Rewriting the Rules for Overtime Pay

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Correction 3/28/14: Allen Tate’s affiliation corrected.

Saying, “If you have to work more, you should get paid more,” President Obama on March 13 directed Secretary of Labor Tom Perez to rewrite rules that presently exempt certain workers from receiving overtime pay.

The current overtime exemption from the Fair Labor Standards Act (FLSA) applies to salaried workers who make more than $455 per week and have duties that fall into “executive,” “professional,” or “administrative” categories.

At the March 13 signing ceremony, President Obama said that workers across the U.S. are getting a raw deal by putting in extra time without compensation. “That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,600 a year,” he said.

Predictably, top House Republicans on the Education and the Workforce Committee slammed the President’s “executive memos and unilateral actions,” while throwing in a measure of scorn for employment law attorneys who represent consumers.

John Kline (R-MN) and Time Walberg (R-MI) issued a statement that said, in part, “Republicans have long encouraged and continue to support efforts to modernize the rules related to the Fair Labor Standards Act, recognizing the law’s overly complex regulations often promote the interests of trial lawyers instead of workers.”

Misclassification is rampant

Many workers are wrongly classified as supervisors and thus exempt from overtime pay when in reality they have few supervisory duties. Erin Johansson, research director for Jobs With Justice, said workers in the fast food industry sometimes oversee employees for only a couple of hours a week, but are classified as supervisors. “Those people are exempt from overtime, so you have them working a lot of hours,” she said. The retail industry has widespread over-classification of workers, according to Johansson.

Another common issue is the designation of employees as independent contractors, said Allen Tate, a Nebraska consumer attorney working with Justanswer.com. “This is the biggest way that employers are getting around having to pay overtime,” he said. The FLSA does not require overtime for classified salaried employees, but the law does not apply to contractors because they are not employees. Tate said the IRS uses a 20-factor test, which is the standard for determining the difference between employees and contractors. The main factor is the degree to which the employer controls the worker, he said.

Tate said the trucking and construction industries tend to lend themselves to the most questions about overtime, as does the information technology sector.

Another problematic scenario Tate runs across is one in which employers will offer compensatory time instead of overtime, which workers often think is acceptable. “But it’s not,” he said. “It’s a violation of the law.”

Fighting back

Even workers who suspect they are being cheated are often unaware that they can make a protected complaint with the Department of Labor to try to get the issue resolved. Employers cannot retaliate against workers for filing those complaints, Tate said.

Johansson said many workers do not understand their rights when it comes to overtime pay, and at the same time state agencies are poorly equipped to handle enforcement of the laws. “It would be great to see some emphasis on better enforcement in addition to improving this rule on who should be exempt and who shouldn’t be,” she said.

Anti-retaliation provisions vary by state, but Johansson said workers who believe they qualify for overtime and are not getting it should contact their state department of labor. “There are protections for people who stand up for themselves,” she said.

But even though the law says companies cannot retaliate, stopping such practices in the real world can be difficult, according to Tate. “There are a lot of ways that an employer can destroy someone’s career that are not visible,” he said. Workers who feel they are due overtime pay should first go to the company’s human resource department to get the issue on record. Should the issue ultimately go to court, employers then do not have the defense of not having known about the problem, Tate said. “If they didn’t have a chance to cure they can offer to cure then with no interest and no penalties,” he said.

And even though anti-retaliation laws are in place, Tate saw employees need to weigh the potential benefits of an overtime claim against potential problems. “If you are talking about a half an hour of overtime…well, weigh the damage there versus the long-term effect of suing the employer,” he said.

No states are currently working on any changes to their overtime laws, but individual states do have slightly different rules. California, for example, dictates that workers must receive overtime pay for more than eight hours worked in a day, while most states look only at the weekly totals. Illinois limits how many days in a row can be worked, Tate said.

Johansson said state websites often have useful information for workers seeking a better understanding of overtime rules. And when all other remedies fail, she said sometimes forming a union is the best option for workers to “transform the workplace for the long term and not just for their own particular issue.”

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