Regional Implications of the DOL’s White-Collar Exemption Notice of Proposed Rulemaking

Edgeworth Economics

10.24.2023

Introduction

The Department of Labor’s September 8, 2023 Notice of Proposed Rule Making (NPRM) increases the salary threshold for the white-collar FLSA exemption.  In the NPRM, the Department explains that the purpose of the salary level test is to serve as an initial screening tool.[1]  It then goes on to downplay the extent to which the new threshold will increase the fraction of white-collar workers who will fail the salary level test by stating “the number of salaried white-collar employes for whom salary would be determinative of their non-exempt status and who earn at least the long test salary level – 3.2 million – is nearly ten times smaller than the number of salaried white-collar workers for whom job duties would continue to be determinative of their exemption status…”[2]  While it is true that about 75 percent of salaried full-time white-collar workers (excluding named occupations) nationwide will pass the proposed salary level test of $1,059 per week, a much lower fraction will pass in the South and Midwest, especially among workers outside the largest metro areas.  For many jobs, including occupations for which the Department assumes that at least 90 percent of workers would pass the duties test, the proposed salary level test is not the initial screen the Department intends, but rather the primary determinant of whether workers are eligible for the white-collar FLSA exemption.

Regional Differences

The NPRM sets the salary threshold based on the salary distribution in the South Census region because it has lower salaries, on average, than the other three Census regions.[3]  The South also has the largest population and includes 16 states plus Washington, D.C.  The Midwest Census region includes 12 states and has the second lowest average salaries.  Combined, the South and Midwest account for about 59 percent of the U.S. population and 57 percent of salaried full-time white-collar employees.

Salaries also differ, on average, between large metro areas and less populated cities and towns.  There are 46 metro areas in the U.S. with populations of 1.25 million or more, including 29 in the South and Midwest.  After accounting for pay differences by occupation, full-time salaries are 8.4 percent higher outside the South and 9.5 percent higher in the 46 largest metro areas than in smaller cities in towns.  The average pay differential between the largest metro areas and smaller cities and towns is even larger than the average differential between Census regions.

Average salaries are the lowest in cities and towns in the South and Midwest outside of the largest metro areas.  Over 100 million people, more than 30 percent of the U.S. population, live in the South and Midwest outside the region’s 29 largest metro areas.  In those areas the proposed salary threshold of $1,059 per week equals the 40^th percentile of the full-time salaried pay distribution.  In addition, in those areas in occupations for which the Department assumes at least 90 percent of workers would pass the duties test, 23 percent of workers will fail the salary level test.

Occupational Differences

To assess which employees would pass the duties test, the Department applied the methodology from a 1999 GAO study that relied on information provided by DOL officials in the late 1990s.  The DOL indicated that 257 of more than 900 job titles represented in the Current Population Survey would likely include workers with white-collar FLSA exemptions.  The GAO study states that “for each of these 257 job titles, DOL officials provided us with one of four ranges of likelihood that workers would be covered by the white-collar exemptions: 90-100 percent, 50-90 percent, 10-50 percent, and 0-10 percent.” The job titles in the 1999 study are based on 1990 occupation classifications.  The Census Bureau updated occupation classifications in 2000, 2010, and 2018, because of changes in the U.S. workforce.  The 1999 probability ranges were applied to 2010 Census occupations in the 2016 Final Rule and were re-applied to 2018 Census occupations in the 2023 NPRM, despite substantial changes in labor markets over the past 25 years. 

Table 1 shows the median salary, share of workers who would fail the salary level test, and total employment for occupations for ten selected occupations for which the Department assumes there is a 90 to 100 percent chance of passing the duties test.  The final row of the table shows the same information combining all occupations for which the Department assumes there is a 90 to 100 percent chance of passing the duties test.[4] 

For the ten selected jobs in the Table, between 24 and 40 percent of employees will fail the salary level test with the new salary threshold.  The occupation “First-line supervisors/managers of office and administrative support workers” includes over half a million workers nationwide and is considered by the Department to be a job for which 90 to 100 percent of employees would pass the duties test.   For this job the median weekly salary is $1,212, and 40 percent of employees earn below the proposed salary threshold of $1,059.  In a job for which the Department assumes almost every employee would pass the duties test, 40 percent of employees earn below the proposed salary threshold, eliminating them from the white-collar exemption. 

The same is true for “Graphic Designers.”  Although the GAO study indicates almost every employee in the occupation would pass the duties test, 40 percent of “Graphic Designers” earn below the new salary threshold and would therefore be ineligible for the white-collar exemption.  Table 1 below shows these occupations and eight additional selected jobs, all of which the Department assumes have a 90 to 100 percent chance that employees pass the duties test, yet 24 percent or more of employees earn below the proposed salary threshold making the duties test irrelevant.

Across all occupations with a 90 to 100 percent chance of passing the duties, the median weekly salary is $1,650 and 18 percent of employees will fail the salary test.

Selected Jobs with 90% or Higher Chance of Passing Duties Test, All Regions
Occupation	Median Salary	% Below Threshold	Workers
First-line Supervisors of Office and Administrative Support Workers	$1,212	40%	584,297
Graphic Designers	$1,300	40%	139,507
Transportation, Storage, and Distribution Managers	$1,442	29%	206,839
Administrative Services Managers	$1,346	27%	49,985
Social and Community Service Managers	$1,442	26%	312,156
Registered Nurses	$1,423	26%	1,042,262
Insurance Underwriters	$1,356	25%	80,262
Computer Support Specialists	$1,538	24%	422,003
Construction Managers	$1,692	21%	508,830
Marketing Managers	$1,846	19%	449,669
All Occupations with 90% to 100% Chance of Passing Duties Test	$1,827	16%	21,758,837

The results (shown in Table 2 below) are even more striking when focusing on the South and Midwest Census regions.  The share of “First-line supervisors/managers of office and administrative support workers” below the proposed threshold is 48 percent, and for “Graphic Designers” it is 41 percent.  The Department assumes that each of these have at least a 90 percent chance of passing the duties test, but the new salary threshold makes the salary level test determinative for many workers in these jobs and excludes them from the white-collar exemption; 28 to 48 percent of workers in these ten jobs will fail the salary level test.  Among all occupations in this group, the median weekly salary is $1,731 and 19 percent will fail the salary level test.

Selected Jobs with 90% or Higher Chance of Passing Duties Test, South and Midwest Regions
Occupation	Median Salary	% Below Threshold	Workers
First-line Supervisors of Office and Administrative Support Workers	$1,096	48%	354,492
Graphic Designers	$1,288	41%	74,842
Transportation, Storage, and Distribution Managers	$1,442	31%	118,739
Administrative Services Managers	$1,288	29%	32,926
Social and Community Service Managers	$1,346	31%	164,403
Registered Nurses	$1,346	30%	640,566
Insurance Underwriters	$1,250	28%	58,418
Computer Support Specialists	$1,442	29%	264,703
Construction Managers	$1,615	24%	326,623
Marketing Managers	$1,731	23%	258,860
All Occupations with 90% to 100% Chance of Passing Duties Test	$1,731	19%	12,124,067

Table 3 repeats the same analysis after excluding the largest metropolitan areas in the South and Midwest,[5] And there the share of workers who are below the proposed salary threshold and will fail the salary level test is even higher.  For the ten selected jobs, the share of employees failing the salary test is between 34 and 71 percent.  Over 70 percent of “Graphic Designers” are below the new salary threshold, and over half of the “First-line supervisors/managers of office and administrative support workers” earn less than the required salary. Across all occupations with a 90 to 100 chance of passing the duties test in smaller cities and towns in the South and Midwest areas, 23 percent will fail the salary test.    

Selected Jobs with 90% or Higher Chance of Passing Duties Test, South and Midwest Regions Outside of Largest Metro Areas
Occupation	Median Salary	% Below Threshold	Workers
First-line Supervisors of Office and Administrative Support Workers	$1,010	54%	162,124
Graphic Designers	$1,057	71%	15,039
Transportation, Storage, and Distribution Managers	$1,346	35%	55,231
Administrative Services Managers	$1,250	40%	10,790
Social and Community Service Managers	$1,153	47%	64,307
Registered Nurses	$1,250	38%	306,445
Insurance Underwriters	$1,115	42%	15.904
Computer Support Specialists	$1,308	34%	71,872
Construction Managers	$1,375	29%	127,569
Marketing Managers	$1,635	27%	87,639
All Occupations with 90% to 100% Chance of Passing Duties Test	$1,538	23%	4.261,245

[1] NPRM pp. 18-19.

[2] NPRM, p. 19.

[3] The Current Population Survey (CPS), the data set that will be used to set the salary threshold according to the NPRM, is used for the tabulations in this article. The CPS does not report compensation or employee totals for “salaried” workers and instead reports pay and employment information for employees paid by the hour and for “non-hourly” employees.  Tabulations of “salary” distributions including median “salaries,” and the number of “salaried” employees in this article are based on CPS data for non-hourly full-time employees in 2022.

[4] The occupations in Tables 1-3 exclude the “named occupations” such as physicians, lawyers and teachers that re not subject to the FLSA..

[5] Table 3 excludes workers who reside in the 29 metro areas in the South and Midwest with a population of more than 1.25 million.