Employment Law

Personal Injury

The lady doth protest too much


Change in exempt worker overtime pay standards is long overdue

The “lady” in question is most employers who may be faced with the prospect of either raising salaries of exempt employees or paying overtime for those employees making less than $50,440. A proposal from the Department of Labor that could go into effect this summer would redefine “exempt” employees and change the minimum salary for those employees. This change would make anyone earning less than $50,440 eligible for overtime pay.

The cry from employers is poverty. Many employer organizations claim they will no longer be able to afford these workers, leading to layoffs, a reduction in the number of full-time employees and elimination of “flexible” work schedules. Many of these tears, however, may be of the crocodile variety.

What it really means is ending the practice of mislabeling many front-line employees as “managers” in an effort to make them exempt from overtime requirements under the Fair Labor Standards Act (FLSA).

This practice, used in much of the retail and restaurant industry has allowed employers to designate a worker as a “manager” and then require them to work 50 or 60 hours per week, all while paying salaries of $25,000 or $30,000 a year.

Wage standards are long out of date

The current exempt employee status takes effect at $23,660 per year, meaning that if they work 55 hours per week as a “manager,” they earn an effective hourly rate of $8.72 per hour, which is only slightly above the minimum wage.

Worker salaries have been stagnant for 40 years, which has allowed employers to extract all of the wealth obtained from productivity gains for their pockets alone. The previous $250 per week amount had been set in 1975 and remained unchanged for the next three decades. As the Economic Policy Institute noted in a paper, a minimum wage worker in 2003, earning $5.15 would have earned more than a white-collar exempt “manager.”

Had the exempt worker wage been indexed to inflation, it would have reached $970 a week in 2012. The current threshold of $455 per week was adjusted by the Bush administration in 2004 and was inadequate then and 12 years of modest inflation have made it even more inadequate today. In reality, businesses have essentially received a massive “rebate” from their employees for decades.

Some businesses, like restaurants, claim it will affect how they train managers, and would mean “the entire mode of internal career path for hourly staff would go away.” Really? Is this statement meant to suggest that they will apparently not need qualified managers any longer?

It seems unlikely that a well-managed restaurant would no longer be able to train staff. With better pay, they might even be able to attract better workers who will be better motivated to help the business succeed.

Misclassification has been rampant and unchecked for so long in this country that many employers seem flabbergasted to be reminded that it is illegal. Hiring employees and calling them independent contractors or managers to avoid paying benefits or overtime has become a pattern and practice of entire industries, such as construction.

It’s all about fairness

Some businesses will need to adjust and there may be pain and discomfort, but most of that will be from employers who will have to better share some of their profits, which they owe in large part to the work of their employees. Paying employees a fair salary for a fair day’s work is why the wage and hour rules of the FLSA exist, and that is why “fair” is in the title of that act.