Analyzing the new rule for salaried workers’ overtime pay
Millions of additional Americans will qualify for overtime pay under a major change in federal labor law unveiled recently by the Obama administration.
The change under the Fair Labor Standards Act doubles the annual salary threshold — to $47,476 from the current $23,660 — that generally determines who qualifies for overtime pay when they work more than 40 hours a week.
That means salaried workers who earn less than $47,476 will now be eligible for overtime pay. The change takes effect Dec. 1.
California employers must comply with both federal and state law, which requires overtime pay for people who earn less than $41,600 a year and allows them to claim overtime after working more than eight hours in a day.
Employees who are paid hourly generally are already eligible for overtime pay no matter how much they earn per year.
The administration pushed for the change because the current threshold was “eroded by inflation every year” and because too many Americans “have been left working long hours for no additional pay,” the Labor Department said.
Tom Spiggle is a lawyer in Arlington, Va., who specializes in representing employees in labor disputes. He applauds the new rule but recognizes it will mean higher costs for some U.S. firms.
The Times asked Spiggle to explain the new rule and its repercussions. Here’s an edited excerpt:
How many workers are affected by this change?
The Obama administration is saying around 4 million [additional] workers. Under the current law, it’s about 7% of [full-time salaried] workers who are covered, who are subject to overtime. Under the new law, that percentage jumps to around 35%. We’re looking at about a fivefold increase in the number of workers who are covered.
There is also an automatic update every three years?
That’s right. That’s one reason the administration updated the law because it wasn’t indexed to inflation. I believe in the 1970s as much as 60% of the workforce was covered. But as that salary threshold remained the same and inflation increased, more and more workers were moved outside of coverage. Now there will be an update every three years to index to keep pace with inflation.
What are some of the jobs that might be most affected by the change?
Retail and food service are going to be the two big ones. A retail manager who was making $30,000 a year, who under the current law would be exempt [from mandated overtime] now will not be exempt. Those retailers will be subject to paying them overtime.
You’re in favor of this change. Why?
You have somebody making $30,000 at a clothing manufacturer or retail outlet and the employer could work them 80 hours a week and not be required to pay them overtime. There also have been many stories about the declining purchasing power of the American worker.
This is still well short of the number of workers who were protected in the 1970s and early ’80s by the law, so it’s not as if this is something we haven’t seen before.
Some business groups and other critics say this is a substantial added cost to doing business. What’s your response to that?
There’s no question there will be increased costs for some businesses. They’re going to have to pay more in wages in the form of overtime or they’re going to have to increase salaries.
My point is that when you put more money in that worker’s pocket, yes, it is a short-term cost for that business, which is not insubstantial. But you increase the purchasing power of everybody.
Is there a way for businesses to get around this new law?
They can reduce the number of hours that employees work, for instance. We’ll probably see some businesses hire fewer workers than they had planned to reduce these costs. But there are not that many loopholes in this new law.
What about workers who willingly work long hours without overtime to show they want to go the extra mile in hopes of getting a promotion or otherwise advancing their career?
Those opportunities are still going to be available. The problem is that for a wide swath of workers, working overtime didn’t get you anywhere, there was little upward career ability and over time — perhaps not intentionally — businesses were taking advantage of the law.
I don’t know that we’re going to see a whole lot of people who are not able to get ahead just because they’re not able to work overtime because their boss doesn’t want to pay them for it.
You as a worker cannot voluntarily work overtime and not get paid. It’s not as if you can say, “You know what boss? I’m going to bust my hump so I can get a promotion. Don’t worry about paying me overtime.” That’s not a solution for workers.
Would you guess some employees who should be getting overtime are willing to forgo that pay in order to get ahead?
The law is pretty clear that a business can’t turn a blind eye to employees who are working overtime. That’s not to say you won’t have the employee who puts in extra hours, doesn’t report those hours because he or she perceives that to be in their interest and wants to demonstrate that commitment.
But the law is pretty clear that an employer is not off the hook just because an employee might make that choice. If an employer is aware that that is going on, they can still be liable. Even if that employee does not sue, another one could.
Could a business hire someone, say, at a salary of $40,000 with the stipulation that there will be some unpaid overtime hours and, as long as the worker agrees, it would be OK?
No. This law leaves employers almost no discretion in that regard. It doesn’t allow an employee and employer to agree not to abide by the law.
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