Department of Labor, Wage and Hour Division: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

B-331452

October 10, 2019

The Honorable Lamar Alexander
Chairman
The Honorable Patty Murray
Ranking Member
Committee on Health, Education, Labor, and Pensions
United States Senate

The Honorable Bobby Scott
Chairman
The Honorable Virginia Foxx
Ranking Member
Committee on Education and Labor
House of Representatives

Subject: Department of Labor, Wage and Hour Division: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Department of Labor, Wage and Hour Division (the Department) entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees” (RIN: 1235-AA20).  We received the rule on September 27, 2019.  It was published in the Federal Register as a final rule on September 27, 2019.  84 Fed. Reg. 51230.  The effective date of the rule is January 1, 2020.

The final rule is an update and revision of the regulations issued under the Fair Labor Standards Act (FLSA) that implements the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees.  29 U.S.C. 213(a)(1).  FLSA generally 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 regular rate of pay.  Employees in a bona fide executive, administrative, or professional capacity, however, are exempt from the minimum wage and overtime pay requirements.  This final rule uses the salary level test to define the exemption on the basis that employees paid less than the salary level are unlikely to be bona fide executive, administrative, or professional employees.  The rule rescinds the 2016 standard salary level and sets a new level at $684 per week with special rates for United States territories.  This rule contains provisions on nondiscretionary bonuses and incentive payments.  The rule also contains provisions that set the highly compensated employee annual compensation amount.

Enclosed is our assessment of the Department’s compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.  If you have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter of the rule, please contact Janet Temko-Blinder, Assistant General Counsel, at (202) 512-7104.

  signed

Shirley A. Jones

Managing Associate General Counsel

Enclosure

cc: Robert Waterman
Compliance Specialist
Wage and Hour Division
Department of Labor

ENCLOSURE

REPORT UNDER 5 U.S.C. § 801(a)(2)(A) ON A MAJOR RULE
ISSUED BY THE
Department of LABOR,
WAGE AND HOUR DIVISION
ENTITLED
“Defining and Delimiting the Exemptions for
Executive, Administrative, Professional,
Outside Sales and Computer Employees”
(RIN: 1235-AA20)

(i) Cost-benefit analysis

The Department of Labor (the Department) estimated the number of affected workers and quantified costs and transfer payments associated with this final rule, using the currently-enforced 2004 salary level as the baseline.  The Department stated that the total annualized direct employer costs over the first 10 years were estimated to be $173.3 million, assuming a 7 percent discount rate, and to be $164 million, assuming a 3 percent discount rate.  The Department also estimates that annualized transfers from employers to employees in the form of wages will be $298.8 million.  Regarding highly compensated employees (HCE), the Department estimates that 101,800 workers will be affected by the increase in the HCE compensation test from $100,000 per year to $107,432 per year.

The Department states that most critically it estimates that 1.2 million workers who would otherwise be exempt under the currently-enforced standard salary level will either become eligible for overtime or have their salary increased.  The Department states further that the 4.1 million workers paid between $455 and $684 per week who fail the standard duties test and will remain nonexempt will have their overtime eligibility made clearer because their salary will fall below the specified threshold.

(ii) Agency actions relevant to the Regulatory Flexibility Act (RFA), 5 U.S.C. §§ 603-605, 607, and 609

The Department prepared an RFA analysis.  The analysis included (1) a statement of the need for and objective of the rule; (2) a description of the agency’s response to public comments, (3) a comment by the Chief Counsel for Advocacy of the Small Business Administration; (4) a description of the small entities subject to the rule; (5) projected reporting, recordkeeping, and other compliance requirements; and (6) a description of agency actions to minimize effects of small entities.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. §§ 1532-1535

The Department determined that this final rule would result in increased expenditures by the private sector of more than $165 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 $165 million or more in any one year.  The Department found that this rule will result in year 1 costs for state and local governments totaling $52.1 million, of which $21.7 million are direct employer costs and $30.4 million are payroll increases.  The Department also determined that the final rule will result in year 1 costs to the private sector of approximately $887.0 million, of which $521.0 million are direct employer costs and $366.0 million are payroll increases.  Because the Department determined total first-year private sector costs of this rule compose 0.013 percent of private sector payrolls nationwide and total private sector first-year costs of this rule compose 0.002 percent of national private sector revenues, the Department concluded that effects of this magnitude are affordable and will not result in significant disruptions to typical firms in any of the major industry categories.  Lastly, the Department believes that it has chosen the least burdensome but still cost-effective methodology to update the salary level consistent with the Department’s statutory obligation.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551et seq.

On March 22, 2019, the Department published a proposed rule.  84 Fed. Reg. 10900.  The Department received more than 116,000 timely comments on the Notice of Proposed Rulemaking during the 60-day comment period that ended on May 21, 2019.  The Department states that it carefully considered the timely submitted comments addressing the proposed changes.  However, the Department states that it did not consider misfiled comments and did not address issues raised in comments that are beyond the scope of this rulemaking.

Paperwork Reduction Act (PRA), 44 U.S.C. §§ 3501-3520

The Department stated this final rule does not impose new information collection requirements (ICR); rather, burdens under existing requirements are expected to increase as more employees receive minimum wage and overtime protections due to the proposed increase in the salary level requirement.  The first ICR is entitled “Records to be Kept by Employers—Fair Labor Standards Act” (OMB Control Number 1235-0018).  The Department estimated that it will have an annual number of 5,621,961 respondents with a total annual burden of 3,625,986 hours.  The second ICR is entitled “Employment Information Form” (OMB Control Number 1235-0021).  The Department estimated that it will have an annual number of 36,278 respondents with a total annual burden of 12,155 hours.

Statutory authorization for the rule

The Department promulgated this final rule pursuant to section 213 of title 29, United States Code, and Public Law 101-583.  The Department also cited the authority the Reorganization Plan No. 6 of 1950 and the Secretary’s Order 01-2014.  15 Fed. Reg. 3174 (May 25, 1950); 79 Fed. Reg. 77527 (Dec. 24, 2014).

Executive Order No. 12,866 (Regulatory Planning and Review)

The Department determined that this final rule is economically significant under the Order.

Executive Order No. 13,132 (Federalism)

The Department determined that this final rule does not have federalism implications.