The Biden DOL published a new rule last week that, as of January 1, 2025, will require every salaried employee earning an annual salary below $58,656 to be paid overtime for working more than 40 hours per week -- regardless of job duties – with increases planned every three years thereafter.
According to Indeed.com, the average annual salary for a store manager in my state of Tennessee is $55,708. In Nevada, it’s $41,109. Wyoming, $50,246. Mississippi, $52,779. Texas, $54,834. Even in Illinois, the average salary of a store manager is $57,908.
This is not the first time that a Democratic-led DOL has tried to set such an outrageously high salary level. In 2016, the Obama Administration adopted regulations setting the minimum annual salary at $47,892, using a metric of the 40th percentile of salaries in the South Census Region. A Texas District Court invalidated that rule as contrary with the Fair Labor Standards Act, which sets the requirements for overtime and the exemptions from overtime.
Although DOL’s regulations on the white-collar exemptions (for executive, administrative and professional employees) have included a minimum salary level since 1938, that level in DOL’s own words was intended to “screen out” employees who “obviously” did not perform white-collar job duties. The Texas court in 2016 found that the 40th percentile salary level acted to automatically exclude from the exemption 4.2 million employees who performed white-collar duties – something the FLSA does not allow. In reaction, in 2019, DOL reset the minimum salary level to $35,568 using the 20th percentile of salaries in the South Census Region as was used in 2004.
The DOL’s new rule sets the salary level at the 35th percentile – 5 points lower than the Obama rule which was invalidated. So, that must be just fine, right? Wrong. DOL admits in Figure A of the preamble supporting the new rule that 7.7 million employees earn between the current $35,568 and the new $58,656. That’s 7.7 million employees who will, for the first time, be denied the exemption based solely on their salary level – 3.5 million more employees than the Texas court found unacceptable.
The debate on the appropriate salary level has been hot for the last 20 years when in 2004, as the Bush Administration’s Wage & Hour Administrator, I increased the minimum salary level from $8,060 set in 1975 to $23,660 using a 20th percentile metric. Why the debate? Because, unlike the minimum wage, the FLSA does not include a minimum salary level for the white-collar exemption. Congress has never set a minimum salary level for the exemption. Rather, the FLSA statute states only that “any employee employed in a bona fide executive, administrative, or professional capacity” need not be paid overtime. The salary requirement? The DOL made that up. Yes, in 1938. But only three courts have arguably validated the salary requirement, two in 1944 and one in 1966 – all three cases based solely on an amazing level of deference to DOL but decades before the Supreme Court’s 1984 Chevron decision. Chevron provides less deference to DOL than did the three decisions upholding a minimum salary for exemption, and even the Chevron level of deference is currently under review at the Supreme Court and may soon be reduced.
Like a bad movie sequel, litigation challenging the new $58,656 minimum salary level is certain. In 2016, the Texas court found that automatically excluding 4.2 million employees from the exemption based on salary alone was too many under the DOL’s own 1938 standard of excluding only the “obviously” non-exempt. DOL is now excluding 7.7 million employees. Are you the only exempt manager of a fast-food restaurant, supervising 20 employees, earning a $50,000 salary? Sorry, in January, you must be reclassified from exempt to non-exempt like all the employees you supervise.
This time around, though, the DOL may have a bigger problem than just setting the minimum salary level too high. This time, the regulated community is questioning whether the DOL has the authority under the FLSA to set any minimum salary at all. In the Supreme Court’s 2023 Helix Energy case, Justice Kavanaugh started the ball rolling, stating in his dissenting opinion, “it is questionable whether the Department’s regulations—which look not only at an employee’s duties but also at how much an employee is paid and how an employee is paid—will survive if and when the regulations are challenged as inconsistent with the Act.”
The time for that challenge is now.
Tammy McCutchen served as the Wage & Hour Administrator at DOL under President George W. Bush and filed comments with the DOL opposing this rule for the American First Policy Institute.
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