June 16, 2016, Trial News | The American Association For Justice

June 16, 2016, Trial News

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DOL expands overtime eligibility to millions of workers

Diane M. Zhang

Photo of alarm clock to illustrate concept

On May 18, the U.S. Department of Labor (DOL) announced a new overtime rule that will require employers to pay salaried workers earning up to $47,476 annually time-and-a-half for every hour they work over 40 in a week. The previous salary threshold, set in 2004, was $23,660. The new rule will take effect Dec. 1, 2016.
 

On May 18, the U.S. Department of Labor (DOL) announced a new overtime rule that will require employers to pay salaried workers earning up to $47,476 annually time-and-a-half for every hour they work over 40 in a week. The previous salary threshold, set in 2004, was $23,660. The new rule will take effect Dec. 1, 2016.

In 2014, as part of a broader initiative to promote economic equality, President Obama directed the DOL to update overtime regulations by drafting a rule that would expand the overtime pay eligibility of salaried workers to reflect the original intent of the Fair Labor Standards Act (FLSA). Although the FLSA established overtime pay for employees who worked more than 40 hours a week, some workers fell within certain exemptions. Specifically, employees who met the following three tests were not eligible for time-and-a-half overtime pay: the salary basis test, in which the employee is paid a predetermined and fixed salary; the salary level test, in which the salary must meet a minimum specified amount; and the duties test, in which the employee’s job must involve primarily executive, administrative, or professional duties.

This so-called “white collar exemption” of the former overtime rule meant that a manager at a retail store who made $35,000 would not be paid overtime—even if he or she worked 60 hours per week. The previous salary threshold of $23,660 resulted in only 7 percent of salaried employees being covered by the overtime rule—a significant decrease from 1979, when more than 60 percent of salaried employees received overtime pay.

In June 2015, the DOL submitted a notice of proposed rulemaking in response to President Obama’s directive. It received nearly 300,000 public comments. The new overtime rule announced in May reflects the department’s review of those comments and its finalization of the controversial rule. Secretary of Labor Thomas Perez stated that the final rule addressed business concerns expressed in the comments—the threshold was slightly lowered from the proposed $50,440; bonus payments count toward the salary threshold; and the rule will not take effect until December 1 to give businesses and employers time to implement any necessary changes.

The new rule focuses primarily on the salary level exemption: Besides raising the salary threshold for overtime eligibility to $47,476 per year—an increase that would give about 4.2 million workers overtime pay—the rule also strengthens protections for workers by updating the threshold automatically every three years based on wage growth.

The rule garnered criticism from many industries that claimed the new overtime requirements would hurt workers rather than help them. Critics cited a potential backlash, claiming that many employees would suffer as employers try to avoid the additional costs of paying overtime. Critics said, for example, that employers may shift an employee from a salaried position to an hourly one, reduce an employee’s hours from full time to part time, or eliminate bonuses that will count toward the threshold. The new rule was also unpopular with small business owners and entrepreneurs, who claimed that they would be disproportionately impacted and that the new rule would make it more difficult for them to make a profit.

But Detroit attorney Jason Thompson believes the new rule ultimately will benefit American workers as a whole. “The first thing that critics ignore is that the change may just have the desired effect,” he said. “It will help people who are barely above the poverty level be paid a living wage. Also, many pundits say that asking salaried workers to track their hours will be demeaning, but it isn’t demeaning if you’re going to be paid time-and-a-half for your hours over 40.”

If companies, on the other hand, limit the amount of hours that an employee may work, this will open up jobs. “In 1929, when they passed the FLSA, it was a jobs creation bill—and always has been,” Thompson said. “The idea behind the FLSA was to get more people employed, so it penalized employers who had employees working overtime and encouraged them to hire a second person. If the pundits are right, and one of the reactions of companies is to prohibit workers from working more than 40 hours, great: They’re going to have to hire another worker.”

Lastly, employers may react by raising the base pay so that a worker’s salary is above the new salary threshold to avoid paying overtime. Thompson pointed out that this, too, is desirable. “Again, mission accomplished,” he said. “If $47,476 is the new middle class, then the country and economy just got one more middle class citizen.”