Many conversations are going on right now about wage inequality. For most of the period between 1979 and 2013, wages for the top 1% of earners grew 138% compared to 15% for those in the bottom 90% (Economic Policy Institute, Charting Wage Stagnation). So to help make an adjustment on wages, there is a revision coming from the U. S. Department of Labor that will probably have a major impact, and it’s not making a lot of organizations very happy.
In 2014, the U. S. Department of Labor was asked to look into overtime rules. In 2015, the agency proposed to raise the overtime threshold for salaried workers. Under the Fair Labor Standards Act, any salaried worker if they are classified as an executive, administrator or professional and currently earns more than the threshold is exempted from overtime hours as long as the duties of the job performed pass the “duties test.” Hourly workers are paid overtime 1.5 times the wage, or time-and- a-half.
This increase in the threshold is important for salaried workers who have been working many extra hours but not getting paid for it. The Department of Labor is recommending the threshold increase annually from $23,660 to $50,440. The problem with the current amount is obvious – it’s extremely low.
A good example that explains this is in the retail industry. If a person is an assistant manager making less than the threshold (yes, that happens), that manager can be eligible for overtime. Sometimes that doesn’t always happen because of the job classification. An assistant manager may do many of the same jobs (wait on customers or prepare food) as an hourly worker but is given a management position and may be expected to work additional hours without compensation of those additional hours. While this may help the retail organization save on labor costs, the manager may work long hours of unpaid time since they could be on salaried pay.
One fear from organizations that is associated with the above example is all jobs will have to be reclassified. That, they say, will increase costs significantly. The Society of Human Resource Managers reports the re-classification that will be required will increase costs not just related to re-classification but to other labor costs such as retirement and health benefits. SHRM also has concerns for entry level positions. Those positions could be lower in pay or those in higher positions may need to receive an increase(SHRM Overtime Rule).
Another fear is it could, eventually, mean the loss of hours or jobs for workers because these additional costs will need to be passed on to the consumer. Consumers will not want to pay those huge increases. According to the Cato Institute, a 20% increase in the minimum wage is a 4% increase for the consumer (cato.org). That’s not that significant. If a purchase is made at $10, the increase is 40 cents – less than a dollar.
Some claim this will end telecommuting. The fear is workers could pad hours and come back later to claim overtime. As far as that claim is concerned, that’s not necessarily true. That may happen, but isn’t that something that could happen now? One article mentioned more flexibility may be an option. It may be the work schedule becomes 4 ten-hour days or 5 eight-hour days or maybe only one day is telecommuting (SHRM, OT-Telecommunting Reduction). In other words, there are options instead of ending it all together.
It is true some jobs may need to re-classified. This revision is helping to force re-classification to happen or make sure those entitled to overtime pay receive it. In addition to retail managers, other supervisors; clerical workers; construction, maintenance and installation workers; other professional workers in social work, accounting, insurance; and many more will be impacted by the new threshold amount.
One other positive thing that could actually come out of this is more people could be hired. Employers are not excited about having to pay overtime so this could be a means to encourage more hiring or increase more hours of work for existing employees.
The other important positive news from this is more workers will now be able to receive overtime. Before, some either had their job duties adjusted or were re-classified so they would not receive overtime. Many of those workers were low educated, under age 35, women, African-Americans, and Hispanics so now they will have greater opportunity for a living wage (Economic Policy Institute).
So could this possibly be a way to drive all wages up? We’ll have to wait and see. Yet, with all these fears and all the complaining, the current threshold is below the poverty level for a family of four. It’s long overdue! The last time the threshold was raised to the comparable level the Department of Labor is proposing was 1975 – more than 40 years ago! The current amount of $23,660 was raised in 2004 which was not that long ago and was nearly at poverty level then. (Economic Policy Institute)
Enough is enough! What are your thoughts?