Obama Proposal Could Result in Higher Pay for Some Salaried Workers, But Don’t Hold Your Breath

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Has your employer misclassified you to avoid paying overtime?Earlier this month, the federal Department of Labor (DOL) announced a proposed rule that could mean more money for those earning low salaries. The idea is to force employers to choose to raise salaries or pay employees hourly wages and overtime. But the proposal is in the form of a proposed rule concerning enforcement of the Fair Labor Standards Act (FLSA) that may never actually be enacted.

NPR reports that, according to the President, this new rule could make 5 million more Americans eligible for overtime pay, while Republican opponents and the business lobby warn if the provision is enacted, it will result in fewer jobs (which is their standard warning for any proposal that might mean workers could earn more money). Supporters claim the change is needed because more employers are cutting costs by transforming people who traditionally would be hourly employees eligible for overtime into salaried employees who have no legal right to that extra pay for working extra hours.

Under current rules, a salaried worker making more than $23,660 a year doesn’t qualify for overtime payments, no matter how many hours he or she works. The proposed rule change would increase that to $50,440. As it stands now, if that salaried worker making $23,660 were supporting a family of four, no matter how many hours are worked, the income would still fall below the poverty level, according to the federal DOL.

There are dozens of types of employees, including teachers and seasonal workers, who will not be affected if the proposal is adopted, because they’re are already exempt from the law.

Proposal Will Not Go Into Immediate Effect

Putting this new rule into place could well be a long and difficult process, if what happened during the George W. Bush administration in 2003 and 2004 is any guide, according to USA Today. At the time, the Democrats were fighting proposed changes to overtime qualifications. It took the Bush administration two years to make its changes, and the Obama administration will want the process completed before the election of the next, possibly Republican, president next year.

The Obama administration claims that the proposed changes would have the following effects:

  • newly overtime-eligible workers would be entitled to an additional $1.2 to $1.3 billion in wages,
  • some employees will have their work hours reduced so they won’t be paid overtime, and
  • some employers may hire new employees to perform the work salaried employees had once performed.

The income limit is one of two tests to decide whether full-time salaried workers should be paid overtime; the other is the “duties” test. This three-part test determines whether workers meet the definition of a manager. To qualify, people must spend more than half of their time:

  1. superoverseeing other workers,
  2. setting work schedules, and
  3. performing other “management” tasks that make them exempt from overtime pay.

Details of the Proposal

The DOL is proposing an update to the regulations covering which executive, administrative, and professional employees qualify for the FLSA’s minimum wage and overtime pay protections. The DOL states the increased salary level is meant to “ensure that the FLSA’s intended overtime protections are fully implemented, and to simplify the identification of nonexempt employees, thus making the executive, administrative, and professional employee exemption easier for employers and workers to understand and apply.”

The DOL’s proposal would set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers as the best line to mark the difference between exempt (salaried) and nonexempt (hourly) employees. This is supposed to lessen the chance workers legally entitled to overtime will be misclassified based solely on the salaries they receive, without excluding from exemption a high number of employees meeting the duties test.

The proposal is not just for a one-time adjustment. The DOL also wants to update the standard salary and highly compensated employee total annual compensation requirements automatically so they’re meaningful tests that will objectively tell the difference between genuine executive, administrative, and professional workers not entitled to overtime and those workers improperly labeled as exempt simply to cut costs.

The agency also states that as well as accepting comments about proposed rule change, it wants to receive feedback about the existing duties test, suggestions for additional occupation examples, comments on current requirements, and thoughts on the possibility of including nondiscretionary bonuses to satisfy a portion of the salary requirement. Comments can be submitted through this webpage. The deadline to submit comments is September 4.

Summing It Up

If you believe that you’ve been misclassified as a salaried employee and are being denied overtime you should be entitled to earn, keep the following points in mind:

  • Most employees are entitled to overtime pay under the FLSA.
  • The law has many exceptions for specific types of employers and employees, including “white-collar” positions for administrative, executive, and professional employees; computer professionals; outside sales employees; and employees of certain retail and service businesses.
  • Though this law covers many jobs, these are the narrowly construed exceptions to the law. The employer has the burden of proving that you are correctly classified as an exempt employee.
  • Each case is judged on its facts and circumstances.

If you have any questions about overtime payments, contact our office so we can talk about your situation and the applicable laws and discuss how they may be applied to you.