82 FR 34616 - Request for Information; Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

DEPARTMENT OF LABOR
Wage and Hour Division

Federal Register Volume 82, Issue 142 (July 26, 2017)

The Department of Labor (Department) is seeking information from the public regarding the regulations located at 29 CFR part 541, which define and delimit exemptions from the Fair Labor Standards Act's minimum wage and overtime requirements for certain executive, administrative, professional, outside sales and computer employees. The Department is publishing this Request for Information (RFI) to gather information to aid in formulating a proposal to revise the part 541 regulations.

[Federal Register Volume 82, Number 142 (Wednesday, July 26, 2017)]
[Proposed Rules]
[Pages 34616-34619]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-15666]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Part 541

RIN 1235-AA20


Request for Information; Defining and Delimiting the Exemptions 
for Executive, Administrative, Professional, Outside Sales and Computer 
Employees

AGENCY: Wage and Hour Division, U.S. Department of Labor.

ACTION: Request for information.

-----------------------------------------------------------------------

SUMMARY: The Department of Labor (Department) is seeking information 
from the public regarding the regulations located at 29 CFR part 541, 
which define and delimit exemptions from the Fair Labor Standards Act's 
minimum wage and overtime requirements for certain executive, 
administrative, professional, outside sales and computer employees. The 
Department is publishing this Request for Information (RFI) to gather 
information to aid in formulating a proposal to revise the part 541 
regulations.

DATES: Submit written comments on or before September 25, 2017.

ADDRESSES: To facilitate the receipt and processing of written comments 
on this RFI, the Department encourages interested persons to submit 
their comments electronically. You may submit comments, identified by 
Regulatory Information Number (RIN) 1235-AA20, by either of the 
following methods:
    Electronic Comments: Follow the instructions for submitting 
comments on the Federal eRulemaking Portal http://www.regulations.gov.
    Mail: Address written submissions to Melissa Smith, Director of the 
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: This RFI is available through the Federal Register 
and the http://www.regulations.gov Web site. You may also access this 
document via the Wage and Hour Division's (WHD) Web site at http://www.dol.gov/whd/. All comment submissions must include the agency name 
and Regulatory Information Number (RIN 1235-AA20) for this RFI. 
Response to this RFI is voluntary and respondents need not reply to all 
questions listed below. The Department requests that no business 
proprietary information, copyrighted information, or personally 
identifiable information be submitted in response to this RFI. Submit 
only one copy of your comment by only one method (e.g., persons 
submitting comments electronically are encouraged not to submit paper 
copies). Please be advised that comments received will become a matter 
of public record and will be posted without change to http://www.regulations.gov, including any personal information provided. All 
comments must be received by 11:59 p.m. on the date indicated for 
consideration in this RFI; comments received after the comment period 
closes will not be considered. Commenters should transmit comments 
early to ensure timely receipt prior to the close of the comment 
period. Electronic submission via http://www.regulations.gov enables 
prompt receipt of comments submitted as the Department continues to 
experience delays in the receipt of mail in our area. For access to the 
docket to read background documents or comments, go to the Federal 
eRulemaking Portal at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Melissa Smith, Director of the 
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). Copies of this RFI may be obtained in 
alternative formats (Large Print, Braille, Audio Tape or Disc), upon 
request, by calling (202) 693-0675 (this is not a toll-free number). 
TTY/TDD callers may dial toll-free 1 (877) 889-5627 to obtain 
information or request materials in alternative formats.
    Questions of interpretation and/or enforcement of the agency's 
regulations may be directed to the nearest 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 Web site at http://www.dol.gov/whd/america2.htm 
for a nationwide listing of WHD district and area offices.

SUPPLEMENTARY INFORMATION:

I. Background

    The Fair Labor Standards Act (FLSA or Act) generally requires 
covered employers to pay their employees at least the federal minimum 
wage (currently $7.25 an hour) for all hours worked, and overtime 
premium pay of not less than one and one-half times the employee's 
regular rate of pay for any hours worked over 40 in a workweek. See 29 
U.S.C. 206(a)(1)(C); 29 U.S.C. 207(a)(1). Section 13(a)(1) of the FLSA, 
however, exempts from both minimum wage and overtime protection ``any 
employee employed in a bona fide executive, administrative, or 
professional capacity'' and expressly delegates to the Secretary of 
Labor the power to define and delimit these terms through regulation. 
29 U.S.C. 213(a)(1). This exemption is frequently referred to as the 
``white collar'' exemption.
    For more than 75 years, the Department's part 541 regulations 
implementing the exemptions under Section 13(a)(1) of the Act have 
generally defined the terms ``bona fide executive, administrative, or 
professional capacity'' by the use of three criteria. With some 
exceptions, for an employee to be exempt: (1) The employee must be paid 
on a salary basis (``salary basis test''); (2) the employee must 
receive at least a minimum specified salary amount (``salary level 
test''); and (3) the employee's job must primarily involve executive, 
administrative, or professional duties as defined by the regulations 
(``duties test''). See 29 CFR part 541.
    The Department issued the initial part 541 regulations in October 
1938, slightly less than four months after the FLSA became law. 3 FR 
2518 (Oct. 20, 1938). These regulations established duties tests for 
executive, administrative, and professional employees, and also set a 
minimum compensation requirement of $30 per week for exempt executive 
and administrative employees. In 1940, the Department revised the part 
541 regulations, establishing the salary basis test, retaining a $30 
per week salary level for executive employees, and establishing a $50 
per week ($200 per month) salary level for administrative and 
professional employees. 5 FR 4077 (Oct. 15, 1940). The Department again 
amended the part 541 regulations nine years later, in 1949, 
establishing a two-tier structure for assessing compliance with the 
salary level and duties tests. 14 FR 7705, 7706 (Dec. 24, 1949). 
Employers could satisfy either a ``long'' test based on the previous 
test--combining a rigorous duties test and lower salary level--or a new 
``short'' test--combining an easier duties test

[[Page 34617]]

and a higher salary level. The long test duties requirement was more 
rigorous because it contained a bright-line, 20 percent limit on the 
amount of time an employee could spend performing non-exempt work.\1\ 
The short test duties requirement, in contrast, did not limit the 
amount of time an exempt employee could spend on non-exempt duties. The 
Department reasoned that employees who met this higher salary level 
would almost always meet the long test duties requirement--including 
the 20 percent limit on performing non-exempt work. 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) at 22-23.
---------------------------------------------------------------------------

    \1\ The Department had instituted a 20 percent cap on non-exempt 
work for executive and professional employees in 1940. See 5 FR 
4077; ``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) at 
14-15, 40. It added the cap for administrative employees in 1949. 
See 14 FR 7706. In 1961, when Congress expanded FLSA coverage for 
employees of retail and service establishments, it amended Section 
13(a)(1) to provide that exempt employees of such establishments 
could spend up to 40 percent of their hours worked performing non-
exempt work. See Pub. L. 87-30, 75 Stat. 65, Sec. 9 (May 5, 1961).
---------------------------------------------------------------------------

    For the next five decades, the Department retained the ``long'' and 
``short'' test structure for exemption. The Department updated the 
salary levels four times between 1958 and 1975. Beginning in 1958, the 
Department set the lower long test salary level to exclude from the 
exemption approximately the lowest paid ten percent of employees who 
passed the long test in low-wage regions, low-wage industries, small 
establishments, and small towns. See Report and Recommendations on 
Proposed Revision of Regulations, Part 541, Under the Fair Labor 
Standards Act, by Harry S. Kantor, Presiding Officer, Wage and Hour and 
Public Contracts Divisions, U.S. Department of Labor (Mar. 3, 1958) at 
6-7. The Department followed a similar methodology in 1963 and 1970, 
setting the salary at a level that excluded a small percentage of 
employees who satisfied the long test. See Tentative Decision on 
Proposed Rule Making Proceedings, 28 FR 7002, 7004 (July 9, 1963); 35 
FR 883, 884 (Jan. 22, 1970). In 1975, the Department set what were 
intended to be ``interim'' salary levels, adjusting the previous long 
test salary level for inflation. See 40 FR 7091 (Feb. 19, 1975). At 
each of these updates, the Department also set a short test salary 
level higher than the long test salary levels. 81 FR 32391, 32401 (May 
23, 2016).
    Nearly thirty years passed before the Department next updated the 
part 541 regulations in 2004. By this point the passage of time had 
eroded the lower long test salary levels below the amount a minimum 
wage employee earned for a 40-hour workweek, and even the higher short 
test salary levels were not far above the minimum wage. See 69 FR 
22122, 22164 (Apr. 23, 2004). Thus, as a practical matter, employers 
used the short test, with its less rigorous duties requirement, and the 
long test fell out of operation. In 2004, the Department eliminated the 
``long'' and ``short'' test structure and created a new ``standard'' 
test. Like the old short test duties requirement, the new standard 
duties test did not limit the amount of non-exempt work an exempt 
employee could perform. The Department paired the new standard duties 
test with a salary level test of $455 per week, which excluded from the 
exemption roughly the bottom 20 percent of salaried employees in the 
South and in the retail industry. The $455 per week salary level was 
equivalent to the lower salary level that would have resulted from the 
methodology the Department previously used to set the lower long test 
salary levels. Id. at 22168. In the same rulemaking, the Department 
also established a new test for ``highly compensated employees.'' Under 
this test, if an employee earned at least $100,000 a year he or she 
needed to satisfy only a very minimal duties test for exemption. Id. at 
222172-22174.
    Twelve years passed before the next update to the part 541 
regulations in 2016. One of the Department's primary goals in 
undertaking the 2016 rulemaking was to update the standard salary level 
test to reflect increases in actual salary levels nationwide since 2004 
and to adjust the standard salary level to fall within the historical 
range of the short test salary level in light of the absence of the 
more rigorous long test duties requirement. 81 FR 32399-32400. The 
Department set the standard salary at a level that would exclude from 
exemption the bottom 40 percent of salaried workers in the lowest-wage 
Census Region (currently the South), resulting in an increase from $455 
per week to $913 per week. Id. at 32405, 32408. No changes were made to 
the standard duties test. Id. at 32444. The Department also established 
a mechanism for automatically updating the salary level every three 
years to ensure it remained a meaningful test for helping determine an 
employee's exempt status. Id. at 32438.\2\ The Department published the 
2016 Final Rule on May 23, 2016, with an effective date of December 1, 
2016.
---------------------------------------------------------------------------

    \2\ The 2016 rule modified the part 541 regulations to, for the 
first time, permit nondiscretionary bonuses and incentive payments 
(including commissions) to satisfy up to 10 percent of the standard 
salary test. See 81 FR 32425-32426. The 2016 rule also increased the 
total annual compensation level for highly compensated employees to 
the annualized equivalent of the 90th percentile of the weekly 
earnings of full-time salaried workers nationwide and provides for 
it to be automatically updated every three years to maintain that 
level. Id. at 32429, 32443.
---------------------------------------------------------------------------

    Litigation challenging the 2016 Final Rule is currently pending 
before the Fifth Circuit Court of Appeals and in the U.S. District 
Court for the Eastern District of Texas. By district court order, the 
Department is enjoined from implementing and enforcing the Final Rule. 
See Nevada, et al., v. U.S. Dep't of Labor, et al., 218 F. Supp. 3d 
520, 534 (E.D. Tex. 2016), appeal pending, No. 16-41606 (5th Cir.). The 
pending appeal of that order concerns the reasoning of the District 
Court which would call into question the Department's authority to 
utilize a salary level test in determining the exempt status of 
executive, administrative, and professional employees. The Department 
of Justice, on behalf of the Department, is arguing that 29 U.S.C. 
213(a)(1) provides the Secretary of Labor authority to establish a 
salary level test. As stated in our reply brief filed with the Fifth 
Circuit, the Department has decided not to advocate for the specific 
salary level ($913 per week) set in the 2016 Final Rule at this time 
and intends to undertake further rulemaking to determine what the 
salary level should be. In light of the pending litigation, the 
Department has decided to issue this RFI rather than proceed 
immediately to a notice of proposed rulemaking (NPRM). The Department 
believes that gathering public input on the questions below will 
greatly aid in the development of an NPRM and help us move forward with 
rulemaking in a timely manner.

II. Promoting the Regulatory Reform Agenda

    On February 24, 2017, President Donald Trump signed Executive Order 
13777, ``Enforcing the Regulatory Reform Agenda.'' In relevant part, 
Sec. 3(d) of the Order tasks federal agencies to identify regulations 
for repeal, replacement, or modification that:
    (i) eliminate jobs, or inhibit job creation;
    (ii) are outdated, unnecessary, or ineffective;
    (iii) impose costs that exceed benefits;

[[Page 34618]]

    (iv) create a serious inconsistency or otherwise interfere with 
regulatory reform initiatives and policies;
    (v) are inconsistent with the requirements of section 515 of the 
Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 
3516 note), or the guidance issued pursuant to that provision, in 
particular those regulations that rely in whole or in part on data, 
information, or methods that are not publicly available or that are 
insufficiently transparent to meet the standard for reproducibility; or
    (vi) derive from or implement Executive Orders or other 
Presidential directives that have been subsequently rescinded or 
substantially modified.
    Consistent with Executive Order 13777, the Department is reviewing 
the impact of the 2016 Final Rule's changes to the part 541 regulations 
with a focus on lowering regulatory burden. This RFI will assist the 
Department's Regulatory Reform Task Force in evaluating the 2016 Final 
Rule.

III. Request for Public Comment

    The Department is aware of stakeholder concerns that the standard 
salary level set in the 2016 Final Rule was too high. In particular, 
stakeholders have expressed the concern that the new salary level 
inappropriately excludes from exemption too many workers who pass the 
standard duties test, especially given the lack of a lower long test 
salary for employers to utilize for lower wage white collar employees. 
In the 2016 Final Rule the Department estimated that 4.2 million 
salaried white collar workers would, without some intervening action by 
their employers, change from exempt to non-exempt status. See 81 FR 
32393. Concerns expressed by various stakeholders after publication of 
the 2016 Final Rule that the salary level would adversely impact low-
wage regions and industries have further shown that additional 
rulemaking is appropriate. The Department is publishing this RFI to 
gather information to aid in formulating a proposal to revise the part 
541 regulations.
    The Department invites comments on the 2016 revisions to the white 
collar exemption regulations, including whether the standard salary 
level set in that rule effectively identifies employees who may be 
exempt, whether a different salary level would more appropriately 
identify such employees, the basis for setting a different salary 
level, and why a different salary level would be more appropriate or 
effective. In particular, the Department seeks comment on and 
information relating to the following questions:
    1. In 2004 the Department set the standard salary level at $455 per 
week, which excluded from the exemption roughly the bottom 20 percent 
of salaried employees in the South and in the retail industry. Would 
updating the 2004 salary level for inflation be an appropriate basis 
for setting the standard salary level and, if so, what measure of 
inflation should be used? Alternatively, would applying the 2004 
methodology to current salary data (South and retail industry) be an 
appropriate basis for setting the salary level? Would setting the 
salary level using either of these methods require changes to the 
standard duties test and, if so, what change(s) should be made?
    2. Should the regulations contain multiple standard salary levels? 
If so, how should these levels be set: by size of employer, census 
region, census division, state, metropolitan statistical area, or some 
other method? For example, should the regulations set multiple salary 
levels using a percentage based adjustment like that used by the 
federal government in the General Schedule Locality Areas to adjust for 
the varying cost-of-living across different parts of the United States? 
What would the impact of multiple standard salary levels be on 
particular regions or industries, and on employers with locations in 
more than one state?
    3. Should the Department set different standard salary levels for 
the executive, administrative and professional exemptions as it did 
prior to 2004 and, if so, should there be a lower salary for executive 
and administrative employees as was done from 1963 until the 2004 
rulemaking? What would the impact be on employers and employees?
    4. In the 2016 Final Rule the Department discussed in detail the 
pre-2004 long and short test salary levels. To be an effective measure 
for determining exemption status, should the standard salary level be 
set within the historical range of the short test salary level, at the 
long test salary level, between the short and long test salary levels, 
or should it be based on some other methodology? Would a standard 
salary level based on each of these methodologies work effectively with 
the standard duties test or would changes to the duties test be needed?
    5. Does the standard salary level set in the 2016 Final Rule work 
effectively with the standard duties test or, instead, does it in 
effect eclipse the role of the duties test in determining exemption 
status? At what salary level does the duties test no longer fulfill its 
historical role in determining exempt status?
    6. To what extent did employers, in anticipation of the 2016 Final 
Rule's effective date on December 1, 2016, increase salaries of exempt 
employees in order to retain their exempt status, decrease newly non-
exempt employees' hours or change their implicit hourly rates so that 
the total amount paid would remain the same, convert worker pay from 
salaries to hourly wages, or make changes to workplace policies either 
to limit employee flexibility to work after normal work hours or to 
track work performed during those times? Where these or other changes 
occurred, what has been the impact (both economic and non-economic) on 
the workplace for employers and employees? Did small businesses or 
other small entities encounter any unique challenges in preparing for 
the 2016 Final Rule's effective date? Did employers make any additional 
changes, such as reverting salaries of exempt employees to their prior 
(pre-rule) levels, after the preliminary injunction was issued?
    7. Would a test for exemption that relies solely on the duties 
performed by the employee without regard to the amount of salary paid 
by the employer be preferable to the current standard test? If so, what 
elements would be necessary in a duties-only test and would examination 
of the amount of non-exempt work performed be required?
    8. Does the salary level set in the 2016 Final Rule exclude from 
exemption particular occupations that have traditionally been covered 
by the exemption and, if so, what are those occupations? Do employees 
in those occupations perform more than 20 percent or 40 percent non-
exempt work per week?
    9. The 2016 Final Rule for the first time permitted non-
discretionary bonuses and incentive payments (including commissions) to 
satisfy up to 10 percent of the standard salary level. Is this an 
appropriate limit or should the regulations feature a different 
percentage cap? Is the amount of the standard salary level relevant in 
determining whether and to what extent such bonus payments should be 
credited?
    10. Should there be multiple total annual compensation levels for 
the highly compensated employee exemption? If so, how should they be 
set: by size of employer, census region, census division, state, 
metropolitan statistical area, or some other method? For example, 
should the regulations set multiple total annual compensation levels 
using a percentage based adjustment like that used by the federal

[[Page 34619]]

government in the General Schedule Locality Areas to adjust for the 
varying cost-of-living across different parts of the United States? 
What would the impact of multiple total annual compensation levels be 
on particular regions or industries?
    11. Should the standard salary level and the highly compensated 
employee total annual compensation level be automatically updated on a 
periodic basis to ensure that they remain effective, in combination 
with their respective duties tests, at identifying exempt employees? If 
so, what mechanism should be used for the automatic update, should 
automatic updates be delayed during periods of negative economic 
growth, and what should the time period be between updates to reflect 
long term economic conditions?

IV. Conclusion

    The Department invites interested parties to submit comments during 
the public comment period and welcomes any pertinent information that 
will provide a basis for reviewing the 2016 Final Rule.

    Signed at Washington, DC, this 21st day of July 2017.
Patricia Davidson,
Deputy Administrator for Program Operations, Wage and Hour Division.
[FR Doc. 2017-15666 Filed 7-25-17; 8:45 am]
 BILLING CODE 4510-27-P