White House Acts to Thwart Overtime Abuse

Changes in overtime rules announced by the Obama administration have businesses in an uproar. Currently, they are required to pay extra for overtime only to workers who are paid a salary of less than $23,660 a year ($455 a week). That threshold is set to soar to $47,476 ($913 a week). Come December 1st, anyone earning less than that doubly high threshold becomes eligible for time-and-a half pay for work in excess of 40 hours a week. The rule does not apply to those whose work is classified as executive, administrative or professional.

Businesses complaining the most are those paying little more than the current $455 threshold while requiring more than 40 hours of work for no extra pay. In the more extreme cases that can equate to less per hour than the federal minimum wage.

In the more general case, to adjust, employers are expected to reallocate work to curtail hours, fill in with part-time workers, raise the pay of those near the new threshold to just above it to avoid the overtime mandate, or cut salaries of those now working long hours such that added overtime pay amounts to the same paycheck.

Obama is making the change in accordance with a 78-year-old law, the 1938 Fair Labor Standards Act, which empowers the president to set overtime rules. “Overtime’s a pretty simple idea”, said Obama in announcing his intentions over two years ago. “If you have to work more, you should get paid more”. The huge increase to $47,476 is simply to adjust a rule that has been unchanged since 1975. The $23,660 threshold set in that year under the Ford administration qualified 60% of the salaried workforce for overtime compensation. Inaction ever since has allowed inflation to reduce that dollar cutoff so far that most workers today are above it, are therefore paid no more than a fixed salary, with a mere 7% now qualifying for overtime.

The correct adjustment for inflation would have been about $51,000 ($980 a week), but this was judged to be too high for certain areas of the country such as the South. The somewhat lower level of $913 a week is expected to make around 4.2 million more workers overtime eligible, and it will ratchet up every three years, tracking wages in the South.

Partly, Obama's move is to turn back George W. Bush's revisions. Bush favored business with hundreds of pages of new rules [1] put in place in 2004 that removed scores of job descriptions from overtime eligibility, cutting the earnings of what Democrats and labor estimated to be six million workers. The Bush administration estimated only 107,000 would be affected and somehow claimed the rules exempting categories of worker from overtime would add 1.3 million workers to the overtime eligible ranks.

The Bush rules gave business owners extraordinary latitude to classify work. As an example, a supermarket employee who normally unpacked shipments but was made to spend 5% of hours on tallying inventory could be classified entirely as “administrative” and denied overtime altogether.

For some businesses, the change means switching employees from a fixed salary to keeping track of their hours, returning to a computerized version of workers punching in with time cards, and bearing the added overhead of calculating payroll. The National Retail Federation estimates that a third of workers in that field will be shifted from salary to hourly.

But some of the arguments against are feeble. The switch from salaried to hourly will undermine employee morale, goes one forewarning. The Department of Labor is effectively demoting millions, says another, because lowly-paid workers classified as management (solely to avoid overtime) will suffer a loss of prestige. The better bet is that employees will be overjoyed to be making more money.

What may seem to be just another executive overreach is in fact fixing a law so neglected as to be moribund. The fix raises an overtime threshold that should have been continuously adjusted all along to where it should be now. There are plenty of businesses that have all along benefited from the neglect by forcing workers to work 50-60 hour weeks — opening stores in the morning and cleaning and closing them at night, for example, while paying them nothing extra and threatening to fire them if they complain. These employees will finally have recourse. Businesses will have difficulty adjusting, but those that object outright to the correction are essentially saying there should be no law to protect workers from exploitation.

Under the Congressional Review Act, Congress has 60 legislative days in which to overturn the regulation by simple majority not subject to filibuster. Voting against workers in an election year could be hazardous.

Please subscribe if you haven't, or post a comment below about this article, or click here to go to our front page.