Proposed Overtime Regulation Changes May Positively Affect Many Americans: Will a Hard Day’s Work Actually Mean a Fair Day’s Pay?

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In an op-ed piece published on June 29, 2015, President Obama explained the Department of Labor’s recent proposed changes to the overtime regulations, giving more access to overtime benefits for salaried workers than in recent years. President Obama stated, “In this country, a hard day’s work deserves a fair day’s pay.”

The Department of Labor’s proposed rule change would increase the current salary level to be able to claim overtime pay from $455 per week to $970 per week in 2016

In March of 2014, President Obama directed the United States Department of Labor to go through the current overtime regulations, suggest revisions to the “white collar exemption,” renovate the existing overtime regulations, disclose and touch on changes in the workplace current and expected, and simplify the regulations in a manner that leaves the regulations more understandable. Particularly, the Department of Labor looked at the overtime exemptions, and created a proposed change open for comments.

While the Fair Labor Standards Act (FLSA) requires that employees who work more than forty hours a week receive time and a half for every hour they work over forty hours, the Act provides exemptions for employees who reach a particular criteria. Those criteria include a particular salary threshold, whether the worker’s salary is a fixed salary, and even whether the worker’s job duties include professional, administrative, or more importantly, executive responsibilities.

The Department of Labor’s proposed rule change would increase the current salary level to be able to claim overtime pay from $455 per week to $970 per week in 2016. This equals out to the current salary level of $23,660 per year, to $50,440 per year, beginning in 2016.   Thus, essentially overtime payment exemptions would be for workers who make over $50,440 per year or $970 per week in 2016. It is estimated that around 4.6 million additional workers will be permitted overtime protections in the first year of the proposed rule’s implementation.

The new proposed rule provides many white-collar employees with overtime protections due to the salary level increase

This change affects those who are in the “white collar exemption.” These workers are considered on a salary basis, meaning that an exempt employee receives a predetermined or set amount of money or compensation each week/year. Further, within this exemption there are those who are considered EAP, or an Executive, Administrative, or Professional employee who is excluded, regardless of their salary, because of the particular job duties they perform. If an employee performed certain job duties as laid out under the “duties test,” such as executive or administrative job duties, they are exempt from overtime protections. However, the new proposed rule provides many white-collar employees with overtime protections due to the salary level increase.

The proposed rule also would allow for an increase in annual compensation level for those workers who are considered “highly compensated employees.” The highly compensated employees exemption requires that the employee receive the particular compensation amount and also regularly perform at least one of the duties laid out in the duties test that would deem a worker ineligible or perform one of the responsibilities under the Executive Administrative Professional exemption. This would be a $22,148 increase—the current salary threshold for “highly compensated employees” is $100,000, but the Department of Labor has proposed an increase to a salary threshold of $122,148.   It is estimated that a little over 35,000 employees will lose their highly compensated employees exemption status because of the increase compensation level.

The proposed rule also states that it plans to establish a mechanism under which a particular salary level for each exemption will increase automatically annually based on a particular formula. The Department of Labor calls for comments on how this formula should be set up. This implementation of a formula for increasing salary levels will likely allow for automatic updates yearly when compared to inflation, market values, etc. as the job market constantly changes. It will allow for the salary levels to be realistic and to change as society and markets change.

The Department of Labor did not make any changes or provide any clarifications to the “duties test”

Problematically, the Department of Labor did not make any changes or provide any clarifications to the “duties test.” As explained above, the duties test prevents certain white-collar workers from receiving overtime protections if they perform particular job duties that are administrative or executive in nature. This often includes managers and other executive or higher level workers.

In considering which workers the proposed changes would affect, it appears many of the job markets highly affected will be retail workers, hospitality workers, and restaurant workers.

Some argue this change will increase employers’ costs, cause decline in worker productivity, and negatively affect customer service. Many even argue the change will cost jobs. They argue the cost on employers will go up per employee, and as such, some may lose their jobs because the employer doesn’t want to take on that extra cost. Businesses and employers fear increased costs and increased liabilities.

Others argue this change could do nothing but good. They argue that workers work very hard for little pay, and the workers who had been being assisted by the current overtime structure were those workers working some of the most low paid jobs. Those salaried workers were making about $455 per week, and anyone making more than that was unable to claim overtime benefits for any amount worked over the forty-hour workweek maximum. They continue to argue that this rule benefits the middle and lower middle class workers in that it allows for many of them the opportunity to take advantage of overtime benefits that they had been denied for many years.

Labor advocates call for better definitions and clarifications that state that exempt workers cannot spend more than half of their time on non-exempt work

For business and employers, however, the fact that the “duties test” was not changed is beneficial to them, because it allows them leeway particularly with their business models. For instance, manager roles are more flexible with the “duties test,” allowing them to do managerial tasks, but also fill in for workers or complete tasks such as taking inventory, dealing with supplies, etc.

However, labor advocates do not like that no changes are being made to the “duties test,” because they feel it gives too much leeway to employers. A large concern is with the fact that it allows for a mix of salaried and hourly duties and the definitions of hourly and salaried duties are too vague, thus permitting employer leeway. Labor advocates call for better definitions and clarifications that state that exempt workers cannot spend more than half of their time on non-exempt work.

While more workers may be able to receive overtime benefits, what does that mean for current workers? These new benefits won’t come for free to employers, and as such, there is a worry that employers will begin to lower employee hours out of fear of increased costs and liabilities. Employers might attempt to make up for the amount they pay in overtime benefits to the new employees who are able to claim overtime, which might have negative repercussions for employees’ hours.

Will these proposed changes be just a short-term positive effect on the select employees who are now able to access overtime?

This begs the question of whether these proposed changes would be just a short-term positive effect on the select employees who are now able to access overtime. Some are hopeful that when employers decrease hours of employees, this opens the door for employers to conduct more hiring. However, the purpose of many of the cuts would be to make up for the money they are now liable to pay in overtime, so whether there would be an increase in hiring is not definite.

Similarly, the overtime benefits are only redeemable if the employee works over forty hours a week for any given week. If an employer who makes around $50,000 a year works forty hours a week, he won’t see the benefits of these proposed changes. However, if he were to work more than forty hours a week, he may see some overtime benefits for the weeks he went over his maximum hours. This might lead to employees beginning to take advantage of this program by working as much as they can, staying later than they are scheduled, and as a result receiving more money. While this is great for the employee, it runs the risk of causing employers to cut back on other expenses.

Whether the proposed rule will actually have changes to the “duties test,” whether the proposed rule will keep the salary levels that are currently named, what the formula will be for determining increases in salary levels annually are all still undetermined. After the comments period encouraged by the Department of Labor occurs, and the Department can develop a formalized proposed rule, there will be potential for more analysis of the actual affects of the rule on workers and employers alike.

What should employers do as they prepare for the Department of Labor’s next rule on overtime protections? Employers should first go through their employment documents and consider whether their workers are correctly classified. Employers should also begin going through their documents, their workforce, and their files to see what workers will be considered under the protections when this change comes into existence. This will allow employers to make any changes they need, and even to prepare for the increased cost of more overtime protections coverage. By preparing ahead, this will allow employers to be proactive in their response, and begin to set out a plan for their company to follow in implementing these proposed changes into their business.
What should workers do? Workers should first ensure they are classified correctly as either an employee or an independent contractor. If they are classified as an employee, they should look at the rules, consider their salaries, and determine whether they might be one of the employees who will fall under this new rule as someone eligible for overtime protections. If they do, these employees should be excited for being covered, but should also be prepared for changes as employers costs do rise.