Labor / Employment, On The Job

Change That’s Coming, Whether You Want It Or Not: Overtime Exemption Increase

Thoughtful employers should get out ahead of this situation, and work with the Department of Labor to create changes that work.

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On his way out the door, President Obama made a lot of unilateral changes that got people in a frenzy. Few of those changes would have had a bigger impact, and were more controversial, than his change to the overtime laws.

Overtime In the United States, A Brief History

If you have ever read any of Dickens’s less popular works, you know that at some point in time, for many people in the U.S., labor was simply dangerous and violent. Kids worked in factories and lost limbs. Men and women worked sun up to sun down for pittance. Companies slashed wages and said deal with it. There were few rules and regulations. Which birthed, of course, organized labor. And not just the organized labor we think about today. Violent organized labor. Much of this has been scrubbed from our history (yes, the U.S. government supported titans who would violently clash with their workers over issues like meal breaks).  But it’s more than a little ironic that we have a national holiday in honor of a movement that federal troops were sent to suppress.

Congress passed two laws aimed at doing something about all this unrest. Of course, the Supreme Court struck both down. But then, in 1938, we got the Fair Labor Standards Act, referred to by us employment lawyers as the FLSA.

The FLSA resolved many issues with one law, and created a much needed national standard. Happily, it ended child labor in almost every situation, a huge sore spot for many people. Seriously, there is no place in a factory for a 12-year-old. But it also set some well-needed “minimums” for pay and pay practices for adult employees. No one today would debate that a 10-year-old shouldn’t be operating heavy machinery. But we continue to debate some of the minimums created by the FLSA, including wages.

President Obama’s Overtime Final Rule

Now, it seemed to the untrained eye that President Obama’s administration rushed the changes to the overtime limits through, but in reality, these changes began with a Notice of Proposed Rulemaking in 2015. The Wage and Hour Division requested feedback regarding a possible change to the limits, and received over 270,000 comments. But no one knew what the Department of Labor (where the Wage and Hour Division is housed) was going to do about the feedback.

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It’s important to note that the salary threshold for exempt employees hasn’t changed but once in the past 40 years. The current threshold has been in place since 2004. A lot of things have changed since then. Including the cost of living.

Along with being financially impractical, another issue is that it is simply irrelevant in a lot of states. The minimum threshold is $23,660. But if an employer just follows the FLSA in California you are going to get sued. California requires an employer to pay nearly twice that for an employee to be exempt. Perhaps in response to the federal government’s failure to make needed changes to the FLSA in a timely manner, states have taken over.

Another issue is anyone following the federal law is setting themselves up for problems in the event of improper classification. Because the threshold is so low, if an employer has an employee who is paid $23,660 in a lot of states, they are likely improperly classified. If an employer is audited, they will need to pay the minimum wage for that state. Many states have minimum wages that are much higher than the federal minimum (Arizona, for example, is at $10 an hour). Basically, the average employer with a handful of improperly classified employees is gambling with their viability under the current FLSA cutoffs. And unfortunately, many do.

What Happens Next

Right now, we have a president in office who wants nothing to do with anything from the past administration, and that includes the overtime threshold change. That is good for business now, maybe. It is notable that retail was the biggest sector impacted, a sector where, from my experience, improper classifications are rampant.

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But ultimately, the threshold is going to change. The current status quo isn’t sustainable, and creates real risk for small fish employers because of the confusing maze of regulations they have to consider. Though not as pressing as the violence, another motivating factor for the FLSA in the first place was the issue of various states have many different laws on these issues. A federal law that is out of touch also means huge penalties when employers get it wrong. Because an employer can face multi-state litigation in a patchwork of penalties. Thoughtful employers should get out ahead of this situation, and work with the Department of Labor to create changes that work. The Walmarts and Targets of the world have the size and leverage to do something good, good for them and the little guys, and come up with a solution. If possible, they should work with this present administration.

I know they won’t. But I wish they would, rather than this current stalemate. Because I worry the next Final Rule regarding overtime will be even higher and just as fast to implement. And that will be ever worse than before. Just like my other prediction: single payer is coming. Only time will tell if I am right.

beth-robinsonBeth Robinson lives in Denver and is a business law attorney and employment law guru. She practices at Fortis Law Partners. You can reach her at employmentlawgurubr@gmail.com and follow her on Twitter at @HLSinDenver.

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