Coming soon: A change in who gets overtime pay
By Jeanne Sahadi
NEW YORK (CNNMoney – Feb. 16, 2015) — The Obama administration is expected to move forward soon on its plan to provide overtime pay protections to low-salaried managers who don’t qualify for them.
The move could affect millions of workers. It is aimed at addressing what the White House says is an erosion of the rules that established the 40-hour workweek — a “linchpin of the middle class.”
The way it works now, companies can avoid paying OT to any full-time workers making as little as $23,660 — or $455 a week — by classifying them as “exempt” and paying them as salaried employees, rather than hourly.
That means when they don’t get overtime pay even if they work more than 40 hours a week.
And it’s not just managers in lower-paid jobs in this bucket. Exempt positions also include administrators and sales employees, among others.
The expectation among policy experts is that the Department of Labor will propose raising the $23,660 income threshold, most likely to somewhere between $42,000 and $52,000. The agency may also amend how “exempt” duties are determined.
What advocates want: The liberal Economic Policy Institute estimates that 3.5 million more workers would become eligible for overtime pay if the threshold were raised to $42,000. And 6.1 million workers would qualify if the threshold approaches $52,000.
Advocates for an increase, like EPI and the National Employment Law Project, would like to see the threshold raised to at least $51,168 — or $984 a week.
That threshold would provide automatic overtime eligibility for 47% of workers. That’s up from 12% today but still below the 65% eligible in 1975.
What’s more, advocates would like the Labor Department to be more specific as to what makes a position exempt from overtime. For example, to be classified as an exempt administrative employee, a worker’s primary duty must include the “the exercise of discretion and independent judgment with respect to matters of significance.”
Since every job requires some independent judgment, “that’s meaningless,” said Judi Conti, NELP’s federal advocacy coordinator.
She would rather the department require that at least 51% of a worker’s time be spent on exempt duties.
That would help prevent hollow promotions where a low-paid worker is given the title of manager but not given much managerial power, Conti noted.
What concerns employers: More generous overtime protections, of course, will mean higher payroll costs.
Companies either would end up paying time-and-a-half to more eligible workers, or they may decide it’s less expensive to hire more people to cover the extra hours once worked by formerly exempt employees.
But just how much more they’ll have to pay is a concern.
“One [income] threshold for the whole country won’t work,” said Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce.
The Chamber has recommended that the Labor Department apply geographically specific thresholds.
A big change in the income threshold would require employers to reclassify millions of salaried workers to hourly — and that could cause workers to lose some employee benefits, said Mike Aitken, vice president for government affairs at the Society for Human Resource Management.
Their morale could suffer too.
For instance, while salaried workers are often given some latitude to schedule their day, hourly workers may get pay docked or have to use vacation time for midday appointments, Aitken said.
Some companies, too, offer merit-based bonuses to salaried workers but not to hourly ones. Or they may be put on a different vesting schedule for vacation days, he added.
What’s ahead: The Labor Department has February marked on its agenda for release of the proposed overtime rules. But some policy observers suspect the release could come in March or April.
Whenever they new rules are released, however, it will be the start of a comment-and-review process that could take months before anything is finalized.
Advocates for change hope it won’t take too long. If the new rules go into effect right before President Obama leaves office, the next president could undo them if he or she doesn’t like them.