................................ 16.78 6.75 6.07 0.69 10.2 

Education ............................................................................. 14.02 1.12 0.92 0.202 18.0 

Healthcare & social services ............................................... 20.53 3.60 2.97 0.627 17.4 

Leisure & hospitality ............................................................. 11.60 0.87 0.69 0.18 21.1 

Other services ...................................................................... 5.31 0.74 0.60 0.14 18.9 


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349 Identified with CPS MORG variable 

GTMETSTA. 

TABLE 9—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, BY

INDUSTRY AND OCCUPATION, YEAR 1—Continued 

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 

(%) 

Public administration ............................................................ 5.63 1.01 0.83 0.18 18.0 

By Occupation d

Management, business, & financial ..................................... 23.57 14.56 12.91 1.65 11.3 

Professional & related .......................................................... 34.77 10.18 8.92 1.26 12.4 

Services ............................................................................... 21.84 0.13 0.09 0.04 31.0 

Sales and related ................................................................. 12.63 2.36 1.95 0.41 17.5 

Office & administrative support ............................................ 15.81 0.93 0.67 0.26 28.1 

Farming, fishing, & forestry .................................................. 0.93 0.00 0.00 0.00 0.00 

Construction & extraction ..................................................... 6.72 0.03 0.02 0.01 19.6 

Installation, maintenance, & repair ...................................... 4.53 0.04 0.04 0.00 6.4 

Production ............................................................................ 7.98 0.09 0.08 0.01 12.3 

Transportation & material moving ........................................ 10.60 0.04 0.04 0.01 13.5 

By Nonprofit and Government Status 

Nonprofit, private .................................................................. 9.80 2.27 1.89 0.38 16.8 

For profit, private .................................................................. 110.90 23.90 21.03 2.87 12.0 

Government (state, local, and Federal) ............................... 18.70 2.20 1.80 0.40 18.1 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aExempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime exemption, and not in a named occupation. bWorkers 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). cEstimated 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 10 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 (1.5 million), 

but the South’s percentage of potentially 

affected workers who are estimated to 

be affected is relatively small (15.2 

percent). Although 90 percent of 

affected EAP workers will reside in 

MSAs (3.28 of 3.65 million), so do a 

corresponding 88 percent of all workers 

subject to the FLSA.349

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 proposed rule is 

appropriate for these lower-wage 

sectors, in part because the proposed 

methodology uses earnings data from 

the lowest-wage census region. 

Moreover, the duties test would 

continue to determine exemption status 

for the vast majority of workers in lowwage regions and industries under the 

proposed rule. For example, as 

displayed in Table 10, 84.8 percent of 

potentially affected EAP workers in the 

South Census Region earn more than the 

proposed salary level and thus would 

not be affected by the proposed rule 

(8.39 ÷ 9.89). Effects by region and 

industry are considered in section 

VII.C.7. 

TABLE 10—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, 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 ..................................................................................... 139.40 28.36 24.71 3.65 12.9 

By Region/Division 

Northeast .............................................................................. 24.75 5.74 5.10 0.64 11.1 

New England ................................................................ 6.83 1.71 1.54 0.17 9.9 

Middle Atlantic .............................................................. 17.92 4.03 3.56 0.47 11.6 

Midwest ................................................................................ 30.39 5.87 5.07 0.80 13.7 

East North Central ........................................................ 20.47 4.01 3.48 0.53 13.3 

West North Central ....................................................... 9.92 1.86 1.59 0.27 14.6 

South .................................................................................... 51.42 9.89 8.39 1.50 15.2 


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TABLE 10—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, BY REGION, 

DIVISION, AND MSA STATUS,YEAR 1—Continued 

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 

(%) 

South Atlantic ................................................................ 26.76 5.50 4.68 0.81 14.8 

East South Central ....................................................... 7.69 1.22 1.00 0.22 18.3 

West South Central ...................................................... 16.97 3.18 2.71 0.47 14.7 

West ..................................................................................... 32.83 6.86 6.15 0.70 10.3 

Mountain ....................................................................... 10.73 2.07 1.79 0.28 13.7 

Pacific ........................................................................... 22.10 4.78 4.36 0.42 8.8 

By Metropolitan Status 

Metropolitan ......................................................................... 122.92 26.61 23.33 3.28 12.3 

Non-metropolitan .................................................................. 15.47 1.62 1.28 0.34 20.8 

Not identified ........................................................................ 1.01 0.13 0.10 0.03 22.1 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aExempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime exemption, and not in a named occupation. bWorkers 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). cEstimated 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 11 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 

$1,649 compared to $2,074 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, 19.7 

percent of potentially affected Black 

workers are affected, while only 12.7 

percent of potentially affected white 

workers are affected. However, when 

looking at total workers, about the same 

shares of total Black and total white 

workers would be affected (2.5 percent 

of Black workers and 2.6 percent of 

white workers). 

TABLE 11—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, 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 ......................................................... 139.40 28.36 24.71 3.65 2.6 12.9 

By Sex 

Male ......................................................... 72.15 16.62 15.04 1.57 2.2 9.5 

Female ..................................................... 67.25 11.74 9.67 2.08 3.1 17.7 

By Race 

White only ................................................ 107.29 22.05 19.25 2.80 2.6 12.7 

Black only ................................................. 17.66 2.26 1.82 0.44 2.5 19.7 

All others .................................................. 14.45 4.05 3.65 0.40 2.8 9.9 

By Ethnicity 

Hispanic ................................................... 25.66 2.57 2.15 0.42 1.6 16.3 

Not Hispanic ............................................. 113.74 25.79 22.56 3.23 2.8 12.5 

By Age 

16–25 ....................................................... 21.21 1.28 0.92 0.36 1.7 28.3 

26–35 ....................................................... 33.47 7.17 6.06 1.11 3.3 15.5 


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350Statistics of U.S. Businesses 2020, https://

www.census.gov/programs-surveys/susb.html. 

351 2017 Census of Governments. Table 1, https:// 

www.census.gov/data/tables/2017/econ/gus/2017- 

governments.html. 

TABLE 11—ESTIMATED NUMBER OF EXEMPT WORKERS WITH THE CURRENT AND PROPOSED SALARY LEVELS, BY

DEMOGRAPHICS, YEAR 1—Continued 

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 

(%) 

36–45 ....................................................... 29.84 7.49 6.68 0.81 2.7 10.9 

46–55 ....................................................... 27.37 6.73 6.02 0.72 2.6 10.6 

56+ ........................................................... 27.50 5.69 5.04 0.65 2.4 11.4 

By Education 

No degree ................................................ 10.35 0.13 0.09 0.05 0.4 35.1 

High school diploma ................................ 58.01 4.56 3.58 0.98 1.7 21.4 

Associate’s degree ................................... 14.70 1.91 1.54 0.37 2.5 19.6 

Bachelor’s degree .................................... 35.80 13.61 12.02 1.59 4.4 11.7 

Master’s degree ....................................... 15.52 6.80 6.24 0.56 3.6 8.3 

Professional degree ................................. 2.03 0.38 0.35 0.04 1.8 9.3 

PhD .......................................................... 2.98 0.98 0.91 0.07 2.3 7.2 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aExempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime exemption, and not in a named occupation. bWorkers 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). cEstimated 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 would be $427.2 million, 

adjustment costs would be $240.8 

million, and managerial costs would be 

$534.9 million (Table 12). Total direct 

employer costs in Year 1 would be $1.2 

billion. Recurring costs are projected in 

section VII.C.10. The Department 

discusses costs that are not quantified in 

section VII.C.3.v. The Department 

welcomes comments on its cost 

estimates. 

TABLE 12—SUMMARY OF YEAR 1 DIRECT EMPLOYER COSTS

[millions] 

Direct employer costs Standard 

salary level 

HCE compensation level Total 

Regulatory familiarization a .......................................................................................................... ........................ ........................ $427.2 

Adjustment ................................................................................................................................... $224.4 $16.4 240.8 

Managerial ................................................................................................................................... 485.5 49.4 534.9 

Total direct costs ......................................................................................................................... 709.8 65.9 1,202.8 

a Regulatory familiarization costs are assessed jointly for the proposed change in the standard salary level and the HCE compensation level. 

ii. Regulatory Familiarization Costs 

This rulemaking would 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 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 proposed rule 

was drafted are from the 2020 Statistics 

of U.S. Businesses (SUSB), which 

reports 8.00 million establishments with 

paid employees.350 Additionally, there 

were an estimated 90,126 state and local 

governments in 2017, the most recent 

data available.351 The Department thus 

estimated 8.09 million entities (the term 

entity is used to refer to the combination 

of establishments and governments). 

The Department assumes that all 

entities would incur some regulatory 

familiarization costs, even if they do not 

employ exempt workers, because all 

entities would need to confirm whether 

this rulemaking affects their employees. 

Entities with more affected EAP workers 

would likely spend more time reviewing 

the regulation than entities with fewer 

or no affected EAP workers (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 one hour per entity is appropriate 

because the regulated community is 


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62200 Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Proposed Rules 

352OEWS 2022. Available at: https://

www.bls.gov/oes/current/oes131141.htm. 

353Previous 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. 

354The benefits-earnings ratio is derived from 

BLS’s Employer Costs for Employee Compensation 

data using variables CMU1020000000000D and 

CMU1030000000000D. This fringe benefit rate 

includes some fixed costs such as health insurance. 

355The 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. 

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 proposed 

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 one hour 

is an appropriate average estimate for 

the time each entity would 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, would 

spend more than 1 hour, and some 

would 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 

would review the rulemaking.352 353 The 

Department also assumed that benefits 

are paid at a rate of 45 percent of the 

base wage 354 and overhead costs are 

paid at a rate of 17 percent of the base 

wage,355 resulting in an hourly rate of 

$52.80. The Department thus estimates 

regulatory familiarization costs in Year 

1 would be $427.2 million ($52.80 per 

hour × 1 hour × 8.09 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, 6.2 million, would result in a 

reduced regulatory familiarization cost 

estimate of $329.0 million in Year 1. 

iii. Adjustment Costs 

This rulemaking would 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. The Department 

believes the size of these ‘‘adjustment 

costs’’ would depend on the number of 

affected EAP workers and would 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 midlevel human resource worker is $52.80 

per hour (as explained above). 

The Department estimated that it 

would 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. 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 is 3.6 million (as discussed in section 

VII.B.7). Therefore, total estimated Year 

1 adjustment costs would be $240.8 

million ($52.80 × 1.25 hours × 3.6 

million workers). 

The Department notes that the 75- 

minute-per-worker average time 

estimate is an assumption about the 

average across all workers. This estimate 

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 those who work 

no overtime (described below as Type 1 

workers). This leaves more time for 

employers to spend on adjustment costs 

for workers who work overtime either 

occasionally or regularly. To 

demonstrate, if the aggregate time spent 

on adjustments (75 min × 3.6 million 

workers) was spread out over only 

workers who regularly work overtime, 

then the time estimate is 4.4 hours per 

worker. 

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, when the rule takes effect, 

firms would no longer be required to 

apply the duties test to employees 

earning less than the new standard 

salary level. While this would be a clear 

cost savings to employers for these 

employees, the Department did not 

estimate the potential size of this cost 

savings. 

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 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 738,000 

workers (see Table 16 and 

accompanying explanation). Consistent 

with its approach in its 2019 rule, the 

Department assumed that management 


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Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Proposed Rules 62201 

356See Fact Sheet #21: Recordkeeping 

Requirements under the Fair Labor Standards Act, 

available at: https://www.dol.gov/whd/regs/ 

compliance/whdfs21.pdf. 

357OEWS 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. 

358The benefits ratio is derived from BLS’ 2022 

Employer Costs for Employee Compensation data 

using variables CMU1020000000000D and 

CMU1030000000000D. 

359 Golden, L. (2014). Flexibility and Overtime 

Among Hourly and Salaried Workers. Economic 

Policy Institute. https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=2597174. 

360Lambert, 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, DC: Urban Institute Press. 

361Balkin, D. B., & Griffeth, R. W. (1993). The 

Determinants of Employee Benefits Satisfaction. 

Journal of Business and Psychology, 7(3), 323–339. 

362Lambert, S. J., & Henly, J. R. (2009). 

Scheduling in Hourly Jobs: Promising Practices for 

the Twenty-First Century Economy. The Mobility 

Agenda. 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, DC: Urban Institute Press. 

363 29 CFR 778.113–.114. 

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. 

There was little precedent or data to 

aid in evaluating managerial costs. Prior 

to the 2016 rulemaking, earlier part 541 

rulemakings did not estimate 

managerial costs. The Department 

likewise found no estimates of 

managerial costs after reviewing the 

literature. Thus, the Department used 

the same methodology as the 2019 rule. 

The Department believes these 

additional managerial costs would not 

be prohibitive. Currently, EAP exempt 

employees account for about 22 percent 

of the U.S. labor force; as such, the 

Department expects that most 

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 overtime under 

employer-prescribed circumstances. 

Thus, such systems generally do not 

need to be invented 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.356

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 would 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 would be 

123,000 hours ((10 minutes ÷ 60 

minutes) × 738,000 workers). 

The median hourly wage in 2022 for 

a manager was $51.62.357 Together with 

a 45 percent benefits rate and a 17 

percent overhead cost, this totals $83.63 

per hour.358 Thus, the estimated Year 1 

managerial costs total $534.9 million 

(123,000 hours per week × 52 weeks × 

$83.63/hour). Although the exact 

magnitude would vary each year with 

the number of affected EAP workers, the 

Department anticipates that employers 

would incur managerial costs annually. 

v. Other Potential Costs 

In addition to the costs discussed 

above, the Department notes that the 

2016 and 2019 final rules discussed 

other potential costs that could not be 

quantified. These potential costs are 

discussed qualitatively below. The 

Department welcomes comments on the 

potential costs associated with this 

proposed rule and any data that could 

help to quantify them. 

(a) Reduced Scheduling Flexibility 

To the extent that some employers 

spend more time monitoring nonexempt 

workers’ hours, the proposed rule could 

impose costs on newly nonexempt, 

overtime eligible workers who could 

have a more limited ability to adjust 

their schedules. However, the proposed 

rule does not require employers to 

reduce scheduling flexibility. 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. 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.’’ 359 Because there is little 

data or literature on these potential 

costs, the Department did not quantify 

potential costs regarding scheduling 

flexibility. 

(b) Preference for Salaried Status 

Some of the workers who would 

become nonexempt as a result of the 

proposed rule could have their pay 

changed from salaried to hourly status 

despite preferring to remain salaried. 

Research has shown that salaried 

workers are more likely than hourly 

workers to receive benefits such as paid 

vacation time and health insurance 360

and are more satisfied with their 

benefits.361 Additionally, when 

employer demand for labor decreases, 

hourly workers tend to see their hours 

cut before salaried workers, making 

earnings for hourly workers less 

predictable.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. But the Department 

notes that this rulemaking would not 

require employers to reduce 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. 

(c) Increased Prices 

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 their employees are working. 

Businesses that are unable to rebalance 

these hours and do incur increased 


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62202 Federal Register / Vol. 88, No. 173 / Friday, September 8, 2023 / Proposed Rules 

364Church, 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. 

365Pevena, 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. http://dx.doi.org/10.17016/

FEDS.2015.042. 

labor costs might pass along these 

increased labor costs to consumers 

through higher prices. The Department 

anticipates that some firms could offset 

part of the additional labor costs 

through charging higher prices for the 

firms’ goods and services. However, 

because costs and transfers would be, on 

average, small relative to payroll and 

revenues, the Department does not 

expect the proposed rule to have a 

significant effect on prices. The 

Department estimated that, on average, 

costs and transfers make up less than 

0.03 percent of payroll and 0.005 

percent of revenues, although for 

specific industries and firms this 

percentage may be larger (see Table 27). 

Therefore, any potential change in 

prices related to costs and transfers from 

this rulemaking would be modest. 

Further, any significant price increases 

would not represent a separate category 

of effects from those estimated in this 

economic analysis. Rather, 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

(d) Reduced Profits 

The increase in workers’ earnings 

resulting from the proposed salary 

levels would be a transfer of income 

from firms to workers, not a cost. 

However, there are potential secondary 

effects (both costs and benefits) of the 

transfer due to the potential difference 

in the marginal utility of income and the 

marginal propensity to consume or save 

between workers and businesses. Thus, 

the Department acknowledges that the 

increased employer costs and transfer 

payments as a result of this proposed 

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. 

(e) Hiring Costs 

To the extent that firms respond to 

this proposed 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 

nonexempt, 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 

proposed 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 affected 

workers. The Department does not know 

how many new employees would be 

hired and thus did not estimate this 

cost. 

(f) Hours-Related Worker Effects 

Following the implementation of this 

rulemaking, some workers may see an 

increase in hours worked. 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 these hours to other 

workers who remain exempt. This 

increase in hours could result in 

reduced personal time for these 

workers. 

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 would result from the 

proposed 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 $48.6 

million. The increase in the HCE 

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 would be $1.2 

billion: $932.1 million from the 

increased standard salary level and 

$253.5 million from the increased HCE 

compensation level. Total Year 1 

transfers are estimated at $1.2 billion 

(Table 13). 

TABLE 13—TOTAL ANNUAL CHANGE IN EARNINGS FOR AFFECTED EAP WORKERS BY PROVISION, YEAR 1 

[Millions] 

Provision Total Standard 

salary level 

HCE 

compensation 

level 

Total ............................................................................................................................................. $1,234.2 $980.7 $253.5 

Minimum wage only ..................................................................................................................... 48.6 48.6 ........................

Overtime pay only a ..................................................................................................................... 1,185.6 932.1 253.5 


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366The 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. 

367Because these workers’ hourly wages will be 

set at the minimum wage after this proposed 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. 368Wolfson, 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. 

369Labor demand elasticity is the percentage 

change in labor hours demanded in response to a 

one percent change in wages. 

370This 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. 

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 twostep 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 

÷ $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, 2022. 

Most affected EAP workers already 

receive at least the minimum wage; only 

an estimated 0.2 percent (8,200 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 proposed regulation, 

the Department believes that any 

disemployment effect due to the 

minimum wage provision would be 

negligible. This is partially due to the 

small number of workers affected by 

this provision. According to the 

Wolfson and Belman (2016) metaanalysis 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 8,200 

affected EAP workers would, on 

average, see an hourly wage increase of 

$1.99, work 3.2 fewer hours per week 

and receive an increase in weekly 

earnings of $113.88 as a result of 

coverage by the minimum wage 

provisions (Table 14). The total change 

in weekly earnings due to the payment 

of the minimum wage was estimated to 

be $0.9 million per week ($113.88 × 

8,200) or $48.6 million in Year 1. 

TABLE 14—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 ....................................................................................................... $11.35 73.2 $808.60 ........................

After rule .......................................................................................................... 13.34 69.9 922.48 ........................

Change ............................................................................................................ 1.99 ¥3.2 113.88 $934 

Note: Pooled data for 2020–2022 adjusted to reflect 2022. aThe 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 would result in a transfer of 

income to the affected workers, 

increasing the marginal cost of labor, 

which employers would likely try to 

offset by adjusting the wages and/or 

hours of affected workers. The size of 

the transfer would 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 would 

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. 


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371See 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. 

372Trejo, S.J. (1991). The Effects of Overtime Pay 

Regulation on Worker Compensation. American 

Economic Review, 81(4), 719–740. 

373Trejo, S.J. (2003). Does the Statutory Overtime 

Premium Discourage Long Workweeks? Industrial 

and Labor Relations Review, 56(3), 375–392. 

374Barkume, A. (2010). The Structure of Labor 

Costs with Overtime Work in U.S. Jobs. Industrial 

and Labor Relations Review, 64(1), 128–142. 

375Bell, 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. 

376Hart, R.A. and Yue, M. (2000). Why Do Firms 

Pay an Overtime Premium? IZA Discussion Paper 

No. 163. 

(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’’ 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 aboveminimum-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. 

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-ofwork distribution for nonminimumwage workers is supportive of the fixedwage 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

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 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 


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377Barzel, 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. 

378Barkume, A. (2010). The Structure of Labor 

Costs with Overtime Work in U.S. Jobs. Industrial 

and Labor Relations Review, 64(1), 128–142. 

379Bell, 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. 

380See section VII.C.3.iv (managerial costs). 

finds strong support for the fixed-job 

model as the best approximation for the 

likely effects of a transition of aboveminimum-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 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 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. 

(c) 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. 

The Department began by identifying 

the number of workers in each type. 

After modeling employer adjustments, it 

estimated transfer payments. Type 3 and 

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 $13.94 

($83.63 per hour × (10 minutes ÷ 60 

minutes)).380 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 would 

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 workers were Type 2, 

3, or 4. Type 2 workers are subdivided 

into Types 2A and 2B later in the 

analysis (Table 15). 

TABLE 15—TYPES OF AFFECTED

WORKERS

Type of worker Percent of 

total 

Type 1 ................................... 69 

Type 2A ................................ 8 

Type 2B ................................ 8 

Type 3 ................................... 12 

Type 4 ................................... 3 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. * 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). 

(d) Modeling Changes in Wages and 

Hours 

The incomplete fixed-job model 

predicts that employers would adjust 

wages of regular overtime workers but 

not to the full extent indicated by the 

fixed-job model, and thus some 

employees would receive a small 

increase in weekly earnings due to 

overtime pay coverage. The Department 


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381Both 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 fixedjob model as estimated by these studies may 

overestimate the transfers from employers to 

salaried workers. The Department does not attempt 

to quantify the magnitude of this potential 

overestimate, but welcomes comments on how to 

refine the quantitative approach. 

382Cherry, 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. 

383The 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. 

384As 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. 

385 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. 386Lichter, A., Peichl, A. & Siegloch, A. (2014). 

The Own-Wage Elasticity of Labor Demand: A 

Meta-Regression Analysis. IZA DP No. 7958. 

387Some 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. 

388Brown, 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. 

389For example, the authors defined the ‘‘nonexempt 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. 

390 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. 

used the average of two estimates of the 

incomplete fixed-job model adjustments 

to model impacts of this proposed 

rule: 381

• 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 would become overtimeeligible, but because they do not work 

overtime, they would see no change in 

their wages, hours, or weekly earnings. 

Type 4 workers would remain exempt 

because their earnings would be raised 

to at least the updated EAP level (either 

the standard salary level or HCE 

compensation level). These workers’ 

earnings would increase by the 

difference between their current 

earnings and the amount necessary to 

satisfy the new salary or compensation 

level. It is possible employers would 

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.382

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 

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).383 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.384

The Department estimated employer 

adjustments and transfers assuming that 

the patterns observed in the CPS 

reference 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.385

Since employers would 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 would 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).386 387 Brown and 

Hamermesh (2019) estimated the 

elasticity of overtime hours for EAPexempt workers.388 This estimate is 

based on a difference-in-differences in 

hours for two groups of workers 

between two time periods. However, 

some groups of workers are incorrectly 

defined, so the Department has not used 

these estimates.389

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 fixedjob 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.390 Figure 4 is a flow 


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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. 

BILLING CODE 4510–27–P 


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391 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. 

392Type 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. 

BILLING CODE 4510–27–C 

(e) Estimated Number of and Effects on 

Affected EAP Workers 

The Department estimated the 

proposed rule would affect 3.6 million 

workers (Table 16), of which 2.5 million 

are Type 1 workers (68.7 percent of all 

affected EAP workers), 579,200 were 

estimated to be Type 2 workers (15.9 

percent), 448,400 were Type 3 workers 

(12.3 percent), and 115,700 were 

estimated to be Type 4 workers (3.2 

percent). 

TABLE 16—AFFECTED EAP WORKERS BY TYPE (1,000S), YEAR 1 

EAP test Total No overtime 

(T1) 

Occasional 

overtime 

(T2) 

Regular 

overtime 

Newly 

nonexempt 

(T3) 

Remain 

exempt 

(T4) 

Standard salary level ........................................................... 3,399.4 2,335.7 569.9 384.9 108.9 

HCE compensation level ..................................................... 248.9 169.2 9.3 63.5 6.8 

Total .............................................................................. 3,648.3 2,504.9 579.2 448.4 115.7 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

* 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). 

The proposed rule would affect some 

affected workers’ hourly wages, hours, 

and weekly earnings. Predicted changes 

in implicit wage rates are outlined in 

Table 17, changes in hours in Table 18, 

and changes in weekly earnings in Table 

19. How these would change depends 

on the type of worker, but on average 

the Department projects that weekly 

earnings would be unchanged or 

increase while hours worked would be 

unchanged or decrease. 

Type 1 workers would have no 

change in wages, hours, or earnings due 

to the overtime pay provision because 

these workers do not work overtime.391

Some Type 1 workers who earn less 

than the Federal or state minimum wage 

would see an increase in wages, a 

decrease in hours, and an increase in 

weekly earnings. 

For Type 2A workers, the Department 

assumed employers would 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 

would 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.392

For Type 3 workers and Type 2B 

workers (the 50 percent of Type 2 

workers who regularly work occasional 

overtime, an estimated 738,000 

workers), the Department used the 

incomplete fixed-job model to estimate 

changes in the regular rate of pay. These 

workers would see a decrease in their 

average regular hourly wage and a small 

decrease in hours. However, because 

these workers would 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 would 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 18). 

Type 4 workers’ implicit hourly rates 

of pay and weekly earnings would 

increase to meet the updated standard 

salary level or HCE annual 


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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 17—AVERAGE REGULAR RATE OF PAY BY TYPE OF AFFECTED EAP WORKER, YEAR 1 

Time period Total No overtime 

(T1) 

Occasional 

overtime 

(T2) 

Regular overtime 

Newly nonexempt 

(T3) 

Remain exempt 

(T4) 

Standard Salary Level 

Before rule ........................................................................... $23.55 $24.18 $25.48 $17.82 $20.07 

After rule .............................................................................. $23.43 $24.18 $25.36 $16.90 $20.42 

Change ($) ........................................................................... ¥$0.11 $0.00 ¥$0.12 ¥$0.92 $0.34 

Change (%) .......................................................................... ¥0.5% 0.0% ¥0.5% ¥5.2% 1.7% 

HCE Compensation Level 

Before rule ........................................................................... $56.10 $60.07 $58.90 $45.92 $48.63 

After rule .............................................................................. $55.31 $60.07 $54.99 $43.31 $49.78 

Change ($) ........................................................................... ¥$0.79 $0.00 ¥$3.91 ¥$2.61 $1.15 

Change (%) .......................................................................... ¥1.4% 0.0% ¥6.6% ¥5.7% 2.4% 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

*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 18—AVERAGE WEEKLY HOURS BY TYPE OF AFFECTED EAP WORKER, YEAR 1 

Time period Total 

No overtime 

worked 

(T1) 

Occasional OT 

(T2) 

Regular OT 

Newly nonexempt 

(T3) 

Remain 

exempt 

(T4) 

Standard Salary Level a

Before rule ........................................................................... 41.0 38.9 40.9 50.4 52.9 

After rule .............................................................................. 41.0 38.9 40.9 50.0 52.9 

Change (hours) .................................................................... 0.0 0.0 0.0 ¥0.4 0.0 

Change (%) .......................................................................... ¥0.1% 0.0% ¥0.1% ¥0.8% 0.0% 

HCE Compensation Level a

Before rule ........................................................................... 43.3 39.5 52.7 50.6 56.0 

After rule .............................................................................. 43.2 39.5 52.3 50.3 56.0 

Change (hours) .................................................................... ¥0.1 0.0 ¥0.4 ¥0.3 0.0 

Change (%) .......................................................................... ¥0.2% 0.0% ¥0.7% ¥0.7% 0.0% 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 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 19—AVERAGE WEEKLY EARNINGS BY TYPE OF AFFECTED EAP WORKER, YEAR 1 

Time period Total No overtime 

(T1) 

Occasional 

overtime 

(T2) 

Regular overtime 

Newly nonexempt 

(T3) 

Remain exempt 

(T4) 

Standard Salary Level a

Before rule ........................................................................... $913.71 $904.82 $947.26 $882.62 $1,038.69

After rule .............................................................................. $919.26 $904.82 $960.66 $906.04 $1,059.00 

Change ($) ........................................................................... $5.55 $0.00 $13.39 $23.42 $20.31 

Change (%) .......................................................................... 0.6% 0.0% 1.4% 2.7% 2.0% 

HCE Compensation Level a

Before rule ........................................................................... $2,354.99 $2,323.22 $3,101.59 $2,292.51 $2,704.08 


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393Quach, S. (2022). The Labor Market Effects of 

Expanding Overtime Coverage. https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3608506. 394The Department notes that the effective date 

of the 2019 final rule was in January 2020, so using 

data from this month may not fully capture the 

effects of the 2019 rule. 395This is a reasonable restriction to minimize 

the influence of exogenous factors. However, it 

makes the sample unrepresentative of the U.S. 

396Rohwedder, 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. 

397 Department of Health and Human Services 

(2023). Federal Poverty Level. https://

www.healthcare.gov/glossary/Federal-poverty-levelfpl/. 

TABLE 19—AVERAGE WEEKLY EARNINGS BY TYPE OF AFFECTED EAP WORKER, YEAR 1—Continued 

Time period Total No overtime 

(T1) 

Occasional 

overtime 

(T2) 

Regular overtime 

Newly nonexempt 

(T3) 

Remain exempt 

(T4) 

After rule .............................................................................. $2,374.58 $2,323.22 $3,193.44 $2,348.79 $2,769.00 

Change ($) ........................................................................... $19.59 $0.00 $91.85 $56.28 $64.92 

Change (%) .......................................................................... 0.8% 0.0% 3.0% 2.5% 2.4% 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aThe 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. 

*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). 

At the new standard salary level, the 

average weekly earnings of affected 

workers would increase $5.55 (0.6 

percent), from $913.71 to $919.26. 

Multiplying the average change of $5.55 

by the 3.4 million EAP workers affected 

by the change in the standard salary 

level and 52 weeks equals an increase 

in earnings of $1.0 billion in the first 

year. For workers affected by the change 

in the HCE compensation level, average 

weekly earnings would increase by 

$19.59. When multiplied by 248,900 

affected workers and 52 weeks, the 

national increase would be $253.5 

million in the first year. Thus, total Year 

1 transfer payments attributable to this 

proposed rule would total $1.2 billion. 

The Department is only aware of one 

paper that modeled the impacts of the 

2019 rule’s increases in the salary and 

compensation levels. Quach (2021) 393

used administrative payroll data from 

May 2008 to January 2020 to estimate 

the impacts of the rescinded 2016 rule 

and the 2019 rule on employment, 

earnings, and salary status.394 The paper 

has not been published in a peerreviewed journal and has significant 

limitations, including that its use of 

administrative payroll data from ADP 

means that the findings are not 

representative as ADP customers do not 

represent a random sample of the 

workplace. Furthermore, the paper’s 

analysis only includes the 22 states that 

have not updated their state or local 

minimum wages since 2014.395

In terms of its findings, concerning 

employment, the author did not find the 

impact to be statistically different from 

zero for either rule, although he did find 

a significant decrease in employment 

when state overtime exemption laws 

were incorporated. Concerning earnings, 

he found an increase in base weekly 

earnings and an increase in overtime 

pay for both rules. The percent change 

in total pay that he estimates, around 1 

to 2 percent depending on the rule, is 

not vastly different than the 

Department’s estimate of 0.6 percent. 

Concerning salary status, he found an 

increase in the number of hourly jobs 

after the 2016 rule but not after the 2019 

rule. His analysis of both rules showed 

a shift in the number of salaried workers 

from below to above the threshold (as 

does the Department’s analysis). 

The Department has not adjusted its 

methodology in response to this paper 

given the concerns listed above, but 

remains interested in further peerreviewed research that may provide 

relevant findings. 

Additionally, it can be informative to 

look at papers which predict the impact 

of rulemakings. For example, 

Rohwedder and Wenger (2015) analyzed 

the effects of increasing the standard 

salary level from the then baseline level 

of $455 per week.396 They compared 

hourly and salaried workers in the CPS 

using quantile treatment effects. This 

methodology estimates the effect of a 

worker becoming nonexempt by 

comparing similar workers who are 

hourly and salaried. They found no 

statistically significant change in hours 

or wages on average. However, their 

point estimates, averaged across all 

affected workers, show small increases 

in earnings and decreases in hours, 

similar to the Department’s analysis. For 

example, using a salary level of $750, 

they estimated weekly earnings may 

increase between $2 and $22 and 

weekly hours may decrease by 

approximately 0.4 hours. 

iv. Potential Transfers Not Quantified 

This proposed rule could lead to 

additional transfers that the Department 

is unable to quantify. For example, in 

response to this proposed rule, some 

employers may decrease the hours of 

newly nonexempt workers who usually 

work overtime. These hours may be 

transferred to other workers, such as 

non-overtime workers and exempt 

workers who are not affected by the 

rule. Depending on how these hours are 

transferred, it could lead to either a 

reduction or increase in earnings for 

other workers. Employers may also 

offset increased labor costs by reducing 

bonuses or benefits instead of reducing 

base wages or hours worked. If this 

occurs, an employee’s overall 

compensation may not be affected. 

The rule could also reduce reliance on 

social assistance programs for some 

workers who may receive a transfer of 

income resulting from this proposed 

rule if finalized. For low-income 

workers, this transfer could result in a 

reduced need for social assistance 

programs such as Medicaid, the Earned 

Income Tax Credit (EITC), the 

Supplemental Nutrition Assistance 

Program (SNAP), the Temporary 

Assistance for Needy Families (TANF) 

program, the Special Supplemental 

Nutrition Program for Women, Infants, 

and Children (WIC), and school 

breakfasts and lunches. A worker 

earning the current salary level of $684 

per week earns $35,568 annually, which 

is roughly equivalent to the Federal 

poverty level for a family of five and 

makes the family eligible for many 

social assistance programs.397 Thus, 

transferring income to these workers 


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398See 84 FR 51279–80; 81 FR 32463; 69 FR 

22213. 

399See 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. RAND conducted a survey to identify 

the number of workers who may have failed the 

standards duties test and yet are classified as EAP 

exempt. The survey, a special module to the 

American Life Panel, asked respondents: (1) their 

hours worked, (2) whether they are paid on an 

hourly or salary basis, (3) their typical earnings, (4) 

whether they perform certain job responsibilities 

that are treated as proxies for whether they would 

justify exempt status, and (5) whether they receive 

any overtime pay. Using these data, Rohwedder and 

Wenger found that ‘‘11.5 percent of salaried 

workers were classified as exempt by their 

employer although they did not meet the criteria for 

being so.’’ This survey was conducted when the 

salary level was $455. The exact percentage may no 

longer be applicable, but the concern that in some 

instances the duties test may be misapplied 

remains. 

400Akerlof, G.A. (1982). Labor Contracts as Partial 

Gift Exchange. The Quarterly Journal of Economics, 

97(4), 543–569. 

401Another model of efficiency wages, which is 

less applicable here, is the adverse selection model 

in which higher wages raise the quality of the pool 

of applicants. 

402 Kim, H.S., & Jang, S. (2019). Minimum Wage 

Increase and Firm Productivity: Evidence from the 

Restaurant Industry. Tourism Management 71, 378– 

388. https://doi.org/10.1016/j.tourman.2018.10.029. 

403Howes, Candace. (2005). Living Wages and 

Retention of Homecare Workers in San Francisco. 

Industrial Relations, 44(1), 139–163. Dube, A., 

Lester,T.W., & Reich, M.. (2014). Minimum Wage 

Shocks, Employment Flows and Labor Market 

Frictions. IRLE Working Paper #149–13. 

404This literature tends to focus on changes in 

earnings for a specific sector or subset of the labor 

force. The impact on turnover when earnings 

increase across sectors (as would be the case with 

this regulation) may be smaller. 

405Argote, L., Insko, C. A., Yovetich, N., & 

Romero, A. A. (1995). Group Learning Curves: The 

Effects of Turnover and Task Complexity on Group 

Performance. Journal of Applied Social Psychology, 

25(6), 512–529. Shaw, J. D. (2011). Turnover Rates 

and Organizational Performance: Review, Critique, 

and Research Agenda. Organizational Psychology 

Review, 1(3), 187–213. 406For more information, see OECD series, 

average annual hours actually worked per worker, 

available at: http://stats.oecd.org/

index.aspx?DataSetCode=ANHRS. 

407Boushey, H. and Ansel, B. (2016). Overworked 

America, The economic causes and consequences of 

long work hours. Washington Center for Equitable 

Growth. https://equitablegrowth.org/researchpaper/overworked-america/?longform=true. 

408Hamermesh, D.S., Kawaguchi, D., Lee, J. 

(2014). Does Labor Legislation Benefit Workers? 

Well-Being after an Hours Reduction. IZA DP No. 

8077. 

Golden, L., & Gebreselassie, T. (2007). 

Overemployment Mismatches: The Preference for 

Fewer Work Hours. Monthly Labor Review, 130(4), 

18–37. 

Hamermesh, D.S. (2014). Not Enough Time? 

American Economist, 59(2). 

could reduce eligibility for government 

social assistance programs and could 

therefore also reduce government 

expenditures. 

The Department requests comments 

and data on additional transfers that 

could occur if this rule were finalized as 

proposed. 

5. Benefits and Cost Savings 

The Department expects that this 

proposed rule could lead to multiple 

benefits, which are discussed 

qualitatively below. The Department 

welcomes comments on the potential 

benefits associated with this proposed 

rule and any data that could help to 

quantify them. 

First, the updated salary level would 

strengthen the overtime protection of 

salaried, white-collar employees who do 

not pass the standard duties test and 

who earn between the current salary 

standard salary level and the proposed 

salary level. These employees are 

nonexempt but, because they satisfy the 

current salary level threshold, 

employers must apply the duties test to 

determine their exemption status. At the 

proposed salary level, the number of 

white-collar salaried employees who fail 

the duties test but earn at or above the 

salary level would decrease by 4.1 

million. Because these nonexempt 

employees would not meet the proposed 

salary level, employers would be able to 

determine their exemption status based 

solely on the salary test. If any of these 

employers previously spent significant 

time evaluating the duties of these 

workers to determine exemption status, 

the change to determining exemption 

status based on the salary level could 

lead to some cost savings. 

As the Department has noted in prior 

EAP rulemakings, some salaried, whitecollar employees who meet the salary 

level threshold but do not meet the 

duties test may be misclassified as 

exempt from overtime protection due to 

misapplication of the duties test.398 To 

the extent that some of the 4.1 million 

salaried, white-collar employees who do 

not meet the duties test and earn 

between the current $684 per week 

salary level and the proposed $1,059 per 

week salary level are misclassified as 

exempt, the proposed salary level would 

make it more clear for workers and 

employers that such workers are not 

EAP exempt.399

Second, this proposed rule could 

potentially lead to increased worker 

productivity if workers receive an 

increase in compensation. Increased 

productivity could occur through 

numerous channels, such as employee 

retention and level of effort. A strand of 

economic research, commonly referred 

to as ‘‘efficiency wage’’ theory, 

considers how an increase in 

compensation may be met with greater 

productivity.400 Efficiency wages may 

elicit greater effort on the part of 

workers, making them more effective on 

the job.401 Other research on increases 

in the minimum wage have 

demonstrated a positive relationship 

between increased compensation and 

worker productivity. For example, Kim 

and Jang (2019) showed that wage raises 

increase productivity for up to two years 

after the wage increase.402 They found 

that in both full and limited-service 

restaurants productivity increased due 

to improved worker morale after a wage 

increase. 

Additionally, research demonstrates a 

correlation between increased earnings 

and reduced employee turnover.403 404

Reducing turnover, in turn, may 

increase productivity because new 

employees have less firm-specific skills 

and knowledge and thus could be less 

productive and require additional 

supervision and training.405 Reduced 

turnover could also reduce firms’ hiring 

and training costs. As a result, even 

though marginal labor costs rise, they 

may rise by less than the amount of the 

wage change because the higher wages 

may be offset by increased productivity 

and reduced hiring costs for firms. 

Third, this rulemaking could result in 

an increase in personal time for some 

workers. Due to the increase in marginal 

cost for overtime hours for newly 

overtime-eligible workers, employers 

could demand fewer hours from some of 

the workers affected by this rulemaking. 

If these workers’ pay remains the same, 

they could benefit from increased 

personal time and improved work-life 

balance. Empirical evidence shows that 

workers in the United States typically 

work more than workers in other 

comparatively wealthy countries.406

Although estimates of the actual level of 

overwork vary considerably, workers in 

executive, administrative, and 

professional occupations tend to work 

longer hours.407 They also have the 

highest percentage of workers who 

would prefer to work fewer hours 

compared to other occupational 

categories.408 Therefore, the Department 

believes that this proposed rule may 

result in reduced time spent working for 

a group of workers, some of whom may 

prefer such an outcome. 

6. Sensitivity Analysis of Transfer 

Payments 

Because the Department cannot 

predict employers’ precise reactions to 

the proposed rule, the Department 

calculated bounds on the size of the 

estimated transfers from employers to 

workers, relative to the primary 

estimates in this RIA. For the upper 

bound, the Department assumed that the 


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409The straight-time wage adjusts to a level that 

keeps weekly earnings constant when overtime 

hours are paid at 1.5 times the straight-time wage. 

In cases where adjusting the straight-time wage 

results in a wage less than the minimum wage, the 

straight-time wage is set to the minimum wage. 

full overtime premium model is more 

likely to occur than in the primary 

model. For the lower bound, the 

Department assumed that the complete 

fixed-job model is more likely to occur 

than in the primary model. Based on 

these assumptions, estimated transfers 

may range from $557.3 million to $2.4 

billion, with the primary estimate equal 

to $1.2 billion. 

For a reasonable upper bound on 

transfer payments, the Department 

assumed that all occasional overtime 

workers and half of regular overtime 

workers would receive the full overtime 

premium (i.e., such workers will work 

the same number of hours but be paid 

1.5 times their implicit initial hourly 

wage for all overtime hours) (Table 20). 

The full overtime premium model is a 

special case of the fixed-wage model 

where there is no change in hours. For 

the other half of regular overtime 

workers, the Department assumed in the 

upper-bound method that they would 

have their implicit hourly wage adjusted 

as predicted by the incomplete fixed-job 

model (wage rates fall and hours are 

reduced but total earnings continue to 

increase, as in the primary method). In 

the primary model, the Department 

assumed that only 50 percent of 

occasional overtime workers and no 

regular overtime workers would receive 

the full overtime premium. 

The plausible lower bound on transfer 

payments also depends on whether 

employees work regular overtime or 

occasional overtime. For those who 

regularly work overtime hours and half 

of those who work occasional overtime, 

the Department assumed the employees’ 

wages would fully adjust as predicted 

by the fixed-job model.409 For the other 

half of employees with occasional 

overtime hours, the lower bound 

assumes they would be paid one and 

one-half times their implicit hourly 

wage for overtime hours worked (full 

overtime premium). 

TABLE 20—SUMMARY OF THE ASSUMPTIONS USED TO CALCULATE THE LOWER ESTIMATE, PRIMARY ESTIMATE, AND

UPPER ESTIMATE OF TRANSFERS

Lower transfer estimate Primary estimate Upper transfer estimate 

Occasional Overtime Workers (Type 2) 

50% fixed-job model .......................................... 50% incomplete fixed-job model ...................... 100% full overtime premium. 

50% full overtime premium ................................ 50% full overtime premium ..............................

Regular Overtime Workers (Type 3) 

100% fixed-job model ........................................ 100% incomplete fixed-job model .................... 50% incomplete fixed-job model. 

50% full overtime premium. 

* Full overtime premium model: Regular rate of pay equals the implicit hourly wage prior to the regulation (with no adjustments); workers are 

paid 1.5 times this base wage for the same number of overtime hours worked prior to the regulation. 

* Fixed-job model: Base wages are set at the higher of: (1) a rate such that total earnings and hours remain the same before and after the regulation; thus the base wage falls, and workers are paid 1.5 times the new base wage for overtime hours (the fixed-job model) or (2) the minimum 

wage. 

* Incomplete fixed-job model: Regular rates of pay are partially adjusted to the wage implied by the fixed-job model. 

7. Effects by Regions and Industries 

This section compares the number of 

affected workers, costs, and transfers 

across regions and industries. Although 

impacts would be more pronounced in 

some regions or industries, the 

Department has concluded that in no 

region or industry are the costs overly 

burdensome. The proportion of total 

costs and transfers in each region would 

be fairly consistent with the proportion 

of total workers in each region. Affected 

workers are overrepresented in some 

industries, but costs and transfers would 

still be manageable as a share of payroll 

and of total revenue (See Table 24 for 

regions and Table 27 for industries). 

The Department also compared costs 

and transfers relative to total payrolls 

and revenues. This provides a common 

method of assessing the relative effects 

of the rule on different regions or 

industries, and the magnitude of 

adjustments the rule may require on the 

part of enterprises in each region or 

industry. The relative costs and 

transfers expressed as a percentage of 

payroll are particularly useful measures 

of the relative size of adjustment faced 

by organizations in a region or industry 

because they benchmark against the cost 

category directly associated with the 

labor force. Average estimated costs and 

transfers from this proposed rule are 

very small relative to current payroll or 

current revenue—less than a tenth of a 

percent of payroll and of revenue in 

each region and in each industry. 

Salaries vary across the U.S. 

geographically. To ensure the proposed 

standard salary level would not be too 

high in any region of the country, the 

Department has used only wages in the 

lowest-wage region, the South, to set the 

salary level. However, because wages 

are lower in the South and the Midwest 

than the Northeast and the West, 

impacts may be larger in these two 

lower-wage regions. This section 

considers impacts across the four 

Census regions to ensure the impacts in 

the lower-wage regions would be 

manageable. The South has by far the 

most affected workers (1.5 million), 

though it also has the most workers of 

any Census region (Table 21). As a share 

of potentially affected workers in the 

region, the South would have somewhat 

more affected workers relative to other 

regions (15.2 percent are affected 

compared with 10.3 to 13.7 percent in 

other regions). However, as a share of all 

workers in the region, the South would 

not be particularly affected relative to 

other regions (2.9 percent are affected 

compared with 2.1 to 2.6 percent in 

other regions). 


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410The Department uses 2017 data here because 

although payroll data are available for 2021, the 

most recent revenue data are for 2017. 

TABLE 21—POTENTIALLY AFFECTED AND AFFECTED WORKERS, BY REGION, YEAR 1 

Region 

Workers 

subject to 

FLSA 

(millions) 

Potentially 

affected 

workers 

(millions) a

Affected 

workers 

(millions) b

Affected 

workers as a 

precent of 

potentially 

affected 

workers % 

Affected 

workers as a 

percent 

of all workers 

% 

All ......................................................................................... 139.4 28.4 3.6 12.9 2.6 

Northeast .............................................................................. 24.8 5.7 0.6 11.1 2.6 

Midwest ................................................................................ 30.4 5.9 0.8 13.7 2.6 

South .................................................................................... 51.4 9.9 1.5 15.2 2.9 

West ..................................................................................... 32.8 6.9 0.7 10.3 2.1 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. a EAP exempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime exemption, and not in a named occupation. b Currently EAP exempt workers who will be entitled to overtime protection under the updated earnings levels or whose weekly earnings will 

increase to the new earnings levels to remain exempt. 

Total transfers in the first year were 

estimated to be $1.2 billion (Table 22). 

As expected, the transfers in the South 

would be the largest portion because the 

largest number of affected workers 

would be in the South. However, 

transfers per affected worker would be 

on the low-end in the South. Annual 

transfers per worker would be $328 in 

the South, and between $332 and $357 

in other regions. 

TABLE 22—ANNUAL TRANSFERS BY REGION, YEAR 1 

Region 

Total annual 

change in 

earnings 

(millions) 

Annual 

transfer per 

affected 

worker 

Annual 

transfers per 

entity 

Percent of 

total 

transfers 

by region 

(%) 

All ..................................................................................................................... $1,234.2 $338 $153 100.0 

Northeast ......................................................................................................... 211.2 332 143 17.1 

Midwest ............................................................................................................ 279.1 347 166 22.6 

South ................................................................................................................ 492.8 328 169 39.9 

West ................................................................................................................. 251.1 357 125 20.3 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

TABLE 23—ANNUAL COSTS BY REGION, YEAR 1 

Region 

Total direct 

costs 

(millions) 

Total direct 

costs 

per entity 

Percent of 

total 

direct costs 

by region 

(%) 

All ................................................................................................................................................. $1,202.8 $149 100.0 

Northeast ..................................................................................................................................... 202.8 137 16.9 

Midwest ........................................................................................................................................ 278.5 165 23.2 

South ............................................................................................................................................ 470.5 161 39.1 

West ............................................................................................................................................. 251.1 125 20.9 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

Direct employer costs are composed 

of regulatory familiarization costs, 

adjustment costs, and managerial costs. 

The Department estimates that total 

direct employer costs would be the 

highest in the South ($470.5 million) 

and lowest in the Northeast ($202.8 

million). Transfers and direct employer 

costs in each region, as a percentage of 

the total transfers and direct costs, 

would range from 17.0 percent in the 

Northeast to 39.5 percent in the South. 

These proportions are almost the same 

as the proportions of the total workforce 

in each region: 17.8 percent in the 

Northeast and 36.9 percent in the South. 

Costs and transfers per establishment 

would be slightly higher in the South 

($330) than on average, but still small 

(Table 24). 

Another way to compare the relative 

effects of this proposed rule by region is 

to consider the transfers and costs as a 

proportion of payroll and revenues 

(Table 24).410 Nationally, employer 

costs and transfers would be 

approximately 0.027 percent of payroll. 

By region, direct employer costs and 

transfers as a percent of payroll would 

be approximately the same (between 

0.021 and 0.032 percent of payroll). 

Employer costs and transfers as a 

percent of revenue would be 0.005 

percent nationally and range between 

0.004 and 0.006 percent in each region. 


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TABLE 24—ANNUAL TRANSFERS AND COSTS AS PERCENT OF PAYROLL AND OF REVENUE BY REGION, YEAR 1 

Region 

Transfers 

and costs 

per entity 

Payroll 

(billions) a

Revenue 

(billions) a

Costs and transfers 

As percent 

of payroll 

(%) 

As percent 

of revenue 

(%) 

All ......................................................................................... $301 $9,141 $48,894 0.027 0.005 

Northeast .............................................................................. 279 1,940 9,557 0.021 0.004 

Midwest ................................................................................ 331 1,879 10,884 0.030 0.005 

South .................................................................................... 330 3,028 17,193 0.032 0.006 

West ..................................................................................... 250 2,295 11,260 0.022 0.004 

aPayroll and revenue data exclude the Federal Government. 

Sources: Costs and transfers based on pooled CPS data for 2020–2022 adjusted to reflect 2022. Private sector payroll and revenue data from 

2017 SUSB. State and local payroll and revenue data from State and Local Government Finances 2020. Inflated to $2022 using GDP deflator. 

Impacts may be more pronounced in 

some industries. In particular, lowerwage industries where more workers 

may earn between $684 and the 

proposed new salary level may be 

impacted more. Additionally, industries 

where EAP workers are more prevalent 

may experience larger impacts. To gauge 

the effect of the proposed rule on 

industries, the Department estimated 

affected workers, costs, and transfers for 

the 13 major industry groups. The 

Department also compared estimates of 

combined costs and transfers as a 

percent of payroll and revenue across 

industries. 

Table 25 presents the number of 

affected workers by industry. The 

industry with the most affected workers 

is professional and business services 

(687,400). The industry with the largest 

share of workers affected is financial 

activities (4.9 percent). This is because 

the financial activities industry is 

heavily composed of salaried whitecollar workers. As a share of potentially 

affected workers, the industry with the 

highest share affected is agriculture, 

forestry, fishing, & hunting (22.1 

percent), followed by leisure and 

hospitality (21.1 percent). 

TABLE 25—POTENTIALLY AFFECTED AND AFFECTED WORKERS, BY INDUSTRY, YEAR 1 

Industry 

Workers 

subject 

to FLSA 

(1,000s) 

Potentially 

affected 

workers 

(1,000s) a

Affected 

workers 

(1,000s) b

Affected 

workers 

as a 

percent of 

potentially 

affected 

workers 

(%) 

Affected 

workers 

as a 

percent 

of all 

workers 

(%) 

All ......................................................................................... 139,397.0 28,359.5 3,648.3 12.9 2.6

Agriculture, forestry, fishing, & hunting ................................ 1,331.5 55.6 12.3 22.1 0.9 

Mining ................................................................................... 619.5 171.1 12.5 7.3 2.0 

Construction ......................................................................... 8,914.6 1,188.4 154.4 13.0 1.7 

Manufacturing ...................................................................... 15,129.2 3,900.8 317.1 8.1 2.1 

Wholesale trade ................................................................... 3,226.4 850.5 103.9 12.2 3.2 

Retail trade ........................................................................... 15,381.2 1,853.1 308.7 16.7 2.0 

Transportation & utilities ...................................................... 8,507.1 1,033.5 118.9 11.5 1.4 

Information ........................................................................... 2,559.2 962.4 118.6 12.3 4.6 

Financial activities ................................................................ 9,851.4 4,250.7 480.7 11.3 4.9 

Professional & business services ........................................ 16,784.2 6,754.2 687.4 10.2 4.1 

Education ............................................................................. 14,017.6 1,121.0 201.8 18.0 1.4 

Healthcare & social services ............................................... 20,534.6 3,599.7 626.9 17.4 3.1 

Leisure & hospitality ............................................................. 11,597.6 869.1 183.5 21.1 1.6 

Other services ...................................................................... 5,314.5 736.5 139.2 18.9 2.6 

Public administration ............................................................ 5,628.3 1,012.9 182.4 18.0 3.2 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aEAP exempt workers who are white-collar, salaried, not eligible for another (non-EAP) overtime exemption, and not in a named occupation. b Currently EAP exempt workers who will be entitled to overtime protection under the updated earnings levels or whose weekly earnings will increase to the new earnings levels to remain exempt. 

Both transfers and costs would be the 

largest in the professional and business 

services industry because this industry 

is large and heavily composed of 

salaried white-collar workers (Table 26). 

Combined, in Year 1, these total $471.7 

million and represent 19.4 percent of 

nationwide transfers and costs. 

Transfers and costs are also large in the 

healthcare and social services industry, 

at least partially due to the large size of 

this industry. However, transfers per 

affected worker would be relatively low 

in this industry, $251 in the first year 

compared with $338 nationally. A third 

industry with relatively large total 

transfers and costs is the financial 

activities industry. 


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411 Internal Revenue Service. (2023). SOI Tax 

Stats—Corporation Income Tax Returns Complete 

Report (Publication 16). Available at: https://

www.irs.gov/statistics/soi-tax-stats-corporationincome-tax-returns-complete-report-publication-16. 

412Table 1 of the IRS report provides total 

receipts, net income, and deficits by industry. For 

each industry, the Department calculated the profitto-revenue ratio as net income (column (7)) less any 

deficit (column (8)) divided by total receipts 

(column (3)). Profits were then calculated as 

revenues multiplied by profit-to-revenue ratios. 

Profits could not be used directly because they are 

limited to only active corporations. 

413 In particular, a basic model of competitive 

product markets would predict that highly 

competitive industries with lower rates of return 

would adjust to increases in the marginal cost of 

labor arising from the rule through an overall, 

industry-level increase in prices and a reduction in 

quantity demanded based on the relative elasticities 

of supply and demand. Alternatively, more 

concentrated markets with higher rates of return 

would be more likely to adjust through some 

combination of price increases and profit 

reductions based on elasticities as well as interfirm 

pricing responses. 

TABLE 26—ANNUAL TRANSFERS AND COSTS BY INDUSTRY, YEAR 1 

Industry Transfers 

(millions) 

Transfer 

per 

affected 

worker 

Direct costs 

(millions) a

Transfers 

and costs 

(millions) 

Percent 

of total 

transfers 

and costs 

by 

industry 

(%) 

All ......................................................................................... $1,234.2 $338 $1,202.1 $2,436.3 100.0 

Agriculture, forestry, fishing, & hunting ................................ 4.2 341 3.2 7.4 0.3 

Mining ................................................................................... 2.9 234 2.6 5.6 0.2 

Construction ......................................................................... 49.1 318 74.0 123.2 5.1 

Manufacturing ...................................................................... 114.0 360 91.9 205.9 8.5 

Wholesale trade ................................................................... 42.9 413 46.3 89.2 3.7 

Retail trade ........................................................................... 148.8 482 138.7 287.6 11.8 

Transportation & utilities ...................................................... 46.3 389 37.0 83.3 3.4 

Information ........................................................................... 34.5 290 32.3 66.7 2.7 

Financial activities ................................................................ 144.3 300 143.2 287.5 11.8 

Professional & business services ........................................ 250.7 365 221.0 471.7 19.4 

Education ............................................................................. 54.3 269 42.2 96.5 4.0 

Healthcare & social services ............................................... 157.5 251 164.0 321.5 13.2 

Leisure & hospitality ............................................................. 86.8 473 99.2 186.1 7.6 

Other services ...................................................................... 35.6 256 69.5 105.1 4.3 

Public administration ............................................................ 62.2 341 37.0 99.2 4.1 

Sources: Pooled CPS data for 2020–2022 adjusted to reflect 2022. a Regulatory familiarization costs exclude 13,981 establishments whose industry is ‘‘not classified.’’ 

To measure the impact on businesses, 

a comparison of transfers and costs to 

payroll, revenue, or profit is more 

helpful than looking at the absolute size 

of transfers and costs per industry. As 

a percent of payroll, transfers and costs 

would be highest in agriculture, 

forestry, fishing, and hunting; 

education; and retail trade (Table 27). 

However, the magnitude of the relative 

shares would be small, representing less 

than 0.1 percent of payroll costs in all 

industries. The Department’s estimates 

of transfers and costs as a percent of 

revenue by industry also indicated a 

very small effect of less than 0.02 

percent of revenues in any industry. The 

industries with the largest transfers and 

costs as a percent of revenue would be 

education; agriculture, forestry, fishing, 

and hunting; and professional and 

business services. Table 27 illustrates 

that the differences in costs and 

transfers relative to revenues would be 

quite small across industry groupings. 

The overall magnitude of costs and 

transfers as a percentage of profits 

represents less than 1.0 percent of 

overall profits in each industry.411 412 By 

industry, the value of total costs and 

transfers as a percent of profits ranges 

from a low of .02 percent (wholesale 

trade) to a high of 0.71 percent 

(agriculture, forestry, fishing, and 

hunting). Benchmarking against profits 

is potentially helpful in the sense that 

it provides a measure of the proposed 

rule’s effect against returns to 

investment. However, this metric must 

be interpreted carefully as it does not 

account for differences across industries 

in risk-adjusted rates of return which 

are not readily available for this 

analysis. The ratio of costs and transfers 

to profits also does not reflect 

differences in the firm-level adjustment 

to profit impacts reflecting crossindustry variation in market 

structure.413

TABLE 27—ANNUAL TRANSFERS, TOTAL COSTS, AND TRANSFERS AND COSTS AS PERCENT OF PAYROLL, REVENUE, AND

PROFIT BY INDUSTRY, YEAR 1 

Industry 

Costs and 

transfers per 

entity 

Payroll 

(billions) a

Revenue 

(billions) a

Costs and transfers as percent of: 

Payroll a Revenue a Profit a

All ............................................................. $301.7 $9,140.5 $48,894.1 0.027 0.005 0.052 

Agriculture, forestry, fishing, & hunting .... 323.5 8.3 41.0 0.089 0.018 0.709 

Mining ....................................................... 233.0 59.7 476.5 0.009 0.001 b

Construction ............................................. 163.5 471.2 2,346.7 0.026 0.005 0.090 

Manufacturing .......................................... 726.1 805.8 6,522.0 0.026 0.003 0.030 

Wholesale trade ....................................... 228.1 512.7 10,287.6 0.017 0.001 0.020 

Retail trade ............................................... 277.4 524.6 5,773.6 0.055 0.005 0.154 

Transportation & utilities .......................... 300.4 369.0 1,719.9 0.023 0.005 0.257 

Information ............................................... 414.6 421.2 1,860.4 0.016 0.004 0.022 


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414 84 FR 51260. 415See section IV.A.1. 

416See id. 

417See 81 FR 32429. 

418See 84 FR 51250. 

TABLE 27—ANNUAL TRANSFERS, TOTAL COSTS, AND TRANSFERS AND COSTS AS PERCENT OF PAYROLL, REVENUE, AND

PROFIT BY INDUSTRY, YEAR 1—Continued 

Industry 

Costs and 

transfers per 

entity 

Payroll 

(billions) a

Revenue 

(billions) a

Costs and transfers as percent of: 

Payroll a Revenue a Profit a

Financial activities .................................... 314.4 896.4 5,881.0 0.032 0.005 0.023 

Professional & business services ............ 330.6 1,888.7 3,451.6 0.025 0.014 0.122 

Education ................................................. 876.2 168.8 484.3 0.057 0.020 0.310 

Healthcare & social services ................... 346.4 1,175.4 2,986.5 0.027 0.011 0.144 

Leisure & hospitality ................................. 210.1 423.4 1,429.5 0.044 0.013 0.158 

Other services .......................................... 136.3 213.5 850.6 0.049 0.012 0.183 

Public administration ................................ 1,100.1 1,201.8 4,782.8 0.008 0.002 c

Sources: Pooled CPS data for 2020–2022 adjusted to reflect 2022. Private sector payroll and revenue data from 2017 SUSB. State and local 

payroll and revenue data from State and Local Government Finances 2020 are used for the Public Administration industry. Profit-to-revenue data 

from the Internal Revenue Service 2019. Inflated to $2022 using GDP deflator. aPayroll and revenue data exclude the Federal Government. Profit-to-revenue data limited to active corporations. Regulatory familiarization 

costs, payrolls, and revenues exclude 13,981 establishments whose industry is ‘‘not classified.’’ Because transfer payments include all workers, 

the estimates of costs and transfers as a share of payroll or revenue are slightly overestimated. bProfits were negative in this industry in this year. 

cProfit is not applicable for public administration. 

8. Regulatory Alternatives 

The Department considered a range of 

alternatives before selecting its methods 

for updating the standard salary level 

and the HCE compensation level (see 

section IV.A.5). As seen in Table 28, the 

Department has calculated the salary/ 

compensation levels, the number of 

affected workers, and the associated 

costs and transfers for these alternative 

levels. 

The Department proposes to update 

the standard salary level using earnings 

for the 35th percentile of full-time 

salaried workers in the South Census 

region, $1,059 per week. The alternative 

methods considered for setting the 

standard salary level are: 

• Alternative 1: 2004/2019 method— 

$822 per week—20th percentile of 

earnings of nonhourly full-time workers 

in the South Census region and in the 

retail industry nationally. 

• Alternative 2: Kantor long test 

method—$925 per week—10th 

percentile of earnings of likely exempt 

workers. 

• Alternative 3: 2016 method—$1,145 

per week—40th percentile of earnings of 

nonhourly full-time workers in the 

South Census region 

• Alternative 4: Kantor short test 

method—$1,378 per week—Kantor long 

test level multiplied by 149 percent (the 

historical average relationship between 

the long and short test levels). 

The Department considered using the 

2004 methodology (the 20th percentile 

of full-time salaried white-collar 

workers in the lowest-wage Census 

region (currently the South) and in retail 

nationally), which is currently $822 per 

week ($42,744 per year). This is also the 

methodology that the Department used 

in the 2019 rule.414 However, the salary 

level produced by the 2004 

methodology is below the current 

equivalent long test salary level ($925 

per week), which the Department 

considers to be the lower boundary for 

an appropriate salary level. 

The Department also considered 

setting the standard salary level at the 

long test level ($925 per week or 

$48,100 per year). Doing so would 

ensure the initial screening function of 

the salary level by restoring overtime 

protections to those employees who 

were consistently excluded from the 

EAP exemption under each iteration of 

the regulations prior to 2019, either by 

the long test salary level itself, or under 

the 2004 rule salary level, which was set 

equivalent to the long test salary 

level.415 However, as explained above, 

setting the standard salary level at the 

long test level would perpetuate the 

problems that have become evident 

under the 2004 and 2019 rules. 

The Department also considered 

setting the standard salary level at the 

40th earnings percentile of salaried 

white-collar workers in the lowest-wage 

Census Region (currently the South) 

($1,145 per week or $59,540 per year). 

This salary level is roughly the 

midpoint between the long and short 

test salary level alternatives ($925 per 

week and $1,378 per week, 

respectively). However, the Department 

is concerned that this approach could be 

seen by courts as making salary level 

determinative of exemption status for 

too large a portion of employees, as this 

salary level would make the salary paid 

by the employer determinative of 

exemption status for roughly half (47%) 

of white-collar employees who earn 

between the long and short test salary 

levels. The Department is also 

concerned that this approach would 

generate the same concerns that led to 

the district court decision invalidating 

the 2016 rule (which adopted the same 

methodology). 

Finally, the Department considered 

setting the standard salary level at the 

current equivalent of the short test 

salary level ($1,378 per week or $71,656 

per year).416 This would ensure that all 

employees who earn between the long 

and short test salary levels and perform 

substantial amounts of nonexempt work 

would be entitled to overtime 

compensation. However, by making 

exemption status for all employees who 

earn between the long and short test 

levels depend on the salary paid by the 

employer, this approach would prevent 

employers from being able to use the 

EAP exemption for employees earning 

between these salary levels who do not 

perform substantial amounts of 

nonexempt work and thus were 

historically exempt under the long test. 

As described above, the Department 

proposes to update the HCE 

compensation level using earnings for 

the 85th percentile of all full-time 

salaried workers nationally, $143,988 

per year. The Department also evaluated 

the following alternative methods to set 

the HCE compensation levels: 

• HCE alternative 1: 2019 

method 417—$125,268 annually—80th 

percentile of earnings of nonhourly fulltime workers nationally. 

• HCE alternative 2: 2016 

method 418—$172,796 annually—90th 

percentile of earnings of nonhourly fulltime workers nationally. 

The Department believes that HCE 

alternative 1 would not produce a 


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threshold high enough to reserve the 

HCE test for employees at the top of 

today’s economic ladder and ensure that 

the HCE threshold continues to 

appropriately complement the minimal 

HCE duties test. The Department also 

considered setting the HCE threshold at 

the 90th percentile; however, the 

Department is concerned that the 

resulting level ($172,796) would restrict 

the use of the HCE exemption for 

employers in low-wage regions and 

industries. The Department believes its 

proposal to adjust the HCE total annual 

compensation threshold to reflect the 

85th percentile of earnings of nonhourly 

full-time workers nationally strikes the 

appropriate balance and ensures that the 

HCE test continues to serve its intended 

function as a streamlined alternative for 

employees who are highly likely to pass 

the standard duties test. 

TABLE 28—UPDATED STANDARD SALARY AND HCE COMPENSATION LEVELS AND ALTERNATIVES, AFFECTED EAP 

WORKERS, COSTS, AND TRANSFERS, YEAR 1 

Alternative Salary level 

Affected EAP 

workers 

(1,000s) 

Year 1 effects (millions) 

Adj. & managerial costs Transfers 

Standard Salary Level (Weekly) 

Alt. #1: 2004/2019 method a ............................................................................ $822 825 $159.0 $170.8 

Alt #2: Kantor long test b .................................................................................. 925 1,773 367.4 456.8 

Proposed rule: 35th percentile South c ............................................................ 1,059 3,399 709.8 980.7 

Alt. #3: 2016 method—40th percentile South c ............................................... 1,145 4,312 955.2 1,415.9 

Alt. #4: Kantor short test d ................................................................................ 1,378 7,640 1,728.3 3,136.6 

HCE Compensation Level (Annually) 

HCE alt. #1: 2019 method—80th percentile e ................................................. 125,268 166 43.1 151.6 

Proposed rule: 85th percentile e ...................................................................... 143,988 249 65.9 253.5 

HCE alt. #2: 2016 method—90th percentile e ................................................. 172,796 295 84.0 330.0 

Note: Regulatory familiarization costs are excluded because they do not vary based on the selected values of the salary levels. Additionally, 

they cannot be disaggregated by exemption type (i.e., standard versus HCE). The Department requests comment on how to refine familiarization 

cost estimates in a manner that distinguishes among regulatory alternatives. a 20th percentile earnings of nonhourly full-time workers in the South Census region and retail industry (excludes workers not subject to the 

FLSA, not subject to the salary level test, and in agriculture or transportation). Pooled CPS data for 2020–2022 adjusted to reflect 2022. b 10th percentile earnings of likely exempt workers. Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

c Designated percentile of earnings of nonhourly full-time workers in the South Census region (excludes workers not subject to the FLSA, not 

subject to the salary level test, and in agriculture or transportation). CPS 2022 data. dKantor short test is set as the long test level multiplied by 149 percent. This is the historical average relationship between the two levels. 

e Designated percentile of earnings of nonhourly full-time workers nationally (excludes workers not subject to the FLSA, not subject to the salary level test, and in agriculture or transportation). CPS 2022 data. 

9. Automatic Updates 

Between updates to the standard 

salary and HCE compensation levels, 

nominal wages typically increase, 

resulting in an increase in the number 

of workers qualifying for the EAP 

exemption, even if there has been no 

change in their duties or real earnings. 

Thus, workers whom Congress intended 

to be covered by the minimum wage and 

overtime pay provisions of the FLSA 

may lose those protections. 

Automatically updating the salary and 

compensation levels allows these 

thresholds to keep pace with changes in 

earnings and continue to serve as an 

effective dividing line between 

potentially exempt and nonexempt 

workers. Furthermore, automatically 

updating the salary and compensation 

levels will provide employers more 

certainty in knowing that these levels 

will change by smaller amounts on a 

regular basis, rather than the more 

disruptive increases caused by much 

larger changes after longer, uncertain 

increments of time. This would allow 

firms to better predict short- and longterm costs and employment needs. 

The Department is including in this 

proposed rule a mechanism for 

automatically updating the salary and 

compensation levels every 3 years to 

reflect current earnings. For purposes of 

this analysis, the Department assumes 

that the standard salary would be 

updated using the same methodology 

that the Department proposes to use to 

set the standard salary level: the 35th 

percentile of weekly earnings of fulltime salaried workers in the lowestwage Census Region (currently the 

South). Likewise, the Department 

assumes that the HCE annual 

compensation level would be updated 

using the same methodology the 

Department proposes to use to set this 

earnings threshold: the 85th percentile 

of weekly earnings of full-time salaried 

workers nationally. 

As previously discussed, future 

automatic updates will set the earnings 

thresholds using the most recent 12 

months of CPS data preceding the 

Department’s notice to automatically 

update the thresholds. To estimate 

future thresholds in years when the 

salary and compensation levels will be 

updated, the Department used the 

historic geometric growth rate between 

2011 and 2021 in (1) the 35th earnings 

percentile of full-time salaried workers 

in the South for the standard salary 

level and (2) the 85th earnings 

percentile of full-time salaried workers 

nationally for the HCE compensation 

level. For example, between 2011 and 

2021, the annual growth rate in the 35th 

percentile of full-time salaried workers 

in the South has increased by 2.72 

percent. To estimate the first automatic 

update salary level of $1,148, the 

Department multiplied $1,059 by 1.0272 

to the power of three. Figure 5 shows 

the projected automatic update levels 

for the first 10 years. Note that these 

projections are illustrative estimates 

based on past wage growth; the actual 

level at the time of the update will 

depend on the wage growth that occurs 

between now and the update date. 

Figure 6 shows the standard salary 

levels in both nominal and 2022 dollars. 

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10. Projections 

The Department estimated that in 

Year 1, 3.6 million EAP workers would 

be affected, with about 248,900 of these 

attributable to the revised HCE 

compensation level (Table 29). In Year 

10, the number of affected EAP workers 

was estimated to equal 5.1 million with 

768,700 attributable to the updated HCE 

compensation level. Average annualized 

costs are $664 million and transfers are 

$1.3 billion using a 7 percent real 

discount rate. These projections 

involved several steps. 

1. Use past growth in the earnings 

distribution to estimate future salary 

and compensation levels (see section 

VII.C.9). 

2. Predict workers’ earnings, absent a 

change in the salary levels. 

3. Compare workers’ predicted 

earnings to the predicted salary and 

compensation levels to estimate affected 

workers. 

4. Project future employment levels. 

5. Estimate employer adjustments to 

hours and pay. 

6. Calculate costs and transfers. 


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419To maximize the number of observations used 

in calculating the median wage for each occupationindustry category, 3 years of data were pooled for 

each of the endpoint years. Specifically, data from 

2010, 2011, and 2012 (converted to 2011 dollars) 

were used to calculate the 2011 median wage and 

data from 2020, 2021, and 2022 (converted to 2021 

dollars) were used to calculate the 2021 median 

wage. 

420The geometric growth rate may be a flawed 

measure if either or both of the endpoint years were 

atypical; however, in this instance these values 

seem typical. An alternative method would be to 

use the time series of median wage data to estimate 

the linear trend in the values and continue this to 

project future median wages. This method may be 

preferred if either or both of the endpoint years are 

outliers, since the trend will be less influenced by 

them. However, the linear trend may be flawed if 

there are outliers in the interim years. The 

Department chose to use the geometric mean 

because individual year fluctuations are difficult to 

predict and applying the geometric growth rate to 

each year provides a better estimate of the long-term 

growth in wages. 

421To lessen small sample bias in the estimation 

of the median growth rate, this rate was only 

calculated using CPS MORG data when these data 

contained at least 10 observations in each time 

period. 

422Bureau of Labor Statistics, Employment 

Projections Program. 2021–31 National 

Employment Matrix. https://www.bls.gov/emp/indocc-matrix/matrix.xlsx. 

423An alternative method is to spread the total 

change in the level of employment over the ten 

years evenly (constant change in the number 

employed). The Department believes that on 

average employment is more likely to grow at a 

constant percentage rate rather than by a constant 

level (a decreasing percentage rate). 

424Based on the Department’s analysis of the 

following paper: 

Lichter, A., Peichl, A. & Siegloch, A. (2014). The 

Own-Wage Elasticity of Labor Demand: A MetaRegression Analysis. IZA DP No. 7958. 

TABLE 29—PROJECTED COSTS AND TRANSFERS, STANDARD SALARY AND HCE COMPENSATION LEVELS

Year 

Affected EAP 

workers 

(millions) 

Costs 

(millions $2022) 

Transfers 

(millions $2022) 

Regulatory 

familiarization a Adjustment a Managerial Total Due to MW Due to OT Total 

Year 1 ................................ 3.6 $427.2 $240.8 $534.9 $1,202.8 $48.6 $1,185.6 $1,234.2 

Year 2 ................................ 3.3 0.0 8.1 500.2 508.3 27.1 921.8 949.0 

Year 3 ................................ 3.2 0.0 7.7 470.5 478.2 23.6 891.5 915.1 

Year 4 ................................ 4.0 69.1 11.1 561.5 641.6 20.5 1,382.0 1,402.5 

Year 5 ................................ 3.8 0.0 8.2 534.0 542.2 23.2 1,212.2 1,235.4 

Year 6 ................................ 3.6 0.0 7.2 524.6 531.8 23.0 1,107.3 1,130.3 

Year 7 ................................ 4.5 67.1 12.2 620.1 699.3 23.6 1,661.2 1,684.8 

Year 8 ................................ 4.3 0.0 7.1 583.1 590.2 19.8 1,467.4 1,487.2 

Year 9 ................................ 4.1 0.0 7.9 566.5 574.4 20.1 1,332.6 1,352.8 

Year 10 .............................. 5.1 65.1 15.0 667.9 748.0 17.2 1,963.9 1,981.2 

Annualized (3% real discount rate) ..................... ........................ 67.9 35.7 552.8 656.4 25.2 1,292.9 1,318.1 

Annualized (7% real discount rate) ..................... ........................ 75.0 40.0 548.5 663.6 25.9 1,268.5 1,294.3 

a Regulatory familiarization costs occur in years when the salary and compensation levels are updated. Adjustment costs occur in all years when there are newly affected workers. 

The Department calculated workers’ 

earnings in future years by applying the 

historical wage growth rate in the 

workers’ industry-occupation to current 

earnings. The wage growth rate was 

calculated as the geometric growth rate 

in median wages using CPS MORG data 

for occupation-industry categories from 

2010–2022.419 The geometric growth 

rate is the constant annual growth rate 

that when compounded (applied to the 

first year’s wage, then to the resulting 

second year’s wage, etc.) yields the last 

historical year’s wage. This rate only 

depends on the wage values in the first 

and last year.420

The geometric wage growth rates per 

industry-occupation combination were 

also calculated from the BLS’ 

Occupational Employment and Wage 

Statistics (OEWS) survey. In occupationindustry categories where the CPS 

MORG data had an insufficient number 

of observations to reliably calculate 

median wages, the Department used the 

growth rate in median wages calculated 

from the OEWS data.421 Any remaining 

occupation-industry combinations 

without sufficient data in either data 

source were assigned the median of the 

growth rates in median wages from the 

CPS MORG data. 

The Department compared workers’ 

counter-factual earnings (i.e., absent the 

rulemaking) to the predicted salary 

levels. If the counter-factual earnings are 

below the relevant salary level (i.e., 

standard or HCE) then the worker is 

considered affected. In other words, in 

each year affected EAP workers were 

identified as those who would be 

exempt absent the rule change (e.g., 

would earn at least $684 if exempt 

under standard salary level) but have 

projected earnings in the future year 

that are less than the relevant salary 

level. The projected number of affected 

workers also includes workers who 

were not EAP exempt in the base year 

but would have become exempt in the 

absence of this proposed rule in Years 

2 through 10. For example, a worker 

who passes the standard duties test may 

earn less than $684 in Year 1 but 

between $684 and the new salary level 

in subsequent years; such a worker will 

be counted as an affected worker in 

those subsequent years. Additionally, 

the number of affected workers is not 

limited to newly affected workers. 

Workers who are affected in a given year 

may remain affected in subsequent years 

(e.g., because they earn between $684 

and $1,059 in years 1, 2, and 3), and 

continue to be counted as affected. 

The projected number of affected 

workers also accounts for anticipated 

employment growth. Employment 

growth was estimated as the geometric 

annual growth rate based on the 10-year 

employment projection from BLS’ 

National Employment Matrix (NEM) for 

2021 to 2031 within an occupationindustry category.422 423 The Department 

applied these growth rates to the sample 

weights of the workers to estimate 

increased employment levels over time. 

This is because the Department cannot 

introduce new observations to the CPS 

MORG data to represent the newly 

employed. 

For workers newly affected in Year 2 

through Year 10, employers’ wage and 

hour adjustments due to the rulemaking 

are generally estimated as described in 

section VII.C.4. The only difference is 

the hours adjustment now uses a longrun elasticity of labor demand of 

¥0.4.424 Employer adjustments are 

made in the first year the worker is 

affected and then applied to all future 

years in which the worker continues to 

be affected (unless the worker switches 

to a Type 4 worker). Workers’ earnings 

in predicted years are earnings post 

employer adjustments, with overtime 

pay, and with ongoing wage growth 

based on historical growth rates (as 

described above). 

The Department quantified three 

types of direct employer costs in the 10- 


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425Congressional Budget Office. 2023. The 

Budget and Economic Outlook: 2023 To 2033. See 

https://www.cbo.gov/system/files/2023-02/58848- 

Outlook.pdf. 

426State minimum wages above the Federal level 

as of January 1, 2022 were incorporated and used 

for projected years. Increases in minimum wages 

were not projected. If state or Federal minimum 

wages increase over the next 10 years, then 

estimated projected minimum wage transfers would 

be underestimated. 

year projections: (1) regulatory 

familiarization costs; (2) adjustment 

costs; and (3) managerial costs. Section 

VII.C.3. provides details on the 

methodology for estimating these costs. 

This section only discusses the aspects 

specific to projections. Projected costs 

and transfers were deflated to 2022 

dollars using the Congressional Budget 

Office’s projections for the CPI–U.425

Regulatory familiarization costs occur 

in years when the salary and 

compensation levels are updated. Thus, 

in addition to Year 1, some regulatory 

familiarization costs are expected to 

occur in Year 4, Year 7, and Year 10. 

The Department assumed 10 minutes 

per establishment for time to access and 

read the published notice in the Federal 

Register with the updated standard 

salary level and HCE compensation 

level. This time estimate is low because 

the majority of establishments will not 

have newly affected workers. The time 

estimate has been increased from 5 

minutes in the 2016 rulemaking. In each 

of these 3 years regulatory 

familiarization costs are between $65 

and $70 million. Although start-up 

firms must become familiar with the 

FLSA, the difference between the time 

necessary for familiarization with the 

current part 541 exemptions and those 

exemptions as modified by this 

rulemaking is essentially zero. 

Therefore, projected regulatory 

familiarization costs for new entrants 

over the next 9 years are zero (although 

these new entrants will incur regulatory 

familiarization costs in years when the 

salary and compensation levels are 

updated). 

Adjustment costs are a function of the 

number of newly affected EAP workers 

and would occur in any year in which 

workers are newly affected. Adjustment 

costs would be largest in Year 1, of 

moderate size in automatic update 

years, and smaller in other years. 

Management costs would recur each 

year for all affected EAP workers whose 

hours are adjusted. Therefore, 

managerial costs increase in automatic 

update years and then modestly 

decrease between updates since 

earnings growth will cause some 

workers to no longer be affected in those 

years. 

The Department projected transfers 

from employers to employees due to the 

minimum wage provision and the 

overtime pay provision. Transfers to 

workers from employers due to the 

minimum wage provision would 

decline from $48.6 million in Year 1 to 

$17.2 million in Year 10 as increased 

earnings over time move workers’ 

regular rates of pay above the minimum 

wage.426 Transfers due to overtime pay 

should grow slightly over time because 

the number of affected workers would 

increase, although transfers fall in years 

between automatic updates. Transfers to 

workers from employers due to the 

overtime pay provision would increase 

from $1.2 billion in Year 1 to $2.0 

billion in Year 10. 

The Department compared projected 

impacts with and without automatic 

updating (Table 30). Projections without 

automatic updating are shown so 

impacts of the initial increase and 

subsequent increases can be 

disaggregated. With triennial automatic 

updating, the number of affected EAP 

workers would increase from 3.6 

million to 5.1 million over 10 years. 

Conversely, in the absence of automatic 

updating, the number of affected EAP 

workers is projected to decline from 3.6 

million in Year 1 to 2.3 million in Year 

10. As shown in Figure 9, the number 

of affected workers decreases from year 

to year between automatic updates as 

the real value of the salary and 

compensation levels decrease, and then 

increases in update years. 

Regarding costs, regulatory 

familiarization costs are lower without 

automatic updating because, in the 

absence of automatic updating, 

employers would not need to familiarize 

themselves with updated salary and 

compensation levels every 3 years. 

Adjustment costs and managerial costs 

are a function of the number of affected 

EAP workers and so will be higher with 

automatic updating. Average annualized 

direct costs would be $663.6 million 

with automatic updating and $520.4 

million without automatic updating. 

Transfers are also a function of the 

number of affected workers and hence 

are lower without automatic updating. 

Average annualized transfers would be 

$1.3 billion with automatic updating 

and $868.2 million without automatic 

updating. Table 30 shows aggregated 

costs and transfers over the 10-year 

horizon. 

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BILLING CODE 4510–27–C 

TABLE 30—COMPARISON OF PROJECTED COSTS AND TRANSFERS WITH AND WITHOUT AUTOMATIC UPDATING

Year 

Affected EAP workers 

(millions) 

Costs 

(millions $2022) 

Transfers 

(millions $2022) 

With 

updates 

Without 

updates With updates Without updates With updates Without updates 

Year 1 ...................................................... 3.6 3.6 $1,202.8 $1,202.8 $1,234.2 $1,234.2 

Year 2 ...................................................... 3.3 3.3 508.3 508.3 949.0 949.0 

Year 3 ...................................................... 3.2 3.2 478.2 478.2 915.1 915.1 

Year 4 ...................................................... 4.0 3.0 641.6 442.4 1,402.5 860.7 

Year 5 ...................................................... 3.8 2.8 542.2 421.7 1,235.4 823.4 

Year 6 ...................................................... 3.6 2.7 531.8 400.5 1,130.3 800.9 

Year 7 ...................................................... 4.5 2.5 699.3 374.3 1,684.8 769.9 

Year 8 ...................................................... 4.3 2.4 590.2 357.6 1,487.2 711.3 

Year 9 ...................................................... 4.1 2.4 574.4 343.4 1,352.8 677.9 

Year 10 .................................................... 5.1 2.3 748.0 322.5 1,981.2 646.8 

Annualized (3% real discount rate) ......... ........................ ........................ 656.4 500.2 1,318.1 851.6 

Annualized (7% real discount rate) ......... ........................ ........................ 663.6 520.4 1,294.3 868.2 

VIII. Initial Regulatory Flexibility 

Analysis (IRFA) 

The Regulatory Flexibility Act of 1980 

(RFA) as amended by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996 (SBREFA), 

hereafter jointly referred to as the RFA, 

requires that an agency prepare an 

initial regulatory flexibility analysis 

(IRFA) when proposing, and a final 

regulatory flexibility analysis (FRFA) 

when issuing, regulations that will have 

a significant economic impact on a 

substantial number of small entities. 

The Department has determined that 

this rulemaking is economically 

significant. This section (1) provides an 

overview of the objectives of this 

proposed rule; (2) estimates the number 

of affected small entities and employees; 

(3) discusses reporting, recordkeeping, 

and other compliance requirements; (4) 

presents the steps the Department took 

to minimize the significant economic 

impact on small entities; and (5) 

declares that it is unaware of any 

relevant Federal rules that may 

duplicate, overlap, or conflict with this 

proposed rule. 

A. Objectives of, and Need for, the 

Proposed Rule 

The FLSA requires covered employers 

to: (1) pay employees who are covered 

and not exempt from the Act’s 

requirements not less than the Federal 


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427 29 U.S.C. 213(a)(1). 

428 § 541.601. 

429Stein Report at 19, 24; see also 81 FR 32422. 

430See 84 FR 51237. 

431See id. at 51238. 

432See 69 FR 22169 (Table 3). 

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 the persons employed by the 

employer and of the wages, hours, and 

other conditions and practices of 

employment. The FLSA provides 

exemptions from the Act’s minimum 

wage and overtime pay provisions, 

including one for bona fide executive, 

administrative, and professional 

employees, as those terms are ‘‘defined 

and delimited’’ by the Department.427

The Department’s regulations 

implementing this white-collar 

exemption are codified at 29 CFR part 

541. 

To qualify for the EAP exemption 

under the Department’s regulations, the 

employee generally must meet three 

criteria: (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). In 2004, the Department revised its 

regulations to include a highly 

compensated employee test with a 

higher salary threshold and a minimal 

duties test.428 The Department has 

periodically updated the regulations 

governing the white-collar exemptions 

since the FLSA’s enactment in 1938. 

Most recently, the 2019 rule updated the 

standard salary level test to $684 per 

week and the HCE compensation level 

to $107,432 annually. 

The goal of this rulemaking is not 

only to update the single standard salary 

level to account for earnings growth 

since the 2019 rule, but also to build on 

lessons learned in the Department’s 

most recent rulemakings to more 

effectively define and delimit 

employees working in a bona fide EAP 

capacity. As explained in greater detail 

in sections III and IV.A., above, setting 

the standard salary 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 lower 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 would also 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 what would currently be the 

equivalent of the long test salary level, 

the proposal would 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 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 below what would 

currently be the equivalent of the short 

test salary level, the proposal would 

allow employers to continue to use the 

exemption for many lower paid whitecollar employees who were made 

exempt under the 2004 standard duties 

test. As such, the proposed salary level 

would also more reasonably distribute 

between employees and their employers 

what the Department now understands 

to be the impact of the shift from a twotest to a one-test system on employees 

earning between the long and short test 

salary levels. 

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 the exemption is 

claimed,’’ as well as the ‘‘principal[ ]’’ 

‘‘delimiting requirement’’ ‘‘prevent[ing] 

abuse’’ of the exemption.429

Additionally, the salary level test 

facilitates application of the exemption 

by saving employees and employers 

from having to apply the more timeconsuming 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.430 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.431

Under the Department’s proposal, duties 

would continue to determine the 

exemption status for most salaried 

white-collar employees, addressing the 

legal concerns that have been raised 

about excluding from the EAP 

exemption too many white-collar 

employees solely based on their salary 

level. 

The Department also proposes to 

update the HCE total annual 

compensation requirement to the 

annualized weekly earnings for the 85th 

percentile of full-time salaried workers 

nationally ($143,988 in 2022). Though 

not as high a percentile as the HCE 

threshold initially adopted in 2004, 

which covered 93.7 percent of all fulltime salaried workers,432 the 

Department’s proposed increase to the 

HCE threshold would ensure it 

continues to serve its intended function, 

because the HCE total annual 

compensation level would be high 

enough to exclude all but those 

employees at the very top of the 

economic ladder. 

The Department is also proposing to 

apply the standard salary level to all 

territories that are subject to the Federal 

minimum wage, and to update the 

special salary levels for American 

Samoa and the motion picture industry 

in relation to the new standard salary 

level. Having not increased these levels 

since 2004, there is a need to increase 

the salary levels in U.S. territories, 

particularly for employees in those 

territories that are subject to the Federal 

minimum wage. 

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. This rulemaking is 

motivated in part by the need to keep 

the part 541 earnings thresholds up to 

date. Based on its long experience with 

updating the salary levels, the 

Department has determined that 

adopting a regulatory provision for 

automatically 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 


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433See https://www.sba.gov/sites/default/files/ 

2019-08/SBA%20Table%20of%20Size%20

Standards_Effective%20Aug%2019%2C%202019_

Rev.pdf. 434The SBA size standard changes in 2022 

primarily adjusted the standards to the 2022 

NAICS, these changes were not substantive. https:// 

www.govinfo.gov/content/pkg/FR-2022-09-29/pdf/ 

2022-20513.pdf. 435See http://www.sba.gov/advocacy/regulatoryflexibility-act for details. 436National Credit Union Association. (2018). 

2018 Year End Statistics for Federally Insured 

Credit Unions. Available at: https://www.cuna.org/ 

advocacy/credit-union---economic-data/data--- 

statistics/credit-union-profile-reports.html. 437Federal Depository Insurance Corporation. 

(2018). Quarterly Financial Reports-Statistics On 

Depository Institutions (SDI). Available at: https:// 

www.fdic.gov/foia/ris/id-sdi/index.html. Data are 

from 12/31/17. 438United States Department of Agriculture. 

(2019). 2017 Census of Agriculture: United States 

Summary and State Data: Volume 1, Geographic 

Area Series, Part 51. Available at: https://

www.nass.usda.gov/Publications/AgCensus/2017/ 

Full_Report/Volume_1,_Chapter_1_US/usv1.pdf. 

439Census of Governments. 2017. Available at: 

https://www.census.gov/data/tables/2017/econ/gus/ 

2017-governments.html. 

440The SUSB defines employment as of March 

12th. 

441The Department’s estimates of the numbers of 

affected small entities and affected workers who are 

employees of small entities includes entities not 

covered by the FLSA and thus are likely 

overestimates. The Department had no credible way 

to estimate which enterprises with annual revenues 

below $500,000 also did not engage in interstate 

commerce and hence are not subject to the FLSA. 

442The Department assumed that the small entity 

share of credit card issuing and other depository 

credit intermediation institutions (which were not 

separately represented in FDIC asset data), is 

similar to that of commercial banking and savings 

institutions. 

443Statistics of U.S. Businesses 2020, https://

www.census.gov/programs-surveys/susb.html. 

444Census of Governments 2017. Available at 

https://www.census.gov/programs-surveys/ 

cog.html. 

445SUSB reports data by ‘‘enterprise’’ size 

designations (a business organization consisting of 

one or more domestic establishments that were 

specified under common ownership or control). 

However, the number of enterprises is not reported 

for the size designations. Instead, SUSB reports the 

number of ‘‘establishments’’ (individual plants, 

regardless of ownership) and ‘‘firms’’ (a collection 

of establishments with a single owner within a 

given state and industry) associated with 

enterprises size categories. Therefore, numbers in 

this analysis are for the number of establishments 

associated with small enterprises, which may 

exceed the number of small enterprises. The 

Department based the analysis on the number of 

establishments rather than firms for a more 

conservative estimate (potential overestimate) of the 

number of small businesses. 

446Since information is not available on employer 

size in the CPS MORG, respondents were randomly 

assigned as working in a small business based on 

the SUSB probability of employment in a small 

business by detailed Census industry. Annual 

payroll was estimated based on the CPS weekly 

earnings of workers by industry size. 

447The Department required at least 15 affected 

workers (i.e., observations) in small entities in Year 

1. 

pay and thus remain effective in helping 

determine exemption status. 

Accordingly, the Department is 

including in this proposed rule a 

mechanism for automatically updating 

the salary and compensation levels 

every 3 years to reflect current earnings. 

As explained in greater detail in section 

IV.D., employees and employers alike 

would benefit from the certainty and 

stability of regularly scheduled updates 

using a set methodology. 

B. Number of Affected Small Entities 

1. Definition of Small Entity 

The RFA defines a ‘‘small entity’’ as 

(1) a small not-for-profit organization, 

(2) a small governmental jurisdiction, or 

(3) a small business. The Department 

used the entity size standards defined 

by SBA and in effect as of 2019, to 

classify entities as small or large.433 The 

most recent size standards were released 

in 2022 and use the 2022 NAICS. 

However, because the data used by the 

Department to estimate the number of 

small entities uses the 2017 NAICS, the 

Department used the 2019 standards 

instead of the 2022 standards.434

SBA establishes standards for 6-digit 

NAICS industry codes, and standard 

size cutoffs are typically based on either 

the average number of employees, or 

average annual receipts. However, some 

exceptions exist, the most notable being 

that depository institutions (including 

credit unions, commercial banks, and 

non-commercial banks) are classified by 

total assets and small governmental 

jurisdictions are defined as areas with 

populations of less than 50,000.435

2. Number of Small Entities and 

Employees 

The primary data source used to 

estimate the number of small entities 

and employment in these entities is the 

Statistics of U.S. Businesses (SUSB). 

Alternative sources were used for 

industries with asset thresholds (credit 

unions,436 commercial banks and 

savings institutions,437 agriculture 438), 

and public administration.439 The 

Department used 2017 data, when 

possible, to align with the use of 2017 

SUSB data. Private households are 

excluded from the analysis due to lack 

of data. 

For each industry, the SUSB 2017 

tabulates employment, establishment, 

and firm counts by both enterprise 

employment size (e.g., 0–4 employees, 

5–9 employees) and receipt size (e.g., 

less than $100,000, $100,000- 

$499,999).440 Although 2020 SUSB data 

are available, these data do not 

disaggregate entities by revenue sizes. 

The Department combined these data 

with the SBA size standards to estimate 

the proportion of firms and 

establishments in each industry that are 

considered small, and the proportion of 

workers employed by a small entity. 

The Department classified all firms and 

establishments and their employees in 

categories below the SBA cutoff as 

small.441 If a cutoff fell in the middle of 

a category, the Department assumed a 

uniform distribution of employees 

across that bracket to determine what 

proportion of establishments should be 

classified as small.442 The estimated 

share of establishments that were small 

in 2017 was applied to the more recent 

2020 SUSB data on the number of small 

establishments to determine the number 

of small entities.443

The Department also estimated the 

number of small establishments and 

their employees by employer type 

(nonprofit, for-profit, government). This 

calculation is similar to the calculation 

of the number of establishments by 

industry but with different data. Instead 

of using data by industry, the 

Department used SUSB data by Legal 

Form of Organization for nonprofit and 

for-profit establishments. The estimated 

share of establishments that were 

calculated as small with the 2017 data 

was then applied to the 2020 SUSB 

counts. For governments, the 

Department used the number of 

governments reported in the 2017 

Census of Governments.444

Table 31 presents the estimated 

number of establishments/governments 

and small establishments/governments 

in the U.S. (hereafter, referred to as 

‘‘entities’’).445 The numbers in the 

following tables are for Year 1; projected 

impacts are considered later. The 

Department found that of the 8.1 million 

entities, 80 percent (6.5 million) are 

small by SBA standards. These small 

entities employ 53.6 million workers, 

about 37 percent of workers (excluding 

self-employed, unpaid workers, and 

members of the armed forces). They also 

account for roughly 35 percent of total 

payroll ($3.5 trillion of $10.1 trillion).446

Although the Department used 6-digit 

NAICS to determine the number of 

small entities and the associated 

number of employees, the following 

tables aggregate findings to 27 industry 

categories. This was the most detailed 

level available while maintaining 

adequate sample sizes.447 The 

Department started with the 51-industry 

breakdown and aggregated where 

necessary to obtain adequate sample 

sizes. 


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448The Department used CPS microdata to 

estimate the number of affected workers. This was 

done individually for each observation in the 

relevant sample by randomly assigning them a 

small business status based on the best available 

estimate of the probability of a worker to be 

employed in a small business in their respective 

industry. 

449A strand of literature indicates that small 

businesses tend to pay lower wages than larger 

businesses. This may imply that workers in small 

businesses are more likely to be affected than 

workers in large businesses; however, the literature 

does not make clear what the appropriate 

alternative rate for small businesses should be. 

450Workers are designated as employed in a small 

business based on their industry of employment. 

The share of workers considered small in nonprofit, 

for profit, and government entities is therefore the 

weighted average of the shares for the industries 

that compose these categories. 

TABLE 31—NUMBER OF ENTITIES AND EMPLOYEES BY SBA SIZE STANDARDS, BY INDUSTRY AND EMPLOYER TYPE

Industry/employer type 

Entities 

(1,000s) 

Workers 

(1,000s) a

Annual payroll 

(billions) 

Total Small Total 

Small 

business 

employed 

Total Small 

Total ................................................................................... 8,090.3 6,459.6 143,444.4 53,585.6 $10,054.5 $3,535.6 

Industry b

Agriculture, forestry, fishing, and hunting ................................. 22.7 18.9 1,364.4 724.4 62.7 34.6 

Mining ........................................................................................ 23.9 19.2 620.8 285.4 66.0 30.6 

Construction .............................................................................. 753.3 726.7 8,957.5 5,415.9 608.9 369.2 

Manufacturing—durable goods ................................................. 175.2 160.4 9,694.4 4,506.7 785.7 350.4 

Manufacturing—non-durable goods .......................................... 108.3 96.4 5,522.6 2,649.3 416.7 187.9 

Wholesale trade ........................................................................ 391.1 301.5 3,231.4 1,354.8 249.6 101.8 

Retail trade ................................................................................ 1,036.8 661.3 15,430.8 4,804.9 769.4 258.8 

Transportation and warehousing .............................................. 257.8 203.2 7,152.0 1,746.5 439.5 106.7 

Utilities ....................................................................................... 19.5 7.8 1,455.4 310.6 137.3 28.3 

Information ................................................................................ 160.9 93.2 2,570.4 691.7 254.6 67.5 

Finance ...................................................................................... 295.5 132.0 4,865.2 902.9 514.9 97.1 

Insurance ................................................................................... 181.3 139.7 2,765.4 585.4 $245.3 $51.6 

Real estate and rental and leasing ........................................... 437.7 339.0 2,308.4 1,223.1 173.0 92.7 

Professional and technical services .......................................... 943.2 841.5 11,575.6 5,104.8 1,291.5 555.8 

Management, administrative and waste management services 483.5 397.8 5,377.8 2,338.5 284.0 111.6 

Educational services ................................................................. 110.1 97.6 14,093.6 3,546.7 955.6 223.2 

Hospitals .................................................................................... 7.1 1.4 7,820.6 282.1 632.3 21.2 

Health care services, except hospitals ..................................... 736.1 567.4 10,187.6 4,466.2 631.5 271.6 

Social assistance ...................................................................... 185.0 149.8 2,938.8 1,590.5 138.0 71.4 

Arts, entertainment, and recreation .......................................... 151.9 138.4 2,381.3 1,185.8 120.8 59.7 

Accommodation ......................................................................... 69.2 58.1 1,048.8 408.3 49.3 19.2 

Food services and drinking places ........................................... 664.7 516.6 8,222.4 4,697.9 263.8 151.3 

Repair and maintenance ........................................................... 216.1 198.6 1,655.6 1,171.9 90.0 63.3 

Personal and laundry services .................................................. 248.6 221.5 1,520.5 1,184.7 62.4 47.7 

Membership associations and organizations ............................ 306.6 294.4 2,019.0 1,399.8 138.0 93.6 

Public administration c ............................................................... 90.1 65.7 8,032.3 1,006.6 654.4 68.5 

Employer Type 

Nonprofit, private ....................................................................... 596.3 504.5 10,318.0 3,876.8 741.4 249.6 

For profit, private ....................................................................... 7,403.9 5,874.3 110,919.2 46,388.3 7,688.9 3,072.6 

Government (state and local) ................................................... 90.1 65.7 18,041.2 3,320.6 1,241.3 213.3 

Note: Establishment data are from SUSB 2020; worker and payroll data from pooled CPS MORG data for 2020–2022 adjusted to reflect 2022. aExcludes the self-employed, unpaid workers, and workers in private households. 

bSummation across industries may not add to the totals reported due to suppressed values and some entities not reporting an industry. cEntity number represents the total number of governments, including state and local. Data from Census of Governments, 2017. 

Estimates are not limited to entities 

subject to the FLSA because the 

Department cannot estimate which 

enterprises do not meet the enterprise 

coverage requirements because of data 

limitations. Although not excluding 

such entities and associated workers 

only affects a small percentage of 

workers generally, it may have a larger 

effect (and result in a larger 

overestimate) for non-profits, because 

revenue from charitable activities is not 

included when determining enterprise 

coverage. 

3. Number of Affected Small Entities 

and Employees 

The calculation of the number of 

affected EAP workers was explained in 

detail in section VII.B. Here, the 

Department focuses on how these 

workers were allocated to either small 

or large entities. To estimate the 

probability that an exempt EAP worker 

in the CPS data is employed by a small 

entity, the Department assumed this 

probability is equal to the proportion of 

all workers employed by small entities 

in the corresponding industry. That is, 

if 50 percent of workers in an industry 

are employed in small entities, then on 

average small entities are expected to 

employ one out of every two exempt 

EAP workers in this industry.448 The 

Department applied these probabilities 

to the population of exempt EAP 

workers to find the number of workers 

(total exempt EAP workers and total 

affected by the rule) that small entities 

employ. No data are available to 

determine whether small businesses (or 

small businesses in specific industries) 

are more or less likely than non-small 

businesses to employ exempt EAP 

workers or affected EAP workers. 

Therefore, the best assumption available 

is to assign the same rates to all small 

and non-small businesses.449 450

The Department estimated that small 

entities employ 1.3 million of the 3.6 

million affected workers (36.8 percent) 

(Table 32). This composes 2.5 percent of 

the 53.6 million workers that small 

entities employ. The sectors with the 

highest total number of affected workers 

employed by small entities are 

professional and technical services 

(238,000); health care services, except 

hospitals (120,000); and retail trade 

(103,000). The sectors with the largest 

percent of workers employed by small 

entities who are affected include: 


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451This is not the true lower bound estimate of 

the number of affected entities. Strictly speaking, a 

true lower bound estimate of the number of affected 

small entities would be calculated by assuming all 

employees in the largest small entity are affected. 

For example, if the SBA standard is that entities 

with 500 employees are ‘‘small,’’ and 1,350 affected 

workers are employed by small entities in that 

industry, then the smallest number of entities that 

could be affected in that industry (the true lower 

bound) would be three. However, because such an 

outcome appears implausible, the Department 

determined a more reasonable lower estimate 

would be based on average establishment size. 

insurance (6.8 percent); finance (5.4 

percent); and information (4.9 percent). 

TABLE 32—NUMBER OF AFFECTED WORKERS EMPLOYED BY SMALL ENTITIES, BY INDUSTRY AND EMPLOYER TYPE

Industry 

Workers 

(1,000s) 

Affected workers 

(1,000s) a

Total 

Small 

business 

employed 

Total 

Small 

business 

employed 

Total .......................................................................................................... 143,444.4 53,585.6 3,648.3 1,341.1 

Industry 

Agriculture, forestry, fishing, and hunting ........................................................ 1,364.4 724.4 12.3 6.8 

Mining .............................................................................................................. 620.8 285.4 12.5 5.1 

Construction ..................................................................................................... 8,957.5 5,415.9 154.4 93.4 

Manufacturing—durable goods ........................................................................ 9,694.4 4,506.7 203.8 94.0 

Manufacturing—non-durable goods ................................................................ 5,522.6 2,649.3 113.3 53.6 

Wholesale trade ............................................................................................... 3,231.4 1,354.8 103.9 50.4 

Retail trade ...................................................................................................... 15,430.8 4,804.9 308.7 103.1 

Transportation and warehousing ..................................................................... 7,152.0 1,746.5 87.8 29.1 

Utilities ............................................................................................................. 1,455.4 310.6 31.1 6.0 

Information ....................................................................................................... 2,570.4 691.7 118.6 33.9 

Finance ............................................................................................................ 4,865.2 902.9 241.6 49.1 

Insurance ......................................................................................................... 2,765.4 585.4 170.7 39.9 

Real estate and rental and leasing ................................................................. 2,308.4 1,223.1 68.3 34.7 

Professional and technical services ................................................................ 11,575.6 5,104.8 572.2 238.2

Management, administrative and waste management services ..................... 5,377.8 2,338.5 115.2 42.1 

Educational services ........................................................................................ 14,093.6 3,546.7 201.8 44.2 

Hospitals .......................................................................................................... 7,820.6 282.1 212.6 5.6 

Health care services, except hospitals ............................................................ 10,187.6 4,466.2 290.8 120.4 

Social assistance ............................................................................................. 2,938.8 1,590.5 123.5 72.3 

Arts, entertainment, and recreation ................................................................. 2,381.3 1,185.8 92.9 48.6 

Accommodation ............................................................................................... 1,048.8 408.3 15.5 6.1 

Food services and drinking places .................................................................. 8,222.4 4,697.9 75.1 42.4 

Repair and maintenance ................................................................................. 1,655.6 1,171.9 19.8 14.2 

Personal and laundry services ........................................................................ 1,520.5 1,184.7 19.6 12.5 

Membership associations and organizations ................................................... 2,019.0 1,399.8 99.4 66.0 

Public administration ........................................................................................ 8,032.3 1,006.6 182.4 29.5 

Employer Type 

Nonprofit, private ............................................................................................. 10,318.0 3,876.8 381.5 162.1 

For profit, private ............................................................................................. 110,919.2 46,388.3 2,868.4 1,119.4 

Government (state and local) .......................................................................... 18,041.2 3,320.6 398.3 59.7 

Note: Worker data are from pooled CPS MORG data for 2020–2022 adjusted to reflect 2022. aEstimation of affected workers employed by small entities was done at the most detailed industry level available. Therefore, at the more aggregated industry level shown in this table, the ratio of small business employed to total employed does not equal the ratio of affected small business employed to total affected for each industry, nor does it equal the ratio for the national total because relative industry size, employment, 

and small business employment differs from industry to industry. 

Because no information is available 

on how affected workers would be 

distributed among small entities, the 

Department estimated a range of effects. 

At one end of this range, the Department 

assumed that each small entity employs 

no more than one affected worker, 

meaning that at most 1.3 million of the 

6.5 million small entities will employ 

an affected worker. Thus, these 

assumptions provide an upper-end 

estimate of the number of affected small 

entities. (However, it provides a lowerend estimate of the effect per small 

entity because costs are spread over a 

larger number of entities; the impacts 

experienced by an entity would increase 

as the share of its workers that are 

affected increases.) For the purpose of 

estimating a lower-range number of 

affected small entities, the Department 

used the average size of a small entity 

as the typical size of an affected small 

entity, and assumed all workers are 

affected. This can be considered an 

approximation of all employees at an 

entity affected.451 The average number 

of employees in a small entity is the 

number of workers that small entities 

employ divided by the total number of 

small establishments in that industry. 

The number of affected employees at 

small businesses is then divided by this 

average number of employees to 

calculate 179,700 affected small entities. 

Table 33 summarizes the estimated 

number of affected workers that small 

entities employ and the expected range 

for the number of affected small entities 

by industry. The Department estimated 

that the rule would affect 1.3 million 

workers who are employed by 

somewhere between 179,700 and 1.3 


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million small entities; this comprises 

from 2.8 percent to 20.8 percent of all 

small entities. It also means that from 

5.1 million to 6.3 million small entities 

would incur no more than minimal 

regulatory familiarization costs (i.e., 6.5 

million minus 1.3 million equals 5.1 

million; 6.5 million minus 179,700 

equals 6.3 million, using rounded 

values). The table also presents the 

average number of affected employees 

per establishment using the method in 

which all employees at the 

establishment would be affected. For the 

other method, by definition, there 

would always be one affected employee 

per establishment. Also displayed is the 

average payroll per small establishment 

by industry (based on both affected and 

non-affected small entities), calculated 

by dividing total payroll of small 

businesses by the number of small 

businesses (Table 31) (applicable to both 

methods). 

TABLE 33—NUMBER OF SMALL AFFECTED ENTITIES AND EMPLOYEES BY INDUSTRY AND EMPLOYER TYPE

Industry 

Affected 

workers in 

small entities 

(1,000s) 

Number of small affected 

entities 

(1,000s) a

Per entity 

One affected 

employee per 

entity b

All employees 

at entity 

affected c

Affected 

employees a

Average 

annual 

payroll 

($1,000s) 

Total .............................................................................. 1,341.1 1,341.1 179.7 7.5 $547.3 

Industry 

Agriculture, forestry, fishing, and hunting ............................ 6.8 6.8 0.2 38.4 1,833.6 

Mining ................................................................................... 5.1 5.1 0.3 14.9 1,594.3 

Construction ......................................................................... 93.4 93.4 12.5 7.5 508.1 

Manufacturing—durable goods ............................................ 94.0 94.0 3.3 28.1 2,184.4 

Manufacturing—non-durable goods ..................................... 53.6 53.6 2.0 27.5 1,949.1 

Wholesale trade ................................................................... 50.4 50.4 11.2 4.5 337.7 

Retail trade ........................................................................... 103.1 103.1 14.2 7.3 391.3 

Transportation and warehousing ......................................... 29.1 29.1 3.4 8.6 525.0 

Utilities .................................................................................. 6.0 6.0 0.2 39.9 3,634.2 

Information ........................................................................... 33.9 33.9 4.6 7.4 723.9 

Finance ................................................................................ 49.1 49.1 7.2 6.8 735.5 

Insurance ............................................................................. 39.9 39.9 9.5 4.2 369.4 

Real estate and rental and leasing ...................................... 34.7 34.7 9.6 3.6 273.6 

Professional and technical services .................................... 238.2 238.2 39.3 6.1 660.5 

Management, administrative and waste management services ................................................................................... 42.1 42.1 7.2 5.9 280.5 

Educational services ............................................................ 44.2 44.2 1.2 36.3 2,286.8 

Hospitals .............................................................................. 5.6 d 4.2 0.0 201.6 15,137.3 

Health care services, except hospitals ................................ 120.4 120.4 15.3 7.9 478.7 

Social assistance ................................................................. 72.3 72.3 6.8 10.6 476.7 

Arts, entertainment, and recreation ..................................... 48.6 48.6 5.7 8.6 431.4 

Accommodation ................................................................... 6.1 6.1 0.9 7.0 330.8 

Food services and drinking places ...................................... 42.4 42.4 4.7 9.1 292.9 

I Repair and maintenance ................................................... 14.2 14.2 2.4 5.9 318.8 

Personal and laundry services ............................................ 12.5 12.5 2.3 5.3 215.3 

Membership associations and organizations ....................... 66.0 66.0 13.9 4.8 318.1 

Public administration e .......................................................... 29.5 29.5 1.9 15.3 1,042.9 

Employer Type 

Nonprofit, private .................................................................. 162.1 162.1 21.1 7.7 494.8 

For profit, private .................................................................. 1,119.4 1,119.4 141.8 7.9 523.1 

Government (state and local) .............................................. 59.7 59.7 1.2 50.5 3,246.6 

Note: Establishment data are from SUSB 2020; worker and payroll data from pooled CPS MORG data for 2020–2022 adjusted to reflect 2022. aEstimation of both affected small entity employees and affected small entities was done at the most detailed industry level available. Therefore, the ratio of affected small entities employees to total small entity employees for each industry may not match the ratio of small affected entities to total small entities at the more aggregated industry level presented in the table, nor will it equal the ratio at the national level because relative industry size, employment, and small business employment differs from industry to industry. bThis method may overestimate the number of affected entities and therefore the ratio of affected workers to affected entities may be greater 

than 1-to-1. However, the Department addresses this issue by also calculating effects based on the assumption that 100 percent of workers at 

an entity are affected. cFor example, on average, a small entity in the construction industry employs 7.5 workers (5.4 million employees divided by 726,700 small entities). This method assumes if an entity is affected then all 7.5 workers are affected. Therefore, in the construction industry this method estimates there are 12,500 small affected entities (93,400 affected small entity workers divided by 7.5). d Number of entities is smaller than number of affected employees; thus, total number of entities is reported. 

eEntity number represents the total number of state and local governments. 

4. Impacts to Affected Small Entities 

For small entities, the Department 

estimated various types of effects, 

including regulatory familiarization 

costs, adjustment costs, managerial 

costs, and payroll increases borne by 

employers. The Department estimated a 

range for the number of affected small 

entities and the impacts they incur. 

While the upper and lower bounds are 

likely over- and under-estimates, 

respectively, of effects per small entity, 

the Department believes that this range 

of costs and payroll increases provides 


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452As noted previously, these are not the true 

lower and upper bounds. The values presented are 

the highest and lowest estimates the Department 

believes are plausible. 

the most accurate characterization of the 

effects of the rule on small 

employers.452 Furthermore, the smaller 

estimate of the number of affected 

entities (i.e., where all employees at 

each affected employer are assumed to 

be affected) will result in the largest 

costs and payroll increases per entity as 

a percent of establishment payroll and 

revenue, and the Department expects 

that many, if not most, entities will 

incur smaller costs, payroll increases, 

and effects relative to entity size. 

Parameters that are used in the small 

business cost analysis for Year 1 are 

provided in Table 34, along with 

summary data of the impacts. See 

section C.3 of the Regulatory Impact 

Analysis for a more fulsome discussion 

on these costs. 

TABLE 34—OVERVIEW OF PARAMETERS USED FOR COSTS TO SMALL BUSINESSES AND THE IMPACTS ON SMALL

BUSINESSES

Small business costs Cost 

Direct and Payroll Costs 

Average total cost per affected entity a .................................................... $4,323. 

Range of total costs per affected entity a ................................................. $1,833–$146,781. 

Average percent of revenue per affected entity ....................................... 0.16%. 

Average percent of payroll per affected entity ......................................... 0.79%. 

Direct Costs 

Regulatory familiarization: 

Time (first year) ................................................................................. 1 hour per entity. 

Time (update years) .......................................................................... 10 minutes per entity. 

Hourly wage ...................................................................................... $52.80. 

Adjustment: 

Time (first year affected) ................................................................... 75 minutes per newly affected worker. 

Hourly wage ...................................................................................... $52.80. 

Managerial: 

Time (weekly) .................................................................................... 10 minutes per affected worker whose hours change. 

Hourly wage ...................................................................................... $83.63. 

Payroll Increases 

Average payroll increase per affected entity a ......................................... $2,638. 

Range of payroll increases per affected entity a ...................................... $769–$103,871. 

a Using the methodology where all employees at an affected small firm are affected. This assumption generates upper-end estimates. Lowerend cost estimates are significantly smaller. 

The Department expects total direct 

employer costs would range from $294.6 

million to $356.0 million for affected 

small entities (i.e., those with affected 

employees) in the first year (an average 

cost of between $265 to $1,640 per 

entity) (Table 35). Small entities that do 

not employ affected workers would 

incur $270.2 million to $331.6 million 

in regulatory familiarization costs (an 

average cost of $52.80 per entity). The 

three industries with the highest costs 

(professional and technical services; 

health care services, except hospitals; 

and retail trade) account for about 35 

percent of the costs. Hospitals are 

expected to incur the largest cost per 

establishment ($42,900 using the 

method where all employees are 

affected), although the costs are not 

expected to exceed 0.3 percent of 

payroll. The food services and drinking 

places industry is expected to 

experience the largest effect as a share 

of payroll (estimated direct costs 

compose 0.68 percent of average entity 

payroll). 

TABLE 35—YEAR 1 SMALL ESTABLISHMENT DIRECT COSTS, TOTAL AND PER ESTABLISHMENT, BY INDUSTRY AND

EMPLOYER TYPE

Industry 

Direct cost to small entities in year 1 a

One affected employee All employees affected 

Total 

(millions) a

Cost per 

affected entity 

Percent of 

annual payroll 

Total 

(millions) b

Cost per 

affected entity 

Percent of 

annual payroll 

Total ................................................................................... $356.0 $265 0.05 $294.6 $1,640 0.30 

Industry 

Agriculture, forestry, fishing, and hunting ................................. 1.8 265 0.01 1.5 8,221 0.45 

Mining ........................................................................................ 1.4 265 0.02 1.1 3,219 0.20 

Construction .............................................................................. 24.8 265 0.05 20.5 1,637 0.32 

Manufacturing—durable goods ................................................. 25.0 265 0.01 20.2 6,025 0.28 

Manufacturing—non-durable goods .......................................... 14.2 265 0.01 11.5 5,895 0.30 

Wholesale trade ........................................................................ 13.4 265 0.08 11.3 1,008 0.30 

Retail trade ................................................................................ 27.4 265 0.07 22.7 1,598 0.41 

Transportation and warehousing .............................................. 7.7 265 0.05 6.4 1,880 0.36 


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453The incomplete fixed-job model reflects the 

Department’s determination that an appropriate 

estimate of the impact on the implicit hourly rate 

of pay for regular overtime workers should be 

determined using the average of Barkume’s and 

Trejo’s two estimates of the incomplete fixed-job 

model adjustments: a wage change that is 40 

percent of the adjustment toward the amount 

predicted by the fixed-job model, assuming an 

initial zero overtime pay premium, and a wage 

change that is 80 percent of the adjustment 

assuming an initial 28 percent overtime pay 

premium. 

454This is an average increase for all affected 

workers (both standard test and HCE), and 

reconciles to the weighted average of individual 

salary changes discussed in the Transfers section. 

TABLE 35—YEAR 1 SMALL ESTABLISHMENT DIRECT COSTS, TOTAL AND PER ESTABLISHMENT, BY INDUSTRY AND

EMPLOYER TYPE—Continued 

Industry 

Direct cost to small entities in year 1 a

One affected employee All employees affected 

Total 

(millions) a

Cost per 

affected entity 

Percent of 

annual payroll 

Total 

(millions) b

Cost per 

affected entity 

Percent of 

annual payroll 

Utilities ....................................................................................... 1.6 265 0.01 1.3 8,527 0.23 

Information ................................................................................ 9.0 265 0.04 7.4 1,630 0.23 

Finance ...................................................................................... 13.0 265 0.04 10.8 1,507 0.20 

Insurance ................................................................................... 10.6 265 0.07 9.0 943 0.26 

Real estate and rental and leasing ........................................... 9.2 265 0.10 7.9 820 0.30 

Professional and technical services .......................................... 63.2 265 0.04 52.7 1,343 0.20 

Management, administrative and waste management services 11.2 265 0.10 9.3 1,303 0.46 

Educational services ................................................................. 11.7 265 0.01 9.5 7,777 0.34 

Hospitals .................................................................................... 1.5 265 0.00 1.2 42,910 0.28 

Health care services, except hospitals ..................................... 32.0 265 0.06 26.4 1,726 0.36 

Social assistance ...................................................................... 19.2 265 0.06 15.7 2,311 0.48 

Arts, entertainment, and recreation .......................................... 12.9 265 0.06 10.6 1,874 0.43 

Accommodation ......................................................................... 1.6 265 0.08 1.3 1,547 0.47 

Food services and drinking places ........................................... 11.2 265 0.09 9.3 1,986 0.68 

Repair and maintenance ........................................................... 3.8 265 0.08 3.1 1,307 0.41 

Personal and laundry services .................................................. 3.3 265 0.13 2.8 1,190 0.55 

Membership associations and organizations ............................ 17.5 265 0.08 14.8 1,064 0.33 

Public administration ................................................................. 7.8 265 0.03 6.4 3,311 0.32 

Employer Type 

Nonprofit, private ....................................................................... 42.6 263 0.05 35.2 1,669 0.34 

For profit, private ....................................................................... 344.8 308 0.06 293.1 2,068 0.40 

Government (state and local) ................................................... 16.2 272 0.01 13.1 11,119 0.34 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. a Direct costs include regulatory familiarization, adjustment, and managerial costs. 

bThe range of costs per entity depends on the number of affected entities. The minimum assumes that each affected entity has one affected worker (therefore, the 

number of affected entities is equal to the number of affected workers). The maximum assumes the share of workers in small entities who are affected is also the 

share of small entity entities that are affected. 

It is possible that the costs of the 

proposed rule may be 

disproportionately large for small 

entities, especially because small 

entities often have limited human 

resources personnel on staff. However, 

the Department expects that small 

entities would rely on compliance 

assistance materials provided by the 

Department or industry associations to 

become familiar with the final rule once 

issued. Additionally, the Department 

notes that the proposed rule is quite 

limited in scope because the changes all 

relate to the salary component of the 

part 541 regulations. Finally, the 

Department believes that most entities 

have at least some nonexempt 

employees and, therefore, already have 

policies and systems in place for 

monitoring and recording their hours. 

The Department believes that applying 

those same policies and systems to the 

workers whose exemption status 

changes would not be an unreasonable 

burden on small businesses. 

Average weekly earnings for affected 

EAP workers in small entities are 

expected to increase by about $6.91 per 

week per affected worker, using the 

incomplete fixed-job model 453

described in section VII.C.4.iii.454 This 

would lead to $482.2 million in 

additional annual wage payments to 

employees in small entities (less than 

0.5 percent of aggregate affected 

establishment payroll; Table 36). The 

largest payroll increases per 

establishment are expected in hospitals 

(up to $103,900 per entity); utilities (up 

to $20,900 per entity); and non-durable 

goods manufacturing (up to $11,700 per 

entity). However, average payroll 

increases per entity would exceed one 

percent of average annual payroll in 

only three sectors: food services and 

drinking places (2.5 percent); 

management, administrative and waste 

management services (1.2 percent); and 

transportation and warehousing (1.1 

percent). 

TABLE 36—YEAR 1 SMALL ESTABLISHMENT PAYROLL INCREASES, TOTAL AND PER ESTABLISHMENT, BY INDUSTRY AND

EMPLOYER TYPE

Industry 

Increased payroll for small entities in year 1 a

Total 

(millions) 

One affected employee All employees affected 

Per entity 

Percent of 

annual 

payroll 

Per entity 

Percent of 

annual 

payroll 

Total ............................................................................................................... $482.2 $360 0.07% $2,683 0.49% 


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455The Department used this estimate of revenue, 

instead of small business revenue reported directly 

from the 2017 SUSB so revenue aligned with 

payrolls in 2022. 

TABLE 36—YEAR 1 SMALL ESTABLISHMENT PAYROLL INCREASES, TOTAL AND PER ESTABLISHMENT, BY INDUSTRY AND

EMPLOYER TYPE—Continued 

Industry 

Increased payroll for small entities in year 1 a

Total 

(millions) 

One affected employee All employees affected 

Per entity 

Percent of 

annual 

payroll 

Per entity 

Percent of 

annual 

payroll 

Industry 

Agriculture, forestry, fishing, and hunting ............................................................. 0.9 126 0.01 4,837 0.26

Mining .................................................................................................................... 1.7 330 0.02 4,918 0.31 

Construction .......................................................................................................... 30.0 321 0.07 2,391 0.47 

Manufacturing—durable goods ............................................................................. 31.5 335 0.02 9,423 0.43 

Manufacturing—non-durable goods ...................................................................... 22.8 426 0.02 11,707 0.60 

Wholesale trade .................................................................................................... 24.7 491 0.15 2,206 0.65 

Retail trade ............................................................................................................ 51.3 497 0.13 3,613 0.92 

Transportation and warehousing .......................................................................... 20.0 687 0.14 5,907 1.13 

Utilities ................................................................................................................... 3.1 524 0.01 20,888 0.57 

Information ............................................................................................................ 12.0 353 0.05 2,622 0.36 

Finance .................................................................................................................. 15.9 324 0.04 2,214 0.30 

Insurance ............................................................................................................... 11.8 297 0.08 1,244 0.34 

Real estate and rental and leasing ....................................................................... 15.8 456 0.17 1,646 0.60 

Professional and technical services ...................................................................... 77.5 326 0.05 1,975 0.30 

Management, administrative and waste management services ........................... 24.4 580 0.21 3,407 1.21 

Educational services ............................................................................................. 9.0 204 0.01 7,417 0.32 

Hospitals ................................................................................................................ 2.9 515 0.00 103,871 0.69 

Health care services, except hospitals ................................................................. 38.3 318 0.07 2,502 0.52

Social assistance .................................................................................................. 10.5 145 0.03 1,539 0.32 

Arts, entertainment, and recreation ...................................................................... 14.3 295 0.07 2,523 0.58 

Accommodation ..................................................................................................... 1.7 279 0.09 1,959 0.59 

Food services and drinking places ....................................................................... 34.2 808 0.28 7,345 2.51 

Repair and maintenance ....................................................................................... 7.0 490 0.16 2,893 0.91 

Personal and laundry services .............................................................................. 2.8 221 0.11 1,183 0.55 

Membership associations and organizations ........................................................ 10.7 162 0.05 769 0.24 

Public administration ............................................................................................. 7.3 249 0.02 3,810 0.37 

Employer Type 

Nonprofit, private ................................................................................................... 49.3 304 0.06 2,336 0.47 

For profit, private ................................................................................................... 421.3 376 0.07 2,972 0.57 

Government (state and local) ............................................................................... 11.6 194 0.01 9,816 0.30 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aAggregate change in total annual payroll experienced by small entities under the updated salary levels after labor market adjustments. This amount represents the 

total amount of (wage) transfers from employers to employees. 

Table 37 presents estimated first year 

direct costs and payroll increases 

combined per entity and the costs and 

payroll increases as a percent of average 

entity payroll. The Department presents 

only the results for the upper bound 

scenario where all workers employed by 

the entity are affected. Combined costs 

and payroll increases per establishment 

range from $1,800 in membership 

associations to $146,800 in hospitals. 

Combined costs and payroll increases 

compose more than two percent of 

average annual payroll in one sector, 

food services and drinking places (3.2 

percent). 

However, comparing costs and payroll 

increases to payrolls overstates the 

effects on entities because payroll 

represents only a fraction of the 

financial resources available to an 

establishment. The Department 

approximated revenue per affected 

small establishment by calculating the 

ratio of small business revenues to 

payroll by industry from the 2017 SUSB 

data then multiplying that ratio by 

average small entity payroll.455 Using 

this approximation of annual revenues 

as a benchmark, only one sector would 

have costs and payroll increases 

amounting to close to one percent of 

revenues, food services and drinking 

places (1.0 percent). 


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TABLE 37—YEAR 1 SMALL ESTABLISHMENT DIRECT COSTS AND PAYROLL INCREASES, TOTAL AND PER ENTITY, BY

INDUSTRY AND EMPLOYER TYPE, USING ALL EMPLOYEES IN ENTITY AFFECTED METHOD

Industry 

Costs and payroll increases for small affected entities, all 

employees affected 

Total 

(millions) Per entity a

Percent of 

annual 

payroll 

Percent of 

estimated 

revenues b

Total .......................................................................................................... $776.8 $4,323 0.79% 0.16% 

Industry 

Agriculture, forestry, fishing, and hunting ........................................................ 2.3 13,058 0.71 0.14 

Mining .............................................................................................................. 2.8 8,136 0.51 0.07 

Construction ..................................................................................................... 50.5 4,028 0.79 0.18 

Manufacturing—durable goods ........................................................................ 51.7 15,448 0.71 0.15 

Manufacturing—non-durable goods ................................................................ 34.3 17,601 0.90 0.12 

Wholesale trade ............................................................................................... 36.1 3,214 0.95 0.07 

Retail trade ...................................................................................................... 73.9 5,210 1.33 0.13 

Transportation and warehousing ..................................................................... 26.4 7,786 1.48 0.35 

Utilities ............................................................................................................. 4.4 29,415 0.81 0.06 

Information ....................................................................................................... 19.4 4,252 0.59 0.17 

Finance ............................................................................................................ 26.7 3,721 0.51 0.15 

Insurance ......................................................................................................... 20.8 2,187 0.59 0.13 

Real estate and rental and leasing ................................................................. 23.7 2,466 0.90 0.20 

Professional and technical services ................................................................ 130.2 3,317 0.50 0.20 

Management, administrative and waste management services ..................... 33.7 4,710 1.68 0.68 

Educational services ........................................................................................ 18.5 15,194 0.66 0.27 

Hospitals .......................................................................................................... 4.1 146,781 0.97 0.41 

Health care services, except hospitals ............................................................ 64.7 4,228 0.88 0.37 

Social assistance ............................................................................................. 26.2 3,850 0.81 0.38 

Arts, entertainment, and recreation ................................................................. 24.9 4,397 1.02 0.33 

Accommodation ............................................................................................... 3.0 3,506 1.06 0.26

Food services and drinking places .................................................................. 43.5 9,332 3.19 1.00 

Repair and maintenance ................................................................................. 10.1 4,200 1.32 0.37 

Personal and laundry services ........................................................................ 5.5 2,373 1.10 0.39 

Membership associations and organizations ................................................... 25.4 1,833 0.58 0.14 

Public administration ........................................................................................ 13.7 7,122 0.68 0.17 

Employer Type 

Nonprofit, private ............................................................................................. 94.40 3,570 1.00 0.30 

For profit, private ............................................................................................. 585.30 3,532 1.00 0.20 

Government (state and local) .......................................................................... 12.20 9,264 0.60 0.20 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. aTotal direct costs and transfers for small entities in which all employees are affected. Impacts to small entities in which one employee is affected will be a fraction of the impacts presented in this table. b Revenues estimated by calculating the ratio of estimated small business revenues to payroll from the 2017 SUSB, and multiplying by payroll 

per small entity. For the public administration sector, the ratio was calculated using revenues and payroll from the 2017 Census of Governments. 

5. Projected Effects to Affected Small 

Entities in Year 2 Through Year 10 

To determine how small businesses 

would be affected in future years, the 

Department projected costs to small 

businesses for 9 years after Year 1 of the 

rule. Projected employment and 

earnings were calculated using the same 

methodology described in section 

VII.B.3. Affected employees in small 

firms follow a similar pattern to affected 

workers in all entities: the number 

decreases gradually between automatic 

update years, and then increases. There 

are 1.3 million affected workers in small 

entities in Year 1 and 1.9 million in 

Year 10. Table 38 reports affected 

workers in these 2 years only. 

TABLE 38—PROJECTED NUMBER OF AFFECTED WORKERS IN SMALL ENTITIES, BY INDUSTRY

Industry 

Affected workers in 

small entities 

(1,000s) 

Year 1 Year 10 

Total .................................................................................................................................................................. 1,341.1 1,872.1 

Agriculture, forestry, fishing, and hunting ................................................................................................................ 6.8 7.6 

Mining ...................................................................................................................................................................... 5.1 7.1 

Construction ............................................................................................................................................................. 93.4 127.3 

Manufacturing—durable goods ................................................................................................................................ 94.0 125.3 

Manufacturing—non-durable goods ........................................................................................................................ 53.6 78.5 


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TABLE 38—PROJECTED NUMBER OF AFFECTED WORKERS IN SMALL ENTITIES, BY INDUSTRY—Continued 

Industry 

Affected workers in 

small entities 

(1,000s) 

Year 1 Year 10 

Wholesale trade ....................................................................................................................................................... 50.4 73.3 

Retail trade .............................................................................................................................................................. 103.1 125.6 

Transportation and warehousing ............................................................................................................................. 29.1 40.2 

Utilities ..................................................................................................................................................................... 6.0 7.2 

Information ............................................................................................................................................................... 33.9 39.6 

Finance .................................................................................................................................................................... 49.1 59.2 

Insurance ................................................................................................................................................................. 39.9 60.2 

Real estate and rental and leasing ......................................................................................................................... 34.7 55.4 

Professional and technical services ........................................................................................................................ 238.2 342.6 

Management, administrative and waste management services ............................................................................. 42.1 56.3 

Educational services ................................................................................................................................................ 44.2 62.1 

Hospitals .................................................................................................................................................................. 5.6 8.8 

Health care services, except hospitals .................................................................................................................... 120.4 172.0 

Social assistance ..................................................................................................................................................... 72.3 118.6 

Arts, entertainment, and recreation ......................................................................................................................... 48.6 78.9 

Accommodation ....................................................................................................................................................... 6.1 10.6 

Food services and drinking places .......................................................................................................................... 42.4 56.4 

Repair and maintenance ......................................................................................................................................... 14.2 21.2 

Personal and laundry services ................................................................................................................................ 12.5 15.1 

Membership associations and organizations .......................................................................................................... 66.0 80.8 

Public administration ................................................................................................................................................ 29.5 42.4 

Note: Worker data are from Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

Direct costs and payroll increases for 

small entities vary by year but generally 

decrease between automatic updates as 

the real value of the salary and 

compensation levels decrease and the 

number of affected workers 

consequently decreases. In automatic 

updating years, costs would increase 

due to newly affected workers and some 

regulatory familiarization costs. Direct 

costs and payroll increases for small 

businesses would be fairly close in Year 

10 (an automatic update year) and Year 

1, $0.8 billion in Year 1 and $1.0 billion 

in Year 10 (Table 39 and Figure 10). 

TABLE 39—PROJECTED DIRECT COSTS AND PAYROLL INCREASES FOR AFFECTED SMALL ENTITIES, BY INDUSTRY, USING

ALL EMPLOYEES IN ENTITY AFFECTED METHOD

Industry 

Costs and payroll 

increases for small 

affected entities, all 

employees affected 

(millions $2022) 

Year 1 Year 10 

Total .................................................................................................................................................................. $776.8 $1,015.9 

Agriculture, forestry, fishing, and hunting ................................................................................................................ 2.3 5.6 

Mining ...................................................................................................................................................................... 2.8 3.3 

Construction ............................................................................................................................................................. 50.5 65.1 

Manufacturing—durable goods ................................................................................................................................ 51.7 64.3 

Manufacturing—non-durable goods ........................................................................................................................ 34.3 43.8 

Wholesale trade ....................................................................................................................................................... 36.1 62.7 

Retail trade .............................................................................................................................................................. 73.9 74.6 

Transportation and warehousing ............................................................................................................................. 26.4 70.4 

Utilities ..................................................................................................................................................................... 4.4 3.7 

Information ............................................................................................................................................................... 19.4 15.9 

Finance .................................................................................................................................................................... 26.7 33.0 

Insurance ................................................................................................................................................................. 20.8 25.1 

Real estate and rental and leasing ......................................................................................................................... 23.7 29.7 

Professional and technical services ........................................................................................................................ 130.2 166.8 

Management, administrative and waste management services ............................................................................. 33.7 29.0 

Educational services ................................................................................................................................................ 18.5 24.3 

Hospitals .................................................................................................................................................................. 4.1 15.7 

Health care services, except hospitals .................................................................................................................... 64.7 70.4 

Social assistance ..................................................................................................................................................... 26.2 37.3 

Arts, entertainment, and recreation ......................................................................................................................... 24.9 39.7 

Accommodation ....................................................................................................................................................... 3.0 5.0 

Food services and drinking places .......................................................................................................................... 43.5 51.3 

Repair and maintenance ......................................................................................................................................... 10.1 17.4 

Personal and laundry services ................................................................................................................................ 5.5 2.3 


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456See 29 CFR 516.3 (providing that employers 

need not maintain the records required by 29 CFR 

516.2(a)(6) through (10) for their EAP workers). 

TABLE 39—PROJECTED DIRECT COSTS AND PAYROLL INCREASES FOR AFFECTED SMALL ENTITIES, BY INDUSTRY, USING

ALL EMPLOYEES IN ENTITY AFFECTED METHOD—Continued 

Industry 

Costs and payroll 

increases for small 

affected entities, all 

employees affected 

(millions $2022) 

Year 1 Year 10 

Membership associations and organizations .......................................................................................................... 25.4 28.0 

Public administration ................................................................................................................................................ 13.7 31.4 

Note: Pooled CPS data for 2020–2022 adjusted to reflect 2022. 

C. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements of 

the Proposed Rule 

The FLSA sets minimum wage, 

overtime pay, and recordkeeping 

requirements for employment subject to 

its provisions. Unless exempt, covered 

employees must be paid at least the 

minimum wage and not less than one 

and one-half times their regular rates of 

pay for overtime hours worked. 

Pursuant to section 11(c) of the FLSA, 

the Department’s regulations at part 516 

require covered employers to maintain 

certain records about their employees. 

Bona fide EAP workers are subject to 

some of these recordkeeping 

requirements but exempt from others 

related to pay and worktime.456 Thus, 

although this rulemaking would not 

introduce any new recordkeeping 

requirements, employers would need to 

keep some additional records for 

affected employees who become newly 

nonexempt if they do not presently 

record such information. As indicated 

in this analysis, this proposed rule 

expands minimum wage and overtime 

pay coverage to 3.6 million affected EAP 

workers, of which 1.3 million are 

employed by a small entity. This would 

result in an increase in employer burden 

and was estimated in the PRA portion 

(section VI) of this proposed rule. Note 

that the burdens reported for the PRA 

section of this proposed rule include the 

entire information collection and not 

merely the additional burden estimated 

as a result of this proposed rule. 

D. Steps the Agency Has Taken To 

Minimize the Significant Economic 

Impact on Small Entities 

This section describes the steps the 

agency has taken to minimize the 

economic impact on small entities, 

consistent with the stated objectives of 

the FLSA. It includes a statement of the 

factual, policy, and legal reasons for the 

selected standard and HCE levels 

adopted in the proposed rule and why 

alternatives were rejected. 

In this proposed rule, the Department 

sets the standard salary level equal to 

the 35th percentile of earnings of fulltime salaried workers in the lowestwage Census Region (currently the 

South). Based on 2022 data, this results 

in a salary level of $1,059 per week. By 

setting a salary level above the long test 

salary level, the proposal would ensure 

that fewer lower paid white-collar 

employees who perform significant 

amounts of nonexempt work are 


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457See 84 FR 51239; 81 FR 32411; 69 FR 22171. 

458See 84 FR 51238; 81 FR 32527; 69 FR 22237. 

459 84 FR 51250 (internal citation omitted). 

460See 29 U.S.C. 203(s). 

461 2 U.S.C. 1501 et seq. 

included in the exemption. At the same 

time, by setting it below the short test 

salary level, the proposal would allow 

employers to continue to use the 

exemption for many lower paid whitecollar employees who were made 

exempt under the 2004 standard duties 

test. Thus, the Department believes that 

the proposed salary level would also 

more reasonably distribute between 

employees and their employers 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. As in prior rulemakings, the 

Department has not proposed to 

establish multiple salary levels based on 

region, industry, employer size, or any 

other factor, which stakeholders have 

generally agreed would significantly 

complicate the regulations.457 Instead, 

the Department has again proposed to 

set the standard salary level using 

earnings data from the lowest-income 

Census Region, in part to accommodate 

small employers and employers in lowincome industries.458

The Department has proposed to set 

the HCE total annual compensation 

level equal to the 85th percentile of 

earnings of full-time salaried workers 

nationally ($143,988 annually based on 

2022 data). The Department believes 

that this level avoids costs associated 

with evaluating, under the standard 

duties test, the exemption statuses of 

large numbers of highly-paid whitecollar employees, many of whom would 

have remained exempt even under that 

test, while providing a meaningful and 

appropriate complement to the more 

lenient HCE duties test. While the 

proposed threshold is higher than the 

HCE level adopted in the 2019 rule 

(which was set equal to the 80th 

percentile of earnings for salaried 

workers nationwide), the proposed HCE 

threshold in this rule would be lower 

than the HCE percentile adopted in the 

2004 and 2016 rules, which covered 

93.7 and 90 percent of salaried workers 

nationwide, respectively. The 

Department further believes that nearly 

all of the highly-paid white-collar 

workers earning above this threshold 

‘‘would satisfy any duties test.’’ 459

1. Differing Compliance and Reporting 

Requirements for Small Entities 

This proposed rule provides no 

differing compliance requirements and 

reporting requirements for small 

entities. The Department has strived to 

minimize respondent recordkeeping 

burden by requiring no specific form or 

order of records under the FLSA and its 

corresponding regulations. Moreover, 

employers would normally maintain the 

records under usual or customary 

business practices. 

2. Least Burdensome Option or 

Explanation Required 

The Department believes it has 

chosen the most effective option that 

updates and clarifies the rule and 

results in the least burden. Among the 

options considered by the Department, 

the least restrictive option was using the 

2004 methodology (the 20th percentile 

of weekly earnings of full-time 

nonhourly workers in the lowest-wage 

Census region, currently the South, and 

in retail nationally) to set the standard 

salary level, which was also the 

methodology used in the 2019 rule. As 

noted above, however, the salary level 

produced by the 2004 methodology is 

below the long test salary level, which 

the Department considers to be the 

lower boundary for an appropriate 

salary level in a one-test system using 

the current standard duties test. Using 

the 2004 methodology thus does not 

address the Department’s concerns 

discussed above under Objectives of, 

and Need for, the Proposed Rule. 

Pursuant to section 603(c) of the RFA, 

the following alternatives are to be 

addressed: 

i. Differing Compliance or Reporting 

Requirements That Take Into Account 

the Resources Available to Small 

Entities 

The FLSA creates a level playing field 

for businesses by setting a floor below 

which employers may not pay their 

employees. To establish differing 

compliance or reporting requirements 

for small businesses would undermine 

this important purpose of the FLSA. The 

Department makes available a variety of 

resources to employers for 

understanding their obligations and 

achieving compliance. Therefore, the 

Department has not proposed differing 

compliance or reporting requirements 

for small businesses. 

ii. The Clarification, Consolidation, or 

Simplification of Compliance and 

Reporting Requirements for Small 

Entities 

This proposed rule imposes no new 

reporting requirements. The Department 

makes available a variety of resources to 

employers for understanding their 

obligations and achieving compliance. 

iii. The Use of Performance Rather Than 

Design Standards 

Under this proposed rule, employers 

may achieve compliance through a 

variety of means. Employers may elect 

to continue to claim the EAP exemption 

for affected employees by adjusting 

salary levels, hiring additional workers 

or spreading overtime hours to other 

employees, or compensating employees 

for overtime hours worked. The 

Department makes available a variety of 

resources to employers for 

understanding their obligations and 

achieving compliance. 

iv. An Exemption From Coverage of the 

Rule, or Any Part Thereof, for Such 

Small Entities 

Creating an exemption from coverage 

of this rulemaking for businesses with 

as many as 500 employees, those 

defined as small businesses under 

SBA’s size standards, is inconsistent 

with the FLSA, which applies to all 

employers that satisfy the enterprise 

coverage threshold or employ 

individually covered employees, 

regardless of employer size.460

E. Identification, to the Extent 

Practicable, of All Relevant Federal 

Rules That May Duplicate, Overlap, or 

Conflict With the Proposed Rule 

The Department is not aware of any 

Federal rules that duplicate, overlap, or 

conflict with this proposed rule. 

IX. Unfunded Mandates Reform Act 

Analysis 

The Unfunded Mandates Reform Act 

of 1995 (UMRA),461 requires agencies to 

prepare a written statement for 

proposed rulemaking that includes any 

Federal mandate that may result in 

increased expenditures by state, local, 

and tribal governments, in the aggregate, 

or by the private sector, of $192 million 

($100 million in 1995 dollars adjusted 

for inflation to 2022) or more in at least 

one year. This statement must: (1) 

identify the authorizing legislation; (2) 

present the estimated costs and benefits 

of the rule and, to the extent that such 

estimates are feasible and relevant, 

present its estimated effects on the 

national economy; (3) summarize and 

evaluate state, local, and tribal 

government input; and (4) identify 

reasonable alternatives and select, or 

explain the non-selection, of the least 

costly, most cost-effective, or least 

burdensome alternative. 

A. Authorizing Legislation 

This proposed rule is issued pursuant 

to section 13(a)(1) of the Fair Labor 

Standards Act (FLSA or Act), 29 U.S.C. 

213(a)(1). The section exempts from the 

FLSA’s minimum wage and overtime 


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462 29 U.S.C. 213(a)(1). 

463 29 U.S.C. 203(e). 

464 29 U.S.C. 203(x). 

465 2 U.S.C. 1532(a)(4). 

466 2020 state and local government payrolls were 

$1.1 trillion, inflated to 2022 payroll costs of $1.2 

trillion using the GDP deflator. State and Local 

Government Finances 2020. Available at https://

www.census.gov/data/datasets/2020/econ/local/ 

public-use-datasets.html. 

467 2020 state and local revenues were $4.3 

trillion, inflated to 2022 dollars using the GDP 

deflator. State and Local Government Finances 

2020. Available at https://www.census.gov/data/ 

datasets/2020/econ/local/public-use-datasets.html. 

pay requirements ‘‘any employee 

employed in a bona fide executive, 

administrative, or professional capacity 

(including any employee employed in 

the capacity of academic administrative 

personnel or teacher in elementary or 

secondary schools), or in the capacity of 

outside salesman (as such terms are 

defined and delimited from time to time 

by regulations of the Secretary, subject 

to the provisions of [the Administrative 

Procedure Act] . . .).’’ 462 The 

requirements of the exemption are 

contained in part 541 of the 

Department’s regulations. Section 3(e) of 

the FLSA 463 defines ‘‘employee’’ to 

include most individuals employed by a 

state, political subdivision of a state, or 

interstate governmental agency. Section 

3(x) of the FLSA 464 also defines public 

agencies to include the government of a 

state or political subdivision thereof, or 

any interstate governmental agency. 

B. Costs and Benefits 

For purposes of the UMRA, this 

proposed rule includes a Federal 

mandate that is expected to result in 

increased expenditures by the private 

sector of more than $192 million in at 

least one year, but the rule will not 

result in increased expenditures by 

state, local and tribal governments, in 

the aggregate, of $192 million or more 

in any one year. 

Based on the economic impact 

analysis of this proposed rule, the 

Department determined that Year 1 

costs for state and local governments 

would total $184.1 million, of which 

$74.0 million are direct employer costs 

and $110.1 million are payroll increases 

(Table 40). In subsequent years, state 

and local governments may experience 

payroll increases of as much as $192.5 

million per year. 

The proposed rule would result in 

Year 1 costs to the private sector of 

approximately $2.2 billion, of which 

$1.1 billion are direct employer costs 

and $1.1 billion are payroll increases. In 

subsequent years, the Department 

estimated that the private sector may 

experience a payroll increase of as much 

as $1.8 billion per year. 

TABLE 40—SUMMARY OF YEAR 1 IMPACTS BY TYPE OF EMPLOYER

Impact Total Private Government a

Affected EAP Workers (1,000s) 

Number ........................................................................................................................................ 3,648 3,250 392 

Direct Employer Costs (Millions) 

Regulatory familiarization ............................................................................................................ $427.2 $422.4 $4.8 

Adjustment ................................................................................................................................... 240.8 214.5 25.9 

Managerial ................................................................................................................................... 534.9 490.0 43.3 

Total direct costs .................................................................................................................. 1,202.8 1,126.8 74.0 

Payroll Increases (Millions) 

From employers to workers ......................................................................................................... $1,234.2 $1,121.4 $110.1 

Direct Employer Costs & Payroll Increases (Millions) 

From employers ........................................................................................................................... $2,437.0 $2,248.2 $184.1 

a Includes only state, local, and tribal governments. 

UMRA requires agencies to estimate 

the effect of a regulation on the national 

economy if, at its discretion, such 

estimates are reasonably feasible and the 

effect is relevant and material.465

However, OMB guidance on this 

requirement notes that such 

macroeconomic effects tend to be 

measurable in nationwide econometric 

models only if the economic effect of 

the regulation reaches 0.25 percent to 

0.5 percent of GDP, or in the range of 

$63.7 billion to $127.3 billion (using 

2022 GDP). A regulation with a smaller 

aggregate effect is not likely to have a 

measurable effect in macro-economic 

terms unless it is highly focused on a 

particular geographic region or 

economic sector, which is not the case 

with this proposed rule. 

The Department’s RIA estimates that 

the total first-year costs (direct employer 

costs and payroll increases from 

employers to workers) of the proposed 

rule would be approximately $2.2 

billion for private employers and $184.1 

million for state and local governments. 

Given OMB’s guidance, the Department 

has determined that a full macroeconomic analysis is not likely to show 

any measurable effect on the economy. 

Therefore, these costs are compared to 

payroll costs and revenue to 

demonstrate the feasibility of adapting 

to these new rules. 

Total first-year state and local 

government costs compose 0.02 percent 

of state and local government 

payrolls.466 First-year state and local 

government costs compose 0.004 

percent of state and local government 

revenues (projected 2022 revenues were 

estimated to be $4.8 trillion).467 Effects 

of this magnitude will not result in 

significant disruptions to typical state 

and local governments. The $184.1 

million in state and local government 

costs constitutes an average of 

approximately $2,000 for each of the 

approximately 90,126 state and local 

entities. The Department considers 

these costs to be quite small both in 

absolute terms and in relation to payroll 

and revenue. 

Total first-year private sector costs 

compose 0.029 percent of private sector 


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468Private sector payroll costs are projected to be 

$7.8 trillion in 2022 based on private sector payroll 

costs of $6.6 trillion in 2017, inflated to 2022 

dollars using the GDP deflator. 2017 Economic 

Census of the United States. 

469Private sector revenues in 2017 were $37.0 

trillion using the 2017 Economic Census of the 

United States. This was inflated to 2022 dollars 

using the GDP deflator. 

payrolls nationwide.468 Total private 

sector first-year costs compose 0.005 

percent of national private sector 

revenues (revenues in 2022 are 

projected to be $43.7 trillion).469 The 

Department concludes that effects of 

this magnitude are affordable and will 

not result in significant disruptions to 

typical firms in any of the major 

industry categories. 

C. Summary of State, Local, and Tribal 

Government Input 

The Department held a series of 

stakeholder listening sessions between 

March 8, 2022 and June 3, 2022 to 

gather input on its part 541 regulations. 

Stakeholders invited to participate in 

these listening sessions included 

representatives from labor unions; 

worker advocate groups; industry 

associations; small business 

associations; state and local 

governments; tribal governments; nonprofits; and representatives from 

specific industries such as K–12 

education, higher education, healthcare, 

retail, restaurant, manufacturing, and 

wholesale. Stakeholders were invited to 

share their input on issues including the 

appropriate EAP salary level, the costs 

and benefits of increasing the salary 

level to employers and employees, the 

methodology for updating the salary 

level and frequency of updates, and 

whether changes to the duties test are 

warranted. A listening session was held 

specifically for state and local 

governments on April 1, 2022, and a 

session for tribal governments was held 

on May 12, 2022. The input received at 

these listening sessions aided the 

Department in drafting its proposed 

rule. 

D. Least Burdensome Option or 

Explanation Required 

This proposed rule has described the 

Department’s consideration of various 

options throughout the preamble (see 

section IV.A.5) and economic impact 

analysis (see section VII.C.8). The 

Department believes that it has chosen 

the least burdensome but still costeffective methodology to update the 

salary level consistent with the 

Department’s statutory obligation to 

define and delimit the scope of the EAP 

exemption. Although some alternative 

options considered would set the 

standard salary level at a rate lower than 

the proposed level, that outcome would 

not necessarily be the most costeffective or least-burdensome. A salary 

level equal to or below the long test 

level would result 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, effectively placing the 

impact of the move from a two-test 

system to a one-test system on 

employees. 

Selecting a standard salary level in a 

one-test system inevitably affects the 

risk and cost of providing overtime 

protection to employees paid between 

the long and short test salary levels. Too 

low of a salary level shifts the impact of 

the move to a one-test system to 

employees by exempting lower-salaried 

employees who perform large amounts 

of nonexempt work. However, too high 

a salary level shifts the impact of the 

move to a one-test system to employers 

by denying them the use of the 

exemption for lower-salaried employees 

who traditionally were exempt under 

the long duties test, thereby increasing 

their labor costs. The Department 

determined that setting the standard 

salary level equivalent to the earnings of 

the 35th percentile of full-time salaried 

workers in the lowest-wage Census 

region and automatically updating it 

every three years to reflect current 

earnings appropriately accounts for the 

shift from a two-test to a one-test system 

for determining exemption status, 

protecting lower-paid white-collar 

employees who traditionally have been 

entitled to overtime protection, while 

allowing employers to use the 

exemption for EAP employees earning 

less than the short test salary level. 

The Department believes that the 

proposed rule could reduce burden on 

employers of nonexempt workers who 

earn between the current and proposed 

standard salary level. Currently, 

employers must rely on the duties test 

to determine the exemption status of 

these workers. But if this proposal is 

finalized, the exemption status of these 

workers will be determined based on 

the simpler salary level test. 

X. Executive Order 13132, Federalism 

The Department has reviewed this 

proposed rule in accordance with 

Executive Order 13132 regarding 

federalism and determined that it does 

not have federalism implications. The 

proposed rule would not have 

substantial direct effects on the States, 

on the relationship between the 

National Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. 

XI. Executive Order 13175, Indian 

Tribal Governments 

This proposed rule will not have 

tribal implications under Executive 

Order 13175 that would require a tribal 

summary impact statement. The 

proposed rule would not have 

substantial direct effects on one or more 

Indian tribes, on the relationship 

between the Federal Government and 

Indian tribes, or on the distribution of 

power and responsibilities between the 

Federal Government and Indian tribes. 

List of Subjects in 29 CFR Part 541 

Labor, Minimum wages, Overtime 

pay, Salaries, Teachers, Wages. 

For the reasons set out in the 

preamble, the Wage and Hour Division, 

Department, of Labor proposes to amend 

29 CFR part 541 as follows: 

PART 541—DEFINING AND 

DELIMITING THE EXEMPTIONS FOR 

EXECUTIVE, ADMINISTRATIVE, 

PROFESSIONAL, COMPUTER, AND 

OUTSIDE SALES EMPLOYEES 

■ 1. The authority citation for part 541 

is revised to read as follows: 

Authority: 29 U.S.C. 213; Pub. L. 101–583, 

104 Stat. 2871; Reorganization Plan No. 6 of 

1950 (3 CFR, 1945–53 Comp., p. 1004); 

Secretary’s Order 01–2014 (Dec. 19, 2014), 79 

FR 77527 (Dec. 24, 2014). 

■ 2. Add § 541.5 to read as follows: 

§ 541.5 Severability. 

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 provision must be 

construed so as to continue to give the 

maximum effect to the provision 

permitted by law, unless such holding 

be one of utter invalidity or 

unenforceability, in which event the 

provision will be severable from part 

541 and will not affect the remainder 

thereof. 

■ 3. Amend § 541.100, by revising 

paragraph (a)(1) to read as follows: 

§ 541.100 General rule for executive 

employees. 

(a) * * * 

(1) Compensated on a salary basis at 

not less than the level set forth in 

§ 541.600; 

* * * * * 

■ 4. Amend § 541.200, by revising 

paragraph (a)(1) to read as follows: 


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§ 541.200 General rule for administrative 

employees. 

(a) * * * 

(1) Compensated on a salary or fee 

basis at not less than the level set forth 

in § 541.600; 

* * * * * 

■ 5. Amend § 541.204, by revising 

paragraph (a)(1) to read as follows: 

§ 541.204 Educational establishments. 

(a) * * * 

(1) Compensated on a salary or fee 

basis at not less than the level set forth 

in § 541.600; or on a salary basis which 

is at least equal to the entrance salary 

for teachers in the educational 

establishment by which employed; and 

* * * * * 

■ 6. Amend § 541.300, by revising 

paragraph (a)(1) to read as follows: 

§ 541.300 General rule for professional 

employees. 

(a) * * * 

(1) Compensated on a salary or fee 

basis at not less than the level set forth 

in § 541.600; and 

* * * * * 

■ 7. Amend § 541.400, by revising the 

first sentence of paragraph (b) to read as 

follows: 

§ 541.400 General rule for computer 

employees. 

* * * * * 

(b) The section 13(a)(1) exemption 

applies to any computer employee who 

is compensated on a salary or fee basis 

at not less than the level set forth in 

§ 541.600. * * * 

* * * * * 

■ 8. Revise § 541.600 to read as follows: 

§ 541.600 Amount of salary required. 

(a) Standard salary level. (1) To 

qualify as an exempt executive, 

administrative, or professional 

employee under section 13(a)(1) of the 

Act, an employee must be compensated 

on a salary basis at a rate per week of 

not less than the standard salary level 

(the 35th percentile of weekly earnings 

of full-time nonhourly workers in the 

lowest-wage Census Region), unless 

employed in American Samoa as set 

forth in paragraph (b) of this section, 

exclusive of board, lodging, or other 

facilities. As of [EFFECTIVE DATE OF 

THE FINAL RULE], and until such time 

as the standard salary level is updated 

pursuant to § 541.607, the standard 

salary level is $1,059 per week. 

Administrative and professional 

employees may also be paid on a fee 

basis, as defined in § 541.605. 

(2) Beginning 3 years from the date 

the $1,059 per week salary level takes 

effect, and every 3 years thereafter, the 

Secretary will update the amount of the 

required standard salary level pursuant 

to § 541.607. 

(b) American Samoa. To qualify as an 

exempt executive, administrative, or 

professional employee under section 

13(a)(1) of the Act, an employee in 

American Samoa (except if employed by 

the Federal Government), must be 

compensated on a salary basis at a rate 

of not less than 84 percent of the 

standard salary level applicable under 

paragraph (a) of this section (e.g., $890 

per week when the standard salary level 

is $1,059), exclusive of board, lodging, 

or other facilities. Provided that 90 days 

after the highest industry minimum 

wage for American Samoa equals the 

minimum wage under section 6(a)(1) of 

the Act, exempt employees employed in 

all industries in American Samoa must 

be paid the full standard salary level set 

forth in paragraph (a) of this section, 

subject to the exceptions provided in 

paragraphs (d) through (f) of this 

section. Administrative and professional 

employees may also be paid on a fee 

basis, as defined in § 541.605. 

(c) Frequency of payment. The salary 

level requirement may be translated into 

equivalent amounts for periods longer 

than one week. For example, the $1,059 

per week requirement described in 

paragraph (a) of this section would be 

met if the employee is compensated 

biweekly on a salary basis of not less 

than $2,118, semimonthly on a salary 

basis of not less than $2,295, or monthly 

on a salary basis of not less than $4,589. 

However, the shortest period of 

payment that will meet this 

compensation requirement is one week. 

(d) Alternative salary level for 

academic administrative employees. In 

the case of academic administrative 

employees, the salary level requirement 

also may be met by compensation on a 

salary basis at a rate at least equal to the 

entrance salary for teachers in the 

educational establishment by which the 

employee is employed, as provided in 

§ 541.204(a)(1). 

(e) Hourly rate for computer 

employees. In the case of computer 

employees, the compensation 

requirement also may be met by 

compensation on an hourly basis at a 

rate not less than $27.63 an hour, as 

provided in § 541.400(b). 

(f) Exceptions to the standard salary 

criteria. In the case of professional 

employees, the compensation 

requirements in this section shall not 

apply to employees engaged as teachers 

(see § 541.303); employees who hold a 

valid license or certificate permitting 

the practice of law or medicine or any 

of their branches and are actually 

engaged in the practice thereof (see 

§ 541.304); or to employees who hold 

the requisite academic degree for the 

general practice of medicine and are 

engaged in an internship or resident 

program pursuant to the practice of the 

profession (see § 541.304). In the case of 

medical occupations, the exception 

from the salary or fee requirement does 

not apply to pharmacists, nurses, 

therapists, technologists, sanitarians, 

dietitians, social workers, psychologists, 

psychometrists, or other professions 

which service the medical profession. 

■ 9. Amend § 541.601 by: 

■ a. Adding introductory text to 

paragraph (a); 

■ b. Revising paragraph (a)(1); 

■ c. Revising paragraph (a)(2); 

■ d. Adding paragraph (a)(3); 

■ e. Revising the first sentence of 

paragraph (b)(1); and 

■ f. Revising the second, third, and 

fourth sentences of paragraph (b)(2). 

The revisions and additions read as 

follows: 

§ 541.601 Highly compensated employees. 

(a) An employee shall be exempt 

under section 13(a)(1) of the Act if: 

(1) The employee receives not less 

than the total annual compensation 

level (the annualized earnings amount 

of the 85th percentile of full-time 

nonhourly workers nationally), and the 

employee customarily and regularly 

performs any one or more of the exempt 

duties or responsibilities of an 

executive, administrative, or 

professional employee identified in 

subpart B, C, or D of this part. As of 

[EFFECTIVE DATE OF THE FINAL 

RULE], and until such time as the total 

annual compensation level is updated 

pursuant to § 541.607, such an 

employee must receive total annual 

compensation of at least $143,988. 

(2) Beginning 3 years from the date 

the $143,988 total annual compensation 

level takes effect, and every 3 years 

thereafter, the Secretary will update the 

required total annual compensation 

amount pursuant to § 541.607. 

(3) Where the annual period covers 

periods both prior to and after the 

$143,988 total annual compensation 

level takes effect, or the effective date of 

any future change to the total annual 

compensation requirement made 

pursuant to § 541.607, the amount of 

total annual compensation due will be 

determined on a proportional basis. 

(b)(1) Total annual compensation 

must include at least a weekly amount 

equal to that required by § 541.600(a) 

paid on a salary or fee basis as set forth 

in §§ 541.602 and 541.605, except that 

§ 541.602(a)(3) will not apply to highly 

compensated employees. * * * 

(2) * * * For example, for a 52-week 

period beginning [EFFECTIVE DATE OF 


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FINAL RULE], an employee may earn 

$120,000 in base salary, and the 

employer may anticipate based upon 

past sales that the employee also will 

earn $25,000 in commissions. However, 

due to poor sales in the final quarter of 

the year, the employee only earns 

$20,000 in commissions. In this 

situation, the employer may within one 

month after the end of the year make a 

payment of at least $3,988 to the 

employee. * * * 

* * * * * 

■ 10. Amend § 541.604 by: 

■ a. Revising the second, third, and 

fourth sentences of paragraph (a); and 

■ b. Revising the third sentence in 

paragraph (b). 

The revisions read as follows: 

§ 541.604 Minimum guarantee plus extras. 

(a) * * * Thus, for example, an 

exempt employee guaranteed at least 

$1,059 each week paid on a salary basis 

may also receive additional 

compensation of a one percent 

commission on sales. An exempt 

employee also may receive a percentage 

of the sales or profits of the employer if 

the employment arrangement also 

includes a guarantee of at least $1,059 

each week paid on a salary basis. 

Similarly, the exemption is not lost if an 

exempt employee who is guaranteed at 

least $1,059 each week paid on a salary 

basis also receives additional 

compensation based on hours worked 

for work beyond the normal workweek. 

* * * 

(b) * * * Thus, for example, an 

exempt employee guaranteed 

compensation of at least $1,125 for any 

week in which the employee performs 

any work, and who normally works four 

or five shifts each week, may be paid 

$325 per shift without violating the 

$1,059 per week salary basis 

requirement. * * * 

■ 11. Amend § 541.605 by revising the 

second sentence of paragraph (b) to read 

as follows: 

§ 541.605 Fee basis. 

* * * * * 

(b) * * * Thus, for example, an artist 

paid $550 for a picture that took 20 

hours to complete meets the $1,059 

minimum salary requirement for 

exemption since earnings at this rate 

would yield the artist $1,100 if 40 hours 

were worked. * * * 

■ 12. Add § 541.607 to read as follows: 

§ 541.607 Automatic updates to amounts 

of salary and compensation required. 

(a) Standard salary level. (1) 

Beginning 3 years from [EFFECTIVE 

DATE OF THE FINAL RULE], and every 

3 years thereafter, the amount required 

to be paid to an exempt employee on a 

salary or fee basis, as applicable, 

pursuant to § 541.600(a) will be updated 

to reflect current earnings data. 

(2) The Secretary will determine the 

lowest-wage Census Region for 

paragraph (a)(1) of this section using the 

35th percentile of weekly earnings of 

full-time nonhourly workers in the 

Census Regions based on data from the 

Current Population Survey as published 

by the Bureau of Labor Statistics. 

(b) Highly compensated employees. 

(1) Beginning 3 years from [EFFECTIVE 

DATE OF THE FINAL RULE], and every 

3 years thereafter, the amount required 

in total annual compensation for an 

exempt highly compensated employee 

pursuant to § 541.601 will be updated to 

reflect current earnings data. 

(2) The Secretary will use the 85th 

percentile of weekly earnings of fulltime nonhourly workers nationally 

based on data from the Current 

Population Survey as published by the 

Bureau of Labor Statistics for paragraph 

(b)(1) of this section. 

(c) Notice. (1) Not fewer than 150 days 

before each automatic update of 

earnings requirements under this 

section, the Secretary will publish a 

notice in the Federal Register stating 

the updated amounts required by 

paragraphs (a) and (b) of this section, 

which shall be determined by applying 

the methodologies set forth in those 

paragraphs to data from the four 

quarters preceding the notice as 

published by the Bureau of Labor 

Statistics. 

(2) No later than the effective date of 

the updated earnings requirements, the 

Wage and Hour Division will publish on 

its website the applicable earnings 

requirements for employees paid 

pursuant to this part. 

(d) Delay of updates. An automatic 

update to the earnings thresholds is 

delayed from taking effect for a period 

of 120 days if the Secretary has 

separately published a notice of 

proposed rulemaking in the Federal 

Register, not fewer than 150 days before 

the date the automatic update is set to 

take effect, proposing changes to the 

earnings threshold(s) and/or automatic 

updating mechanism. If the Secretary 

does not issue a final rule affecting the 

scheduled automatic update to the 

earnings thresholds by the end of the 

120-day extension, the updated amounts 

published in accordance with paragraph 

(c)(1) of this section will take effect 

upon the expiration of the 120-day 

period. The 120-day delay of a 

scheduled update under this paragraph 

will not change the effective dates for 

future automatic updates of the earnings 

requirements under this section. 

■ 13. Revise § 541.709 to read as 

follows: 

§ 541.709 Motion picture producing 

industry. 

(a) Base rate. The requirement that the 

employee be paid ‘‘on a salary basis’’ 

does not apply to an employee in the 

motion picture producing industry who 

is compensated at a base rate of at least 

$1,617 per week (exclusive of board, 

lodging, or other facilities), except as 

provided in paragraph (b) of this 

section. Thus, an employee in this 

industry who is otherwise exempt under 

subparts B, C, or D of this part, and who 

is employed at a base rate of at least the 

applicable current minimum amount a 

week is exempt if paid a proportionate 

amount (based on a week of not more 

than 6 days) for any week in which the 

employee does not work a full 

workweek for any reason. Moreover, an 

otherwise exempt employee in this 

industry qualifies for exemption if the 

employee is employed at a daily rate 

under the following circumstances: 

(1) The employee is in a job category 

for which a weekly base rate is not 

provided and the daily base rate would 

yield at least the minimum weekly 

amount if 6 days were worked; or 

(2) The employee is in a job category 

having the minimum weekly base rate 

and the daily base rate is at least onesixth of such weekly base rate. 

(b) Updating the base rate. Upon the 

date of each increase to the standard 

salary level pursuant to § 541.607, the 

base rate required to be paid to an 

exempt motion picture producing 

employee pursuant to this section will 

be updated from the previously 

applicable base rate, adjusted by the 

same percentage as the updated 

standard salary set by § 541.607(a), and 

rounded to the nearest multiple of 

$1.00. 

Julie A. Su, 

Acting Secretary, Department of Labor. 

[FR Doc. 2023–19032 Filed 9–7–23; 8:45 am] 

BILLING CODE 4510–27–P 


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