Andrea Evans Zoia
Enacted in 1938, the Fair Labor Standards Act introduced overtime regulations guaranteeing workers time-and-a-half pay for all hours worked exceeding 40 per week. As overtime pay was designed as a protection for the blue-collar working class, certain exceptions were made to the FLSA’s overtime provisions, mostly for salaried employees doing non-manual labor, or those who may not work standard hours. In 1975, the year when the minimum salary threshold to meet the overtime exemption was last significantly raised, 60 percent of salaried workers fell within the requirement of overtime pay. As the law currently stands, if you are a salaried employee and make less than $23,600 per year, you are eligible for time-and-a-half pay for any hours you work in a week over 40. To put this in perspective, only approximately 8 percent of salaried workers are non-exempt.
In June the Department of Labor announced a proposed change to revamp the nation’s outdated overtime regulations that will limit the number of white-collar workers who will qualify for exemption from the overtime requirement. The proposed changes will more than double the minimum salary level required to meet the exemption to $50,440 per year. According to a fact sheet published by the Department of Labor, the change would expand the number of people eligible for overtime from about 8 percent of the salaried workforce to about 40 percent, covering 5 million more workers. The Department of Labor has proposed automatic updates to minimum salary levels each year, linked to either cost of living or to a fixed percentile of earnings for full-timed salary workers. Either method will make an annual review of workers’ classifications whose salaries are close to meeting the exemption threshold an expensive employer necessity. A recent study commissioned by the National Retail Federation estimated employers could shell out as must as $874 million to update payroll systems, convert salaried employees to hourly, and track their hours if these or similar regulations are imposed.
Supporters anticipate a positive effect on job creation, income inequality and wage stagnation. Those opposed make the argument that the change will not result in the intended income increases. Instead, the cost of increased overtime coverage will be borne by workers as employers set base wages taking into consideration increases in the form of overtime pay. Regardless, the changes will have the primary effects of forcing salaried workers to keep track of every hour they work.
The Internet Changes Everything
Since 1975, technology has dramatically altered the way we work. By one estimate, telecommuting (defined as working from home multiple days per week by individuals not self-employed) has risen 79 percent between 2005 and 2012. Flex schedules and telecommuting is a natural fit for many overtime-exempt employees as employers are not required to track their hours and are less concerned about where and when these employees do their work. For many employees, overtime exempt status provides the best chance of excelling at their careers while fulfilling their obligations as parents. For employers, as long as the employee is overtime-exempt, all that matters is that the work gets done.
If the change goes into effect next year, 5 million more workers will join those overtime-eligible employees who are required to log their hours and account for where and when their work gets done. As most employers are aware, the risk for noncompliance with time-keeping and overtime payment may limit flex scheduling and work from home options. Instead the majority of these workers will be required to clock in and out on a schedule so the employer can precisely calculate their overtime obligations.
Regardless of whether the proposed overtime regulations ultimately result in increased income for the middle class, there are sure to be growing pains for all involved in the short term. The change in overtime rules will require employers to conduct a thorough analysis of how employees’ finite time is being used and compensated. Employers will have to update payroll systems, convert salaried employees to hourly, and track their hours. By necessity, there will be costs in the form of lost flexibly borne by those employees newly covered by the overtime requirements.
Andrea Evans Zoia is a lawyer at Boston labor and employment law firm Morgan, Brown & Joy LLP. She can be contacted at azoia@morganbrown.com or at
(617) 788-5018.
