The federal Fair Labor Standards Act (“FLSA”) generally requires that employees receive overtime premium pay calculated at 150% of their regular pay rate. However, the FLSA exempts from this requirement employees who perform “executive,” “administrative,” or “professional” work. These exemptions are known as the “white collar” exemptions.
The New Deal Congress that enacted the FLSA intended that the white-collar exemptions would be very narrow and would only cover high-level employees who were personally involved in actually running the business. One way of keeping the exemption from covering too many low and mid-level employees was to set a strict salary threshold that must be satisfied in order for an employee to even be considered an overtime-exempt executive, administrator, or professional. As the federal Department of Labor observed in 1940, the “most effective check on the validity of the claim for exemption is the payment of a salary commensurate with the importance supposedly accorded the duties in question.”
In 1975, federal regulations generally provided that an employee could not be covered by the white-collar exemptions unless her salary exceeded $250 per week. As the Economic Policy Institute recently observed, had this $250/week requirement merely kept pace with inflation, it would equal $970 per week – or $50,440 per year – in 2012 dollars.
Unfortunately, the white-collar exemptions’ salary requirement has not kept pace with inflation. Today, the salary threshold stands at a mere $455 per week. That’s just $23,660 per year.
It seems absurd that an individual making only $23,660 per year could be the type of “executive,” “administrative,” or “professional” employee excluded from the Nation’s overtime laws. After all, the median household income in the United States currently exceeds $51,000.
Over the years, our firm has represented purportedly exempt “executives,” “administrators,” and “professionals” who earn so little that their families qualify for food stamps, free school lunches, and other government benefits. It really is troubling that taxpayers are directly subsidizing the under-compensation of purported company executives, administrators, and professionals.
Earlier this year, President Obama issued a memorandum instructing the Department of Labor (“DOL”) to update the regulations pertaining to the white collar exemptions. Why it took the Administration over five years to take this simple step is baffling. Regardless, the DOL now must go through the formal “rulemaking” process, which will take at least another year. Then, after the new rules are issued, Big Business surely will file lawsuits asserting that any new regulations exceed the DOL rulemaking authority. That may cause even more delay.
Hopefully, common sense will prevail during the DOL’s rulemaking process. One does not need a Ph.D. in Economics to know that someone making $23,660/year is not really a corporate “executive,” “administrator,” or “professional.”