The U.S. Department of Labor has announced a notice of proposed rulemaking that would restore and extend certain pay and overtime protections to executive, administrative, professional, outside sales, and computer employees. The changes don’t provide an exemption for the DOL’s definition of small businesses and could potentially have an impact on repair shops’ bottom lines.

If approved, the DOL says 3.6 million salaried workers would be affected by the proposed rule, which makes changes to the Fair Labor Standards Act (FLSA). According to the U.S. Bureau of Labor Statistics, the median weekly earnings of the nation’s 121.5 million full-time wage and salary workers was $1,100 in Q2 2023.

Generally, the FLSA and the proposed rule apply to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more and certain other businesses, according to the DOL.

The proposed rule seeks to guarantee overtime pay for most salaried workers who earn less than $1,059 per week, or about $55,068 per year. Raising the standard salary level to that amount increases it from the current $684 per week, or $$35,568 annually. The salary level is the 35th percentile of full-time salaried workers’ weekly earnings in the lowest-wage census region, which is the South.

An increase would also be made to the highest-earning workers’ annual earnings of $100,000, changing it to $143,988, which is the annualized weekly earnings of the 85th percentile of full-time salaried workers nationwide, according to the DOL.

That threshold amount would be “high enough to exclude employees who are not ‘at the very top of [the] economic ladder’ and would guard against the unintended exemption of workers who are not bona fide EAP employees, including those in high-income regions and industries,” the DOL says in the proposed rule.

The minimum wage and overtime pay exemptions in question are also known as “white-collar” or “EAP” exemptions. Currently, to qualify for EAP exemptions, employees must meet a standard job duties test and be paid on a salary basis at not less than $684 per week, which has been in effect since Jan. 1, 2020. The proposed rule would still include job duties tests.

Since 1940, the DOL says regulations implementing the EAP exemption have generally required that each of three tests must be met:

• • “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);
  • “The amount of salary paid must meet a minimum specified amount (the salary level test); and
  • “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 EAP exemption which job titles and descriptions do not determine.

The DOL calls the current federal rules “outdated and out-of-sync” for what it considers to be low-paid salaried employees who “work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week.”

The department says it has spent months reaching out to employers, workers, unions, and others including holding 27 listening sessions with more than 2,000 participants.

The proposed rule includes adding an automatic updating mechanism that would allow for “the timely and efficient updating of all the earnings thresholds” every three years to reflect current earnings data.

An economic analysis of the proposed rule considered regulatory familiarization, adjustment, and managerial costs. Those direct employer costs would come to $664 million during the first 10 years with a 7% discount rate.

This rule would also give employees higher earnings via transfers of income from employers to employees. The DOL estimates annualized transfers would be $1.3 billion, with a 7% discount rate.

“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,” the proposed rule reads.

“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… An employer may employ such employees for any number of hours in the workweek without paying the minimum hourly wage or an overtime premium.”

The DOL notes that some states have stricter exemption standards than those found in the FLSA and that the FLSA doesn’t trump those standards.

A 2016 proposed rule would have restored overtime protection to lower-paid white-collar workers who performed significant amounts of nonexempt work but also removed from the exemption other lower-paid workers who historically were exempt under the prior test, the DOL says. It was invalidated in the U.S. District Court for the Eastern District of Texas in Nevada v. U.S. Department of Labor.

In a separate 2015 California case, dealership service advisors argued that, under the FSLA, they deserved overtime backpay. The United States Court of Appeals for the Ninth Circuit ruled in 2018 that service advisors are exempt from the overtime rule in addition to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles,” as had already been established by the FSLA.

Once published in the Federal Register, the DOL’s current notice of proposed rulemaking will be open for public comment for 60 days. The department will consider all comments received before publishing a final rule.

“By better identifying which employees are executive, administrative, or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week,” the DOL said in a news release.

Principal Deputy Wage and Hour Division Administrator Jessica Looman added, “We are committed to ensuring that all workers are paid fairly for their hard work. For too long, many low-paid salaried workers have been denied overtime pay, even though they often work long hours and perform much of the same work as their hourly counterparts. This proposed rule would ensure that more workers receive extra pay when they work long hours. Public input is essential as we consider the needs of today’s workforce and industry demands, and we encourage continued stakeholder input during the public comment period.”

The DOL’s proposed rule would also ensure workers in the U.S. territories subject to the federal minimum wage have the same overtime protections as other U.S. workers.

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