March 12, 2014

President Obama’s plan to make more workers eligible for overtime pay could be a seismic shift

The president is expected to ask the U.S. Department of Labor on Thursday for revisions to the Fair Labor Standards Act. The reclassification of employees from “exempt” for overtime pay to “nonexempt” would affect fast-food shift managers, certain computer workers and others who have been considered salaried workers ineligible for overtime pay.

Tremors reverberated through Kansas City’s service industries Wednesday after news that President Barack Obama wants to make millions of additional employees eligible for overtime pay.

The reclassification of employees — changing them from “exempt” for overtime pay to “nonexempt” — would overturn and update some specific overtime-related provisions passed 10 years ago.

“It could be a seismic shift in retail, restaurants and other services,” said Kansas City employment law attorney Tim Davis, who said he fielded calls all day from clients. “In the wonkish world of wage and hour law, it could have a significant impact.”

Obama is expected to ask the U.S. Department of Labor on Thursday for revisions to the Fair Labor Standards Act. The biggest change is expected to include raising the pay amount that makes workers eligible for time-and-a-half overtime pay.

The move would fit with the president’s intent to raise income levels for middle-class Americans.

Employers now cannot deny overtime time to a worker who makes less than $455 a week, even if that worker is paid a salary rather than by the hour. Worker advocacy organizations and some economists have argued that the threshold should be lifted to $984 a week.

The order also is expected to require that employees perform a minimum percentage of “executive work” before they are subjected to the “white-collar exemption,” which denies them overtime pay. That would narrow a loophole that allowed some employers to exempt low-level retail and service industry managers from overtime pay protections.

“We need to fix the system so folks working hard are getting compensated fairly,” Cecilia Muñoz, the director of the White House Domestic Policy Council, told The New York Times, which first reported the expected presidential order. “That’s why we are jump-starting this effort.”

The $455 level was set in 2004 during the George W. Bush administration and did not have an inflation adjustment built into the law. In 1975, the U.S. Department of Labor first set the threshold at $250 a week, which would be equal today to about $970.

Davis, the employment law attorney, said local human resource officials and lawyers are “reading the tea leaves” and expect a threshold request of “about $900 and tied to inflation.”

The federal government is also expected to move toward requiring a “quantitative” rather than a “qualitative” analysis system to determine the percentage of time that a midlevel manager spends on “executive” duties versus assigned tasks.

Currently, a quantitative system is used in California, which says that if someone spends at least half of his or her time doing work that would qualify them as eligible for overtime pay, then he or she must be eligible for overtime pay. Federal law now uses a qualitative analysis that allows employers to determine what duties are most important and categorize the worker accordingly.

Obama, like Bush, other presidents and Congress, has the power to initiate updates to the 1938 Fair Labor Standards Act.

“It’s a very welcome and badly needed move to promote fair pay,” said Debra Ness, president of the National Partnership for Women & Families.

“Coercive overtime is a huge problem in this country. Millions of women and men are forced to work more than 40 hours per week without compensation because of outdated employment classifications and salary threshholds.”

The reaction was far different from some employer-related groups and congressional Republicans, who said the order will increase the cost of doing business, which will cost jobs and lead to higher prices.

Jason Pryor, chairman of the government affairs committee for the Greater Kansas City Restaurant Association, said he wanted to wait and read the details of the proposal before commenting.

“We are hearing a lot of different stories on what it is going to be on the grapevine from our D.C. sources, everything from salaried positions from $23,000 a year to $51,000 a year,” Pryor said. “But this issue is going to affect far more industries than just the restaurant industry.”

House Speaker John Boehner, an Ohio Republican, said the president should focus on creating jobs instead of making it more difficult for employers to expand employment.

A study last year by the Economic Policy Institute, a liberal research group, estimated that each week about 5 million workers earning between $455 and $1,000 a week are exempted from getting overtime pay in their jobs.

Those workers are likely to include certain restaurant shift managers, computer workers and others whose employers classify them as executive, administrative or professional workers — and exempt from overtime protections — under current labor law.

The expected executive order is another step by the president to work around Congress, which has been intent on blocking his agenda to raise the minimum wage. Obama already has proposed raising the federal minimum wage in increments from its current $7.25 an hour to $10.10 by mid 2016.

The executive order would revamp sweeping revisions launched in 2004 to the nation’s standards governing on-the-job pay. The Labor Department, responsible for implementing those changes, also would have to write rules connected to Obama’s order.

That process requires a public comment period and would take months before new rules could be implemented.

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