Overtime Overhaul: 5 Takeaways

Whether you love or hate the U.S. Department of Labor’s new overtime rules, with $1.2 billion a year expected to shift from employers to employees, they are proof positive the government can change lives dramatically. Those shouts of joy you hear are employees finding out they are getting a raise or will work fewer hours without a cut in pay. The screams of anguish are from those employers who already were barely breaking even and now wonder how they’ll pay for it all.

Here are five takeaways from the May 2016 overtime rule changes:

Make less than $47,476 a year? Come Dec. 1 you likely will be eligible for overtime (1.5 times your usual hourly rate) for time worked in excess of 40 hours a week. Compare that to the prior $23,660 floor before the “white collar” work overtime exemption might kick in. (Note some forms of bonuses/commissions now can count as up to 10 percent of the $47,476.)

But… are you a teacher/professor, academic administrator, doctor, lawyer, judge or outside sales rep? Then you are likely not eligible for overtime regardless of your salary. However, grad student and post-doctoral researchers making less than $47,476 now are likely to be overtime eligible.

When do an employee’s duties become irrelevant to whether overtime applies? There’s no overtime for those paid over $134,004, previously $100,000.

Can an employer lower base pay for future work so that even with overtime pay the total yearly paid an employee does not increase? Yes, if the employer is willing to risk ticking off workers in a relatively tight job market (5 percent national unemployment rate).

How did such a major change happen without legislation? The new floor is based on a percentage of current average wages (for the lowest-paying region of the country, the South). In many past decades the salary threshold went unchanged, in disregard of inflation and increases in national average wages. The figures now will get updated every three years.

Even without these changes, overtime rules were complex, such as determining whether they applied to an employer as an organization (at least $500,000 annual gross revenues for most types of employers) or nonetheless applied to particular employees. The Labor Department considers an employee to be involved in interstate commerce (and so potentially subject to overtime) even if just regularly making telephone calls to other states. With overtime suits all the rage, employers may be making a losing bet to assume they are among the select few who are exempt as an entity and have all their employees exempt too.

The rules do not affect the federal minimum wage, at $7.25/hour (about $15,000/year) since 2009. It would have to be around $11/hour to equal the buying power of what the minimum wage in the 1960s offered, per the Labor Department. With Hillary Clinton supporting a phased-in minimum wage increase to $15/hour and Donald Trump alternating between support for raising, lowering and preserving the current rate, expect it to continue to be a hot topic.

In the meantime, feel free to continue to argue about whether the new overtime rules are an improvement. Just don’t tell me that nothing ever gets done in Washington, given this parting gift from President Obama to those who might have thought the American Dream of the middle class had left them behind.

Texas grocer H-E-B offered comments to the proposed rule supporting the bump in the minimum salary threshold, explaining that it already paid “competitive wages.” It is among those rare employers who have learned that higher wages can be as important to competing as are lower prices.

> David Schleicher is an attorney with offices in Waco, D.C. and Houston.

As originally appearing in Waco Tribune-Herald, page A8, Sunday, May 22, 2016.

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