Overtime Differences May Snag New Wage Plan

Walter Reuther, the late United Auto Workers president, didn’t live to see a dream of his come true: annual salaries instead of hourly wages for all workers.

Reuther’s dream of a “guaranteed annual wage” is still a distant goal for most working Americans. But it just might be achieved for workers who will soon start making General Motors Corp.’s new Saturn small car.

The idea is logical and, if it is adopted and works well at Saturn, it ought to spread to other hourly employees at giant GM and then on to millions of other workers across the country.

In January, the UAW and GM announced broad agreement on a host of new, imaginative ideas to reduce--if not eliminate--the traditional adversary relationship between workers and managers. And one of the ideas, it has recently come to light, is to put Saturn workers on a salaried basis.

That could mean, for instance, that if less work is required some days than others, the worker would still get full salary. Many union contracts now have guaranteed workweeks and supplemental benefits during layoffs, but a guaranteed salary by the month or year would offer far greater economic security.

Of course, an annual pay system is commonplace among top executives and many middle-level workers, who in most cases are exempt from federal and state laws involving minimum wages and hours. The Saturn workers, on the other hand, would be “salaried, non-exempt” employees. And there is a critical difference between the two groups.

Exempt employees are not entitled by law to extra pay for overtime work. Usually, their jobs are “primarily intellectual, managerial or creative” and require “exercise of discretion and independent judgment,” according to the law.

Actually, the definition of “exempt workers” is so loose that they can earn as little as $900 a month. The title may sound good, but it really means only that such workers get no additional pay for overtime work.

However, both federal and state laws require that “salaried, non-exempt” workers be paid extra for overtime work.

A changeover to that status could create problems for workers and employers because state and federal laws have different formulas for computing overtime pay.

In California, for instance, rules for calculating overtime pay for salaried, non-exempt workers are much more generous than those used by the federal government. In cases where state law is more generous than federal law, the state law takes precedence. Employers in California have been trying to get the state to adopt the federal system, which would be less costly to management.

Under both systems, a worker with a weekly salary of, say, $500 is entitled to that amount even if he or she works less than 40 hours a week. In addition, workers are entitled to overtime pay if the workweek is longer than the standard 40 hours.

But the big difference between the two systems is the method of calculating the rate of pay for overtime.

Under the state system, an employer would compute the overtime figure by dividing $500 by 40, the basic workweek. This would put the hourly rate for the basic week at $12.50. Since the worker is entitled to time and a half for each hour of overtime, or $18.75, he would get $687.50 for 50 hours of work.

In sharp contrast, under the federal system the salary is first divided by the number of hours worked, rather than by 40.

For instance, the employee with a $500 salary working 50 hours in one week would have a base rate of only $10 per hour. Hence, his overtime premium would be only $5 an hour and his total salary for the 50-hour week would be just $550.

If the same employee worked 60 hours, the employer would divide the $500 by 60, making the basic hourly rate even lower--$8.33. The overtime premium would be half that figure.

In other words, the more hours of overtime the worker puts in, the lower the overtime rate.

A ruling last week by the state 4th District Court of Appeal in San Bernardino rejected the pleas of most management groups in California to set aside the more generous state system and follow the federal law.

Richard J. Simmons, a management attorney, said the decision is “extremely unfair to employers and produces an enormous potential windfall to employees at their employers’ expense.”

Even though the stricter state system has been in effect for many years, it has rarely been enforced and was generally not known to employers, contends Simmons, who represented the California Chamber of Commerce, the California Manufacturers Assn. and several other employer groups in the case.

He insists that, if the more generous California system is not upset by further court appeals, by the Deukmejian Administration or by the state Legislature, it will be difficult if not impossible to persuade employers to switch hourly workers to salaries.

And, even more significantly, the management attorney said, California employers might start switching workers who are already on a non-exempt, salaried basis to hourly rates.

But critics scoff at Simmons’ arguments.

For instance, Robert Simpson, the state labor commissioner appointed by Deukmejian to enforce the state wage and hour laws, says Simmons has “greatly overstated the impact of the San Bernardino court ruling, since the court really only upheld the system California has been using for the past 35 years.” Simpson adds that the practice is “perfectly well known to almost all employers.”

True, the system of figuring overtime rates in California applied only to women and minors until 1976, when the so-called protective laws for women and minors were expanded to include men, but the basic California system has been the same for decades.

In addition, Simpson said, the case that went to the court (Skyline Homes Inc. vs. the Department of Industrial Relations) was the first challenge to the state system since it began in 1940, indicating that the system had not been too onerous for employers.

The federal system may sound good to employers since it costs them less money. But it flies in the face of the concept of overtime pay, the primary purpose of which is to discourage employers from overworking those already on the payroll and to encourage the hiring of more workers if they are needed.

It is also designed to compensate for the loss of leisure time. The federal plan doesn’t achieve those goals, but the state plan does.

NLRB Appointments

Management executives are likely to be happy about President Reagan’s appointments last week to fill two vacancies on the five-member National Labor Relations Board. But from labor’s viewpoint, the best that can be said for the appointees is that they could have been worse.

The AFL-CIO has not yet decided whether to oppose Marshall B. Babson, 39, a career management attorney who helped break a restaurant strike in New Haven, Conn., last year. He was also an attorney for Yale University in its recent long, bitter battle with white-collar clerical and technical workers over salaries, benefits and comparable pay for women.

But, compared to NLRB Chairman Donald L. Dotson, Babson is a moderate.

And if the unions do try to block Babson’s appointment in the Senate, the result might backfire, as it did in their successful effort to block Reagan’s nomination of John Van de Water, a moderate management-oriented attorney: They got the far more conservative Dotson instead.

The unions may stay neutral or even support the appointment of Wilford Johansen, a career NLRB lawyer, although, as one union leader put it: “We’d really like somebody even more liberal to offset the conservative majority on the board.”

Certainly, the unions will not oppose Johansen, now regional director of the NLRB based in Los Angeles. He is a man of integrity who is knowledgeable about labor law and who certainly would not vote automatically to support management in board decisions.

There had long been speculation that Reagan would name Johansen to replace the authoritarian, controversial Dotson as NLRB chairman--a move reportedly backed in the White House by, among others, Atty. Gen. Edwin Meese III.

But that idea died when such powerful conservatives as Dotson’s friend, Sen. Jesse Helms (R-N.C.), heard about it and entered the argument.

Two other members of the board make up the conservative majority--Robert Hunter and Patricia Diaz Dennis, who usually join Dotson in rulings that go against labor.

But the term of Hunter, Dotson’s most ardent ally on the board, expires in August. If Reagan names a moderate to fill that vacancy, even if he or she is less than completely management oriented, conservatives will still retain control of the agency, which administers federal labor laws.

Insiders say, however, that the changes could diminish Dotson’s influence and that there just might be a tendency for the agency to be less blatantly pro-management.

Study of Labor Costs

Steadily increasing competition and the two recent recessions have been the major factors in holding down labor costs, according to a new study by the New York-based Conference Board.

Audrey Freedman, author of the study, said that there has been a fundamental shift in determining wages in this country and that “management has increasingly gained the upper hand in negotiations.”

“Unions have lost their industrywide influence over wages, with competition certain to remain intense, and American business is not likely to return to the wage-imitation habits that prevailed in the 1970s.”

In those years, she said, many companies based wage decisions on industrywide patterns and not on their individual corporate productivity and competitive needs.

Manufacturing wages climbed at an average rate of 8.5% a year in 1979 and 1980 but have averaged increases of only 4.3% a year in the last three years.

She did not stress, however, such other factors as the increasingly anti-union efforts by many corporations and well-paid labor relations consultants, nor the pro-management decisions of the National Labor Relations Board, which is dominated by conservatives named by President Reagan.