President Obama early next year will try to force employers to pay their workers more overtime by limiting which workers can be called managers.
The administration in February is set to announce a proposed new rule under the Fair Labor Standards Act that would designate who is an “exempt employee” who cannot claim overtime for working more than 40 hours a week.
The president and administration officials have indicated they plan to increase the $23,000 minimum amount a worker must make before his employer can opt to exempt him from federal overtime rules — also known as the “white-collar exemption.” The administration has not released details, though.
Groups such as the liberal Center for American Progress, which has close ties to the White House, have called for the threshold to be raised to $50,000. Business groups are hoping it won’t be that high.
“There’s always a chance they will do something less, but it is going to go up. The question is just by how much,” said Marc Freedman, executive director of labor law policy at the Chamber of Commerce. He has attended private meetings with administration officials regarding the change.
Employers often abuse the exemption, said Joshua Parkhurst, a New York labor rights lawyer who has represented employees in numerous complaints.
“A fast-food restaurant can slap an 'assistant manager’ title on someone and … that exempts them from overtime,” Parkhurst said. “The white-collar exemption is far and away the most litigated issue under the act.”
The move is the latest example of President Obama’s efforts to enact his agenda by circumventing Congress. With Obama’s proposal to raise the minimum wage to $10.10 an hour now dead thanks to a Republican-controlled Senate, changing overtime rules offers him a way to help lower-income workers and address stagnant wages. The act allows the Labor Department to set the definition of an exempt employee, but it requires a months-long bureaucratic process.
The change’s effect would be limited, but significant. Doubling the wage threshold would affect 3.5 million of the nation’s estimated 53 million salaried workers, about 7 percent, according to a November study by the American Action Forum, a right-of-center think tank founded by former Congressional Budget Office Director Douglas Holtz-Eakin.
Teachers and retail workers are most likely to be paid overtime, according to the Labor Department.
Obama called on the Labor Department to revise overtime rules in a February executive order. The department initially said it would release a proposal for public comment in November, but it has been pushed back to February.
Labor Secretary Tom Perez has talked privately with business groups such as the chamber for their opinions on updating overtime rules, though Freedman says it was a fairly one-sided “listening” session to hear what businesses had to say.
“It was not a negotiating session. They didn’t give anything away on what they would be doing,” Freedman said.
A March fact sheet issued by the White House emphasized that the wage threshold “has failed to keep up with inflation, only being updated twice in the last 40 years.” The last time was 2004, when it rose to $23,000 annually, up from $8,000.
Perez called the wage level a “loophole” in a speech that month. “I think that’s wrong. The president thinks that’s wrong,” he said.
Doubling the threshold, the Center for American Progress argues, would force businesses to pay workers the overtime they are due or force employers to raise salaries to meet that level. “The average worker works 11 percent more hours than he or she did in 1975. If we as a nation could afford overtime rights then, we can afford them now,” center policy analyst Brendan Duke wrote in a June study.
Most businesses probably will go along with a modest raise, says John Thompson, a Georgia lawyer with management-side law firm Fisher & Phillips.
“But if it is double, which there is some talk about, then I think you’ll start seeing some employers stop treating people as exempt. That won’t necessarily mean those people will make more money,” Thompson said.
Instead, he said, businesses might schedule overtime less frequently or cut back in other areas such as benefits to counter the increase in labor costs.
An increase in the threshold would have a ripple effect, pressuring employers to give raises to higher-paid workers, too, Thompson said. Many businesses cannot afford such a large spike in labor costs.
Diana Furchtgott-Roth, a policy analyst with the Manhattan Institute, pointed out that companies would be stricter in monitoring employee hours. That likely would limit use of comp time and other flexible scheduling options.
That’s bad news for currently exempt employees, especially working mothers, who like flexibility.
“If you work, say, an extra day and say, 'I want time off instead [of overtime],’ then they would not be allowed to give it to you, whereas now they are allowed to give it to you,” Furchtgott-Roth said.
The threshold isn’t the only potential change that businesses are bracing for. Some think the administration will follow California’s example in specifying the amount of time exempt workers must spend performing managerial tasks. Federal regulations don’t do that.
“California has a 51 percent requirement. That is, you have to demonstrate that an employee is doing these [managerial] duties at least 51 percent of the time,” the chamber’s Friedman said. “Tracking an employee’s movements to demonstrate that would be a nightmare.”
Critics of the current rules don’t buy it. “The point is, if you are shifting someone back and forth from administrative tasks to manual labor, they aren’t a manager,” said Parkhurst. “And slapping a title on them doesn’t change that.”