White House Proposes Overtime Rules Overhaul

March 27, 2003 (PLANSPONSOR.com) - As many as 1.3 million low-income workers would be eligible for overtime pay for the first time in an overhaul of labor regulations being proposed by the White House.

The changes, based on suggestions from the Department of Labor (DoL), are in a section of the 1938 Fair Labor Standards Act that defines blue-collar and white-collar workers, and determines who must be paid an hourly rate of time-and-a-half for working beyond 40 hours a week. Currently, approximately 110 million workers are covered by the regulations, which have not been updated in 28 years, according to an Associated Press report.

In the end though, the changes would also mean that roughly 640,000 white-collar workers could lose overtime pay. Moreover, employers could face $334 million to $895 million in direct payroll costs due to the sudden bonanza of overtime eligible employees.

Factoring in implementation costs associated with the new requirements, companies could be faced with costs of $870 million to $1.57 billion, critics have said. However, the DoL disputes these figures, arguing instead that the benefits of increased productivity and fewer lawsuits could mean savings of $1.1 billion to $1.9 billion.

Keep It Simple

Business groups long have complained that the rules are too complicated, contain outdated job descriptions and salary levels, and require overtime pay for already well-compensated and highly skilled professionals. Under the current regulations, workers are exempt from overtime pay if they earn more than $155 a week, or $8,060 a year, and meet other job criteria. The Bush Administration proposal would raise the salary cap to $425 a week, or $22,100 a year, and any worker earning less automatically would be required to receive overtime pay.

Additionally, the proposal clarifies and simplifies definitions of administrative, executive and professional employees that should be exempt from overtime pay. Generally, workers would be exempt under the proposal if they manage more than two employees and have the authority to hire and fire, or they have an advanced degree and work in a specialized field, or they work in the operations, finance and auditing areas of a company.

“Our proposal has attempted to simplify and update, to make those rules easier to apply and easier to enforce,” Tammy McCutchen, administrator of the DoL’s Wage and Hour division, told the Associated Press. The current regulations are 31,000 words, she said. The proposed replacement: 13,000 words.

Jobs most affected by the changes likely would be assistant managers of stores, restaurants and bars. They would get overtime pay despite their management status as long as they earn less than $22,100 a year.

Reducing the number of overtime pay lawsuits aimed at employers was also a target for the proposed revisions. Workers filed 79 federal collective-action lawsuits seeking overtime pay in 2000. In 2002 alone, suits were settled by United Parcel Service, Radio Shack Corp, Starbucks Corp, Intel Corp (See Current Worker Sues Intel For ‘Exempt’ Classification ) and Michaels Stores, Inc (See Michaels Settles Back Pay Lawsuit ) for overtime related cases.

Union No

Not behind the proposal are union officials, who have voiced opposition to any changes that would cause longer workweeks, arguing required overtime pay is the only deterrent stopping many employers from demanding excessive work hours. However, employees who work under collective bargaining agreements negotiated by unions would not be affected by new regulations. Additionally, companies still can choose to pay overtime to exempt workers.

The proposal to modify overtime regulations is one of many Bush administration revisions to workplace regulations and programs, including the Family Medical Leave Act (FMLA), job training programs and unemployment insurance. Final regulations, which would not require congressional action, after being subjected to a 90-day public comment period, probably would not take effect until late this year or early in 2004.