In the Department of Labor’s (DOL’s) latest effort to mimic those Servpro ads about making “like it never ever happened,” the agency has now proposed a new overtime regulation to undo the previous regulation issued by the Trump DOL. The new proposed regulation, published on September 7, will raise the salary threshold, below which an employee is non-exempt (or eligible to earn overtime) by more than 50% from the current $35,568/year ($684/week) to $55,068/year ($1,059/week). The proposed rule also includes an automatic escalator clause to reset it every three years.
For an employee to be exempt from being paid overtime (i.e., not eligible) they must:
1) be paid a salary;
2) be paid a salary above a specified threshold; and
3) meet the defined duties of the specific exemption such as executive, administrative, or professional (often referred to as EAP, or white collar exemptions).
Non-exempt employees must be paid time and a half for any time worked past 40 hours a week.
This means that increasing the salary threshold will force employers to either increase an employee’s salary to maintain their exempt status or reclassify that employee to being on the clock and non-exempt. Note that being eligible to earn overtime does not guarantee that the employee will actually earn any extra compensation through overtime. Instead, employers tend to manage these employees’ hours very closely to keep at or below 40 hours per week.
Setting the salary threshold has become something of a political football, with the last four presidential administrations putting in place what they thought was the correct threshold. Most notably, the Obama DOL proposed a salary threshold over $50,000 which was pared back to a little over $47,000 in the final regulation. Even so this was still more than double the $23,600 that had been in place since the Bush administration. That Obama regulation (which also included a three year automatic escalator clause) was struck down by a federal judge in a challenge led by the U.S. Chamber, meaning that the salary threshold reverted to the status quo ante, $23,600. The Trump DOL then finalized a regulation which increased the salary threshold more reasonably to the current level of a little more than $35,000, which went into effect on January 1, 2020, about three and a half years ago.
One common refrain heard back during the Obama rulemaking was how workers who would become non-exempt did not want to give up their salaried status and become hourly employees punching a time clock. They enjoyed the flexibility and professional status that being paid on a salary basis provided. That same complaint certainly applies today, perhaps even more so given the prevalence of flexible working arrangements in the post-covid world. To reclassify some of these employees and put them on the clock will jeopardize their ability to work remotely, which has been a boon to many workers and their ability to juggle personal responsibilities such as child care with their professional obligations.
Additional changes in the economy make the proposed boost in the salary threshold even more problematic. Employers continue to struggle to find enough employees and have to pay higher wages as a result. Increasing the cost of labor even further through this regulation will add to their burdens and will be felt particularly severely among small businesses, and charitable nonprofits who can’t just increase prices because they are dependent on contributions to maintain operations. During the Obama rulemaking Operation Smile, which provides cleft palate surgeries to children in impoverished nations, estimated it would have to reduce the number of operations it performed by more than 4,000 per year because of the increase in the salary threshold.
In what universe is a regulation that limits worker employee flexibility, raises costs, and forces charities to cut back on their operations a good idea?
As if jacking up the salary threshold more than 50% was not enough, the proposed regulation includes a caveat in a footnote (a footnote!) that says DOL expects to use the latest data when implementing the final regulation and projects the threshold to go as high as $60,000 by that time. This is a clear “bait and switch”—propose one threshold but signal that you’ll implement another.
Finally, the proposed regulation also includes a “severability clause” that purports to preserve the rest of the regulation if one part (or parts) is struck down by a court. This is a relatively rare concept for a regulation as agencies cannot dictate to courts how a regulation will be treated if challenged. Severability clauses appear in legislation frequently as Congress does have authority to preserve legislative provisions. DOL is not Congress. The only way to read this is as an admission by DOL that the automatic escalator clause is vulnerable because the Fair Labor Standards Act does not give the Secretary the authority to put the salary threshold on auto pilot. DOL is simply trying to make sure that if the escalator is struck down, the underlying threshold increase will be retained.
The Chamber believes the automatic escalator clauses is vulnerable, but DOL is in no position to tell a court how to treat the remaining provisions.
Comments on the proposed regulation are due November 7, unless an extension is granted. Rest assured, DOL will have a lot of reading to do on that date.
About the authors
Marc Freedman is vice president of employment policy at the U.S. Chamber of Commerce. He is responsible for developing and advocating the Chamber’s response to OSHA matters, the Employee Free Choice Act, the Family and Medical Leave Act and mandated leave issues, and other labor and workplace issues.