Too Many People Working Too Many Hours Without Overtime Pay

Some years ago, I worked for McDonald’s Corporation. So I recall well the last time the Department of Labor updated its overtime rules. Let’s just say, McDonald’s and its retail-business lobbying partners got pretty much what they wanted — freedom to deny overtime pay to many more workers.

This is one, though not the only reason that average compensation in private-sector jobs like food preparation, sales and a category the Bureau of Labor Statistics labels “office and administrative support” has barely increased since 2001.

Retiring Senator Tom Harkin and eight Democratic colleagues have introduced a bill to restore overtime rights to about 35% of salaried workers — the main type that employers may legally require to work overtime without overtime pay.

But DOL doesn’t need new legislation to update the rules or to close what Harkin refers to as a “loophole” — the very thing McDonald’s and collaborators wanted.

President Obama has, in fact, directed Labor Secretary Tom Perez to “modernize and streamline” the rules. And Perez clearly has an overhaul in mind, though he’s not ready to say when we’ll see it.

This is one of those rulemakings that’s going to get lots of comments — and lots of behind-the-scenes input, as well as very public efforts to shape opinion. So I thought a brief summary of the current rule and what we may expect might be helpful

Overtime Basics

The Fair Labor Standards Act has always required employers to pay some, but not all of the workers on their payrolls one-and-a-half times their regular wage when they work more than 40 hours a week.

Those who don’t qualify are mostly salaried workers, though some who get paid on a fee basis may also be exempt. All are, by definition, “white collar” workers whose primary duties fall into one of five categories — executive, administrative, professional, computer and outside sales.

Deciding who’s exempt from the requirement involves a two-part test, except for the outside sales people. The first is a compensation threshold. Anyone below it qualifies for overtime pay.

The current threshold is $455 a week — slightly under the federal poverty line for a four-person family. At its peak, in 1970, it was $1,071, in inflation-adjusted dollars, the Economic Policy Institute reports.

For a relative few, clearing the threshold is the end of it because their salaries put them into the “highly-compensated” category — currently a minimum of $100,000 a year.

For the majority, there’s a second test intended to identify employees whose primary duties involve management, supervision, other exercises of “discretion and independent judgment” and/or high-level professional expertise.

The rules specify the sorts of duties that meet the test for each of the categories. But here’s the kicker. The current rules, unlike their predecessors, don’t say how much time an employee must spend on them.

So, for example, an assistant manager at a fast food restaurant who spends virtually all her time working shoulder-to-shoulder with crew members could be exempt under the “executive” duties test so long as she created their work schedules and made recommendations — not necessarily decisions — about hiring and firing them.

What the Department of Labor May Do

Virtually everyone expects DOL to propose an increase in the salary threshold. It’s already got a range of recommendations to choose from — from $960 on the low end to $1,222 on the high end, among those I’ve seen.

The Senate Democrats’ bill would phase in an increase to $1,090 a week and then index it so it would automatically rise with consumer prices — a feature economists Ross Eisenbrey and Jared Bernstein earlier recommended to DOL.

Most speculators think DOL will reinstate the time allocation part of the duties test that its predecessor effectively eliminated in 2004 — or some variation thereof.

In fact, Perez has already said he wants to deal with the “loophole” that allows employers to exempt workers who spend virtually no time on the primary duties the current rule sketchily defines.

He may look to the Senate Democrats’ bill for a model. It would narrow the loophole by converting a former 50% “rule of thumb” to an absolute test. In other words, employees could be exempt only if they spend at least half their time on those primary duties.

One labor lawyer speculates that DOL may instead (or also) tighten up the definitions of the types of jobs that may be exempt.

Job Killer or Job Creator?

The National Retail Federation’s Senior Vice President for Government Relations says that the as-yet unseen proposal “if implemented, would have a significant job-killing effect.”

We hear somewhat similar, though subtler alarm bells from other spokespersons for affected businesses. The head of labor law policy at the U.S. Chamber of Commerce, for example, says that the prospective rule changes will “make employees more expensive.”

He draws a parallel to increasing the minimum wage, which the Chamber earlier claimed “destroys jobs.”

The opposite seems more likely. When Congress passed the Fair Labor Standards Act, during the depths of the Great Depression, it included the overtime requirement in part because employers would then find it cheaper to hire more workers than to pay those they had extra money to work extra hours.

That’s how labor economist Daniel Hamerish, among others, thinks the plan Obama sketched out will work. “I would argue it’s a job-creation program,” he told reporters at the Washington Post.

This and much more before we’ve seen anything approaching a formal proposal. So we’ve got a lot of backing-and-forthing to look forward to.

Meanwhile, Happy Labor Day to all of you who don’t have to work, with or without overtime pay.

 

 

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