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Millions more white-collar workers could qualify for overtime under proposed federal rule

Tony Foreman, owner of the Foreman Wolf group of restaurants, which includes PAZO, shown, worries a change in overtime rules could disrupt how workers advance in the restaurant industry.
Tony Foreman, owner of the Foreman Wolf group of restaurants, which includes PAZO, shown, worries a change in overtime rules could disrupt how workers advance in the restaurant industry. (Algerina Perna / Baltimore Sun)

A store shift manager who supervises workers struggles to pay his family's bills but doesn't qualify for overtime after a more than 40-hour workweek.

That's one example the U.S. Department of Labor is using to explain proposed rules governing which white-collar workers are exempt from overtime pay. The proposal would make an additional 5 million employees eligible, more than doubling the existing salary threshold from $23,660 to $50,440.

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"Today, certain professionals and managers are exempt from overtime if they make more than $23,660 a year and perform specific duties," the agency says on its website. "This is less than the poverty threshold for a family of four. By updating the overtime rules, we're ensuring a fair day's pay for a fair day's work."

Updates are needed to the federal rule, the labor department says, because the overtime exemption for executive, administrative and professional employees originally was meant for "highly compensated" employees, not someone making as little as $23,660. Convenience store managers, fast-food assistant managers and some office workers are now expected to work 50- or 60-hour weeks without overtime and make less than the poverty level for a family of four, the department says.

But the changes, which could take effect as soon as this summer, are raising concerns in Maryland and elsewhere among employers and business groups, which argue that costs would be burdensome and could hurt workers' chances for flexibility, promotions and bonuses. Sectors such as retail, construction and nonprofits are most likely to be affected.

"It is very, very concerning," said Cailey Locklair Tolle, president of the Maryland Retailers Association. "It's going to be additional costs to retailers — to businesses, period."

Groups such as the Society for Human Resource Management have been urging members to look at the proposal and consider how their employees and budgets would be affected. Restaurants might choose to rely on more part-time workers or limit hours, she said.

Businesses also are concerned about a possible change in what is known as the "primary duties test," raised as a question by the labor department but not yet formally proposed. Workers currently are exempt from overtime pay if their main duties are managerial. But under the possible change, known as the California Test, a worker who spends more than half his time on nonmanagerial tasks would be eligible for overtime, regardless of salary.

The human resource group said in public comments to the labor department that it supports modernizing overtime regulations but that the salary threshold is far too high. And changing the "primary duties test" would be complicated for small employers and those in industries where managers have both managerial and nonmanagerial duties.

"The workplace is changing," said Nancy Hammer, the HR society's senior government affairs policy counsel. "We're encouraging employers to look at whether employees are getting their work done, not how or when employees are getting work done. The concern with this is that employers' ability to offer flexibility is impacted when employees are nonexempt [or entitled to overtime]. Right now, an employee may be able to decide to leave early and work in the evening. They are not tracking that time, they're just getting the work done."

She said a technology company told the group it had allowed employees to take laptops home to complete professional development and certification programs. If those employees were reclassified as nonexempt, the company said it would not be able to afford to pay overtime for that work and might have to eliminate that benefit.

"Small employers may have less of a pot of money that they are distributing between salaries and benefits," Hammer said. "If more people become eligible for overtime, they may have to make a decision: 'Am I going to cut people's hours or pay them less so I can afford within my salary budget the overtime they currently work?'"

The proposal stemmed from a memorandum President Barack Obama issued in March 2014. Rules were proposed last July, prompting several hundred thousand comments, both pro and con, to be posted since then.

The National Employment Law Project in New York supports the salary-threshold increase but believes the rule change should include a formal proposal to measure duties in terms of time spent, which would increase the number of overtime-eligible workers.

"We had hoped that the rules would have gone farther," said Catherine K. Ruckelshaus, the project's general counsel and program director.

The National Grocers Association, which represents wholesale and retail independent grocers, said in a comment on the rules that it opposes what would amount to an increase in the minimum salary levels required for an employee to continue to qualify as "exempt" — not eligible for overtime.

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"The net margins for the supermarket industry are approximately 1 percent to 2 percent, and this proposal would reduce that margin even further," the grocers association said. "Any increase to operating costs could mean failure."

Under the proposed rule, service stations and auto repair businesses said they may be forced to charge customers more, lay off workers, convert full-time workers to part-time or change employees from salary to hourly, which could affect benefits, base pay and flexibility, wrote Kirk McCauley, director of member relations and government affairs for the Washington, Maryland, Delaware Service Station and Automotive Repair Association, in a post to the labor department's site.

The rule changes are of special concern to nonprofits in Maryland and elsewhere. Organizations that serve people with intellectual disabilities, for instance, receive a fixed amount of funding through the state with federal Medicaid matches.

"You have to guarantee a certain level of service," said Gabrielle Sedor, chief operations officer for the American Network of Community Options and Resources. "It's not so easy to reduce your hours or staff. Someone may require one-on-one staffing."

She said the rule as proposed is "going to be so significant that ... some providers may decide to no longer provide certain services."

"That's hard to hear," Sedor said. "There are waiting lists for services. We want nothing more than to pay our workers well, but it's incredibly challenging, given existing Medicaid rates."

In Maryland, supervisors and directors overseeing staff and budgets might earn salaries up to around $40,000 at nonprofits serving developmentally disabled clients, said Laura Howell, executive director of the Maryland Association of Community Services.

"Under the current proposal, they would become hourly, and that would then potentially significantly increase the overtime costs," Howell said.

In the restaurant business, hourly workers often work their way up to managerial jobs, where they might work 50 or 55 hours a week, said Tony Foreman, owner of the Foreman Wolf group of restaurants in Baltimore.

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"Like most professional people, if you have supervisory responsibilities, it takes more than 40 hours, especially if you're managing and training people," Foreman said.

While he is not familiar with the details of the overtime proposal, he said he's worried it could mean "the entire mode of internal career path for hourly staff would go away."

The retail association's Tolle said retailers will have to react to overtime changes while also facing changing requirements in minimum wage, paid sick leave, mandatory retirement and health care.

"We're seeing larger retailers that are really struggling right now," she said. "The industry is changing, consumer spending habits are changing when there are all these new additional costs. Any type of regulation is going to impact those businesses. Is it going to be reduced benefits to employees? Is it going to be increased costs to consumers? When additional costs hit, you have to find some way to make up for them."

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