Earlier this year the U.S. Department of Labor (DOL) issued final regulations setting a new salary level test for determining job exempt status. To classify a job as exempt from overtime and certain record keeping compliance requirements, a job typically must meet three tests:
- The job must be paid on a salary basis
- It must meet the duties test of the Executive, Professional, or Administrative exempt classifications, and
- Be paid at the requisite salary level as prescribed by regulation
This last test is the crux of this recent 5th Circuit decision, but more about that in a bit.
The regulations issued this year increase the salary level test from $684/week ($35,568/yr.) up to where it is currently as of July 1, 2024, at $884/week ($45,968/yr.) and beginning January 1, 2025, a larger jump will occur up to $1,128/week ($58,656/yr). It then will increase every three years by way of an indexing method the DOL will apply.
Why are they doing this? Briefly, the DOL argues that there are a lot of jobs, particularly in the hospitality and retail sectors, that take advantage of workers by classifying them as exempt to avoid paying overtime to more employees. Increasing the salary level test forces employers to either pay more or change exempt employees to non-exempt status and in turn pay overtime should they work more than 40 hours per week.
For decades, from time to time, the DOL has increased and in some cases changed the exemption test(s). However, during the Obama administration they attempted to significantly increase the salary level test and a Texas court said no. The proposed salary level test was deemed by the Court as exercising too much authority over the administration of the Fair Labor Standards Act (FLSA) at that time. Some may recall the Trump administration later increased the salary level test more modestly to where it was fixed at $644/week.
With the new DOL regs published 4/23/2024 and again attempting to implement a substantial increase rather than a more modest one, the new regulations were immediately challenged in the previously sympathetic Texas federal court. This time the Court found that the DOL did have authority to promulgate such rules and when appealed to the next higher court – the Fifth Circuit – this Court affirmed that decision.
Those who follow the regulatory and judicial gyrations hoped that the Court would see this new regulatory change the same way it did several years ago when it held the agency overreached its authority by setting a higher salary level test than the agency had authority to do. Especially, with the recent Supreme Court decision overturning Court precedent giving regulatory agencies judicial deference (Chevron USA v. Natural Resources Defense Counsel) when deciding a case involving agency administration authority around the law. (Loper Bright Enterprises v. Raimondo).
The Fifth Circuit opinion reasoned, “Using salary level as a criterion for [executive, administrative, or professional (EAP)] status has a far stronger textual foundation than [the plaintiff] acknowledges. As the DOL correctly points out, the terms in the EAP exemption, particularly ‘executive’, connote a particular status or level for which salary may be a reasonable proxy.” (Mayfield et.al. v. U.S. Department of Labor et.al.)
So for now, employers must use the prescribed salary level test noted above. Unless the case is successfully appealed to the U.S. Supreme Court that may find differently, many more jobs that were exempt because they met the salary level test before, now may have to be reclassified as non-exempt if the employer cannot afford to move the job’s salary level to meet the DOL’s prescribed rate.
By Michael Burns, courtesy of SBAM-approved partner, ASE. Source: LAW 360 Employment Authority. DOL Has Authority To Issue Salary Regs, 5th Circuit Affirms (9/12/2024)
Watch the On-Demand Webinar on this topic.
Click here for more News & Resources.