February 16, 2004

February 16, 2004 | Commentary on Jobs, Jobs and Labor Policy

Overdue on Overtime

Virtually everything about the American workplace has changed since the 1930s. We use computers instead of typewriters, send e-mail rather than use the post office, and rely on just-in-time delivery instead of stacking tons of extra parts in warehouses.

One important thing still dates back to the Depression, though: Our overtime laws. Now, however, the Department of Labor is poised to finally update those laws, so they will reflect the realities of today's workplace and simultaneously return to the intent of the nation's labor laws.

The Fair Labor Standards Act, originally passed in 1938, established 40 hours as the standard workweek and provided employees with "time-and-a-half" pay for hours worked over that. The idea was to encourage employers to hire more workers and improve conditions for those already on the job by limiting work hours.

But a significant problem remains. The law makes executive, administrative and professional employees, along with outside salesmen and saleswomen, exempt from the overtime rules. Needless to say, just who qualifies as a "white-collar" exempt employee is a critical question for both employers and workers. Millions of dollars in overtime pay are at stake. That's why the law desperately needs updating.

For starters, salary levels that employees must receive in order to be considered executives, administrators or professionals haven't been changed since 1975. Depending on his or her job duties, an employee may be considered exempt while earning as little as $250 per week.

At the same time, the regulations are needlessly complicated. Employers use different tests at different income levels, and many of the existing rules prove difficult to apply. The Labor Department's own investigators admit their determination of whether a job is exempt often hinges on the employee's own attitude towards his or her job. These arbitrary decisions are a gold mine for trial lawyers, who have won judgments as high as $90 million against employers who were found to have misinterpreted the incomprehensible rules.

Finally, the rules don't account for the rise of highly skilled production workers. These well-compensated employees receive as much as $70,000 annually and have job duties and training similar to that of engineers. But because they lack formal college degrees, they're not considered "professionals" and frequently must be given overtime pay.

The Labor Department's new rules, however, will go a long way toward fixing these problems. They'll boost - to $425, from $250, a week - the minimum salary an employer would need to pay before a worker could be considered "exempt." At the same time, the rules would be streamlined, making it easier for workers, employers and investigators to determine whether an employee is eligible for overtime.

By raising the minimum salary level needed for "white collar" status, the Labor Department is returning to the original intent of the Fair Labor Standards Act - to protect unskilled manual laborers from the dangers of overwork. By limiting work hours, Congress meant to reduce the dangers of fatigue and workplace accidents and allow workers more time for recreation, family and education.

Executives, administrators and professionals were excluded because they were seen as having both higher compensation and greater job security, giving them better control over their own work hours.

The drafters of the original Fair Labor Standards Act probably would be shocked to learn that, under today's rules, a cook earning $13,000 a year can be considered an executive because he supervises two kitchen workers, while a technician with a $70,000 salary can receive mandatory overtime pay.

More straightforward regulations will make enforcement of the wage-and-hour laws easier. Thus unskilled workers, the employees who have the least control over their working hours and conditions, will receive the maximum level of protection. Under the new rule, any worker receiving a salary of less than $20,000 will be eligible for overtime, regardless of his or her job duties.

Employers will also benefit, because it will be easier to determine who is eligible for overtime. And the Labor Department also will remove well intentioned but unworkable provisions that have complicated the lives of both employers and DOL investigators.

American workers are the most efficient and valuable in the world, and deserve fair compensation for their extraordinary efforts. With new overtime rules in place, our labor laws can finally join our labor force in the 21st century.

About the Author

Paul Kersey Visiting Fellow

Related Issues: Jobs, Jobs and Labor Policy

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