Without Local Cost Of Living Adjustments Proposed Salary Threshold May Be Problematic

Sep 4, 2015

In a number of earlier pieces, we have discussed implications of the DOL’s Notice of Proposed Rule Making regarding changes in the white collar exemption salary thresholds. In particular, we discussed considerations for setting hourly rates and calculating regular rates (here), inconsistencies between the salary thresholds and exempt duties tests (here), and concerns relating to indexing (here).  In this piece we briefly illustrate how the proposed single salary test based on nationwide salary data is problematic for some jobs and geographic areas. 

For purposes of this illustration we use 2013 American Community Survey (ACS) data for Mississippi. We focus on Mississippi because, with the lowest state median household income in the country, we expect that jobs classified as exempt based on a duties test may report relatively lower salaries that fall short of the higher proposed salary threshold. 

In the chart below, we report the salary distribution for five different jobs using a “box and whisker” format where the box represents the middle 50 percent of the distribution, between the 25th and 75th percentiles, and the “whisker” lines represent the distribution out to the 10th and 90th percentiles. The line inside the box represents the 50th percentile (median).  The red dashed line superimposed across these occupational distributions is the proposed minimum salary at $47,892 (measured in comparable 2013 dollars). The percentage values shown in red are the percentage of employees in the occupation who would fail the salary test under the new regulation.

Among these selected example occupations First-line supervisors of food preparation and serving workers stand out as 100 percent of employees in this occupation in the state of Mississippi will fall below the new threshold. This means that every such employee would be deemed non-exempt when the final rule takes effect. However, the DOL’s classification for the 1999 GAO study “White Collar Exemptions in the Modern Work Place” showed that 10 to 50 percent of employees in this occupation should pass the exempt duties test. This inconsistency is caused by the absence of regional adjustments to properly account for differences in cost of living between different geographies.

First-line supervisors of retail sales workers should, according to the DOL’s classification, pass the duties test between 50 and 90 percent of the time (suggesting only 10 to 50 percent should fail), yet 76 percent of employees in this occupation fall short of the higher proposed salary threshold in Mississippi. About 74% of Credit counselors and loan officers fall short of the salary threshold despite the DOL’s classification suggesting 50 to 90 percent of employees would pass the exempt duties test. Similarly, Food service managers-restaurants and Social workers would pass the duties test between 10 and 50 percent of the time according to the DOL’s classification, but 84 and 81 percent, respectively, fail the proposed salary threshold.

In short, a high salary threshold that is not adjusted for regional differences in cost of living will result in a disproportionate share of employees in some regions being classified as non-exempt despite performing exempt duties.

 

Experts

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