By: Dan Cohen – 7/2/15
On June 29, 2015, The Department of Labor announced its proposal to more than double the salary level for the “white collar” overtime exemptions from $23,660/year to $50,440/year ($970/week). By most accounts, this will result in millions of additional employees becoming eligible for overtime pay. The white collar overtime exemptions include the executive, administrative and professional exemptions under the Fair Labor Standards Act (“FLSA”). The DOL last revised its overtime regulations in 2004 when it raised the salary level from $8060 established in 1975 to $23,660. As part of the 2004 Regulations, the DOL created a highly compensated executive exemption for those earning $100,000. Under its latest proposal, the threshold for the highly compensated executive exemption would jump to $122,148. The proposal also includes an annual bump up of the salary level. Whether this annual adjustment will be tied to inflation is yet to be determined.
Under the white collar exemptions, there are three tests: the salary basis, salary level and duties tests. For the exemption to apply, each of the three tests must be satisfied. The June 29th announcement only affects the “salary level” component. For now, there have not yet been any proposals on the salary basis or duties tests. However, the DOL has indicated that it is seeking comment on whether the standard duties tests are working. This does not sound too encouraging. In fact, my guess is that there will be a push to undo some of the 2004 changes in the duties test that then-Democratic Presidential candidate John Kerry claimed would strip 6 million workers of the right to receive overtime pay. See e.g. http://www.nytimes.com/2004/08/23/us/controversial-overtime-rules-take-effect.html.
While I will be the first one to admit that the $23,660 threshold was too low, more than doubling the threshold is probably too much, particularly since the economy has not recovered nearly as much as President Obama would like to think. One group that will be impacted by a $50,000 salary level are “supervisors” under the “executive” exemption. Supervisors in the fast food and retail industries typically do not make $50,000 and often work significant amounts of overtime. Retail businesses work on notoriously slim margins while competing against internet sales and a substantial increase could easily tip the scales of survival for some. Small business will feel the economic pain of a $50,000 salary threshold as well. The arguments against are similar to the arguments against significant increases in the minimum wage that have been championed by this administration as well. Will this be a job killer? For some, perhaps. Will this lead to widespread use of kiosks in fast food restaurants? Maybe. What we do know for sure, however, is that this will transfer wealth from the job creators to employees. the DOL does not hide this undeniable fact:
“In addition to the direct costs, this proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used” http://www.dol.gov/whd/overtime/NPRM2015/faq.htm.
The proposed changes will be open for public comment and could take months to finalize. They can be enacted through regulation, without approval by the Republican-led Congress. However, Congress has the right to introduce legislation that could slow the process down even more.