Amount of Overtime Threshold Salary Increase Contested

A group of senators and a research group in the past week urged the Labor Department to more than double the weekly salary threshold for exempting employees from overtime premiums of the Fair Labor Standards Act, but an increase of that magnitude would not necessarily accord with standards established by the department, a partner of a law firm said.

A letter to President Barack Obama that was issued Jan. 30 by 26 Democratic-caucus senators, including Sens. Dick Durbin (D-Ill.), Patty Murray (D-Wa.) and Bernie Sanders (I-Vt.), suggested that the weekly salary threshold should be raised to at least $1,090 to help employees in the middle class. The Economic Policy Institute said Jan. 28 in a news release that the threshold should be raised to about $960 to “improve the well-being of the affected employees without harm to the economy.”

However, the Labor Department's analysis of how much the threshold should be raised, which is to influence the threshold included in upcoming proposed regulations, should focus on how the economy would be affected by an increase instead of focusing on how to help employees, which is a “wholly-illegitimate motivation” because the department does not have the power to set the threshold based on that consideration, said John E. Thompson, a partner with Fisher & Phillips LLP, in a blog post Feb. 4.

A weekly salary threshold calculated in consideration of the factors the Labor Department applied for previous threshold calculations likely would be lower than the thresholds proposed by the Democratic-caucus senators and the Economic Policy Institute, Thompson said.

Determinants of the Threshold

The Labor Department established the weekly salary threshold in 1975 as $155 and in 2004 as $455 because it determined that those thresholds would be sufficiently appropriate to accommodate varying prevailing wage levels across the U.S. while having sufficiently low negative effects on inflation, low-income industries and small businesses, Thompson said. Because of these factors, the department “has deliberately set the threshold near the lower end of prevailing salaries,” and establishing a higher threshold for the primary purpose of helping employees would be inconsistent with the department's previous practices for establishing the weekly salary threshold, he said.

The thresholds established in 1975 and 2004 were not established “in the interests of increasing the proportion of salaried employees who would … be excluded from [the FLSA's overtime] exemptions,” Thompson said. “These are fundamentally policymaking matters to be addressed, if at all, through the lawmaking process, rather than through administrative rulemaking.”

The Democratic-caucus senators who suggested that the weekly threshold should be raised to at least $1,090 think this would be an appropriate level because the percentage of salaried workers protected by the FLSA's overtime provisions significantly decreased since 1975 and their proposed increase would enable about half of salaried workers to be nonexempt from overtime premiums. While about 11 percent of salaried workers earn less than the current weekly threshold of $455, about 65 percent of salaried workers in 1975 earned less than the weekly threshold of $155 established that year, the senators said.

Proposed regulations regarding an update to the weekly salary threshold for exempting employees from the FLSA's overtime requirements are to be released this month, according to the Labor Department's Fall 2014 semiannual regulatory agenda. The upcoming proposed regulations are in response to Obama's memorandum issued March 13 directing the Labor Department to update the weekly salary threshold for the executive, administrative and professional exemptions from the overtime requirements of the FLSA.

For more information, see Compensation and Benefits Library's “FLSA Exemptions” chapter.

To contact the reporter on this story: Howard Perlman in Washington at hperlman@bna.com.

To contact the editor on this story: Michael Trimarchi at mtrimarchi@bna.com.