Bona fide administrative, executive, professional, and computer-related professional employees, as well as outside sales employees, are exempt "white collar" employees under the Fair Labor Standards Act (FLSA). This means they are not covered by the minimum wage, overtime, and certain recordkeeping requirements of the law. The tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. The determination also depends on:
- The employee's primary duty;
- The employee's level of discretionary authority; and
- Whether a minimum salary requirement is met.
Rules Provide for Salary and Duties Tests
In 2004, the U.S. Department of Labor (DOL) Wage and Hour Division finalized sweeping changes to the regulations defining who is exempt as a "white collar" employee. The regulations updated salary levels used in determining exempt status for the first time since 1975, while the duties tests received their first overhaul since 1949.
The 2004 regulations provided that, in general, any employee earning less than $455 a week ($23,660 a year) is a nonexempt employee entitled to overtime pay, whether he or she is paid on an hourly or salary basis. Employees paid a salary above that level have to meet a duties test in order to be classified as an exempt executive, administrative, or professional employee. Employees paid at least $100,000 a year have to meet only one prong of the duties tests to qualify as exempt.
In September 2019, the DOL released final rules to increase the minimum salary level from $455 to $684 per week beginning in 2020. Employees paid a salary above that level still have to meet a duties test to be classified as an exempt executive, administrative, or professional employee. The final rules also increase the amount highly compensated employees (HCEs) must be paid from $100,000 to $107,432 a year. These are the current regulations.
In August 2023, the DOL announced a notice of proposed rulemaking (NPRM) to increase the minimum salary level from $684 to $1,059 per week (or from $35,568 per year to $55,068 per year).
Highlights From the 2023 NPRM
The following items are only proposed. If finalized, the NPRM would:
- Increase the salary requirement for highly compensated employees (HCEs) from $107,432 to $143,988 per year (the equivalent of the 85th percentile of weekly earnings of full-time salaried workers nationally).
- Return the salary level in the four U.S. territories subject to the federal minimum wage – Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands (CNMI) – to apply the same standard salary level as the rest of the United States.
- Update the special salary levels for American Samoa to $890 per week (the equivalent of 84% of the standard salary level).
- Update the special weekly base rate for the motion picture industry to $1,617 per week (or a proportionate amount based on the number of days worked).
- Propose a new mechanism to automatically update the standard salary level and the HCE total annual compensation threshold every 3 years. The DOL proposes to increase the standard salary level to match the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
The proposed rule would not make any changes to the duties test. It would also not propose any changes to how bonuses are counted toward the salary level requirement. If the salary level is finalized as proposed, employers could still satisfy up to 10% 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.