Contentious and confusing federal rules governing overtime pay went into effect Monday, prompting former U.S. Labor Secretary Robert Reich to note that businesses will likely exploit what he calls “new loopholes” in the regulations. Separately, vice presidential nominee John Edwards predicted the new rules will mean smaller paychecks for millions.
The rule overhaul rewrites overtime pay regulations for the first time in more than half a century. But there is little agreement by the Bush administration, employer groups, labor experts and others on how many workers will gain or lose the right to overtime pay under the new rules in the Fair Labor Standards Act.
Employers sought the changes for decades, complaining that the regulations were too confusing and out of date. Labor unions, however, say the new rules are intended to reduce employers’ costs by cutting the number workers who are eligible for overtime pay.
The changes impact mostly white-collar workers, and the Labor Department says manual laborers and other blue-collar workers won’t be affected.
Estimates of how many workers will lose their overtime eligibility range from the 107,000 figure put forward by the Bush administration to 6 million. Workers who could become newly eligible also vary. The Bush administration says about 1.3 million people earning less than $24,000 a year will gain overtime protection.
American businesses want to keep wages “as low as they possibly can to stay competitive,” and so the Bush administration’s estimate that 107,000 white-collar workers losing overtime eligibility because of the new overtime pay rules is likely way too low, Reich said.
Reich, who is advising the John Kerry presidential campaign, said the rules redefine the term “executive” to include manual workers who sometimes supervise two or three people. He also says another 1 or 2 million “team leaders” who don’t supervise anyone will lose overtime eligibility by being reclassified as “administrators.”
John Edwards chose the almost evenly divided state of Wisconsin to tout the Democratic presidential ticket’s economic plans and criticize the Bush administration’s new overtime pay rules.
“Today, millions of workers will find out that instead of getting time-and-a-half, they’re going to get a hard time from their government,” the vice presidential nominee said in prepared remarks. “More than 60 years of protecting overtime work have been wiped out with the stroke of this president’s pen.”
Jerry Hunter, a labor lawyer at Bryan Cave LLP in St. Louis and former general counsel of the National Labor Relations Board during the first Bush administration said no one knows how many workers will be affected by the new rules. “Not only is the Labor Department unsure, but a lot of people in a lot of industries are unsure,” Hunter said. “This is all very fluid right now.”
Smaller paychecks predicted
Edwards and presidential nominee John Kerry predict the changes mean smaller paychecks for millions and predict workers like teachers and computer programmers could see their pay shrink.
“Taking away the right to overtime pay and doing nothing while paychecks shrink and jobs go overseas makes sense only to someone who does not understand American values and does not respect what work means in this country,” Edwards said.
The Bush-Cheney campaign said the Democrats have distorted the president’s record and that the new rules will grant overtime pay to some workers not now eligible.
“This attack is another example of the Kerry campaign trying to mislead American workers,” said spokesman Matt McDonald. “The only loser under this reform is the trial lawyers who have created an overtime lawsuit industry that costs our economy $2 billion per year.”
Edwards amassed his personal fortune as a plaintiff’s trial lawyer before winning election to the Senate from North Carolina in 1998.
The new rules are intended to limit workers’ multimillion-dollar lawsuits, many of them successful, claiming they were cheated out of overtime pay for working more than 40 hours a week.
Retailers, restaurants, insurance firms and banks have been targets, and jobs in those places are generally exempted from overtime in the new rules. They include chefs, pharmacists, funeral directors, embalmers, journalists, insurance claims adjusters, low-and midlevel bank managers and dental hygienists.
Whether the new rules will reduce litigation is questionable, experts said. Lawyers representing workers have found the suits lucrative.
“This has become a very big area of plaintiffs’ employment law, and it is not simply going to go away because of these new regulations,” Bill Schurgin, a labor lawyer in the Chicago office of Seyfarth Shaw.
Critics lament ‘drastic changes’
Critics say the changes will eliminate overtime for millions of middle-class Americans struggling in a weak jobs market.
“These are drastic changes that will hurt working families,” said Karen Nussbaum, executive director of Working America, an AFL-CIO organization created for workers unable to join unions. The AFL-CIO is holding a protest outside the Labor Department on Monday.
Labor Secretary Elaine Chao has created a task force that will be “looking very closely and critically at any reclassifications that result in workers losing their overtime status,” said Steven Law, deputy secretary.
No new funds have been added, but the department’s Wage and Hour Division “will be very, very carefully monitoring and following up with enforcement,” especially in high-violation industries, he said. The department won $212 million in back wages for overtime violations in 2003, a 21 percent increase.
At Denver Water, a public utility, none of the 1,050 employees will be reclassified, said benefits manager Jim Crockett.
“We were in compliance before, and when I analyzed the jobs for the new rules, it came up that no changes were necessary,” he said.
When in doubt, the utility classifies workers as overtime-eligible, Crockett said. For example, its survey chiefs are in the field only during only summer months supervising crews; the rest of the year they oversee few workers, if any. But the chiefs are given overtime status, he said.
About 107,000 white-collar workers now eligible for overtime pay who earn $100,000 or more annually could lose it under the new rules, the Labor Department said.
About 1.3 million workers, mostly low- and midlevel managers at stores and restaurants, who earn less than $23,660 a year will be newly eligible. However, employers can avoid paying them overtime by raising their salaries, so critics say far fewer will benefit from overtime.
Rules change ‘duties tests’ definitions
For white-collar workers who fall between those salary levels, their overtime status depends on their job duties and experience. The rules revamp the definitions of professional, administrative and executive employees, called “duties tests,” that are used to determine eligibility.
For example, professional employees exempt from overtime had professional degrees. The new rule allows employers to substitute work experience and instruction.
Executive employees had authority to hire and fire. The new rule expands that provision, saying an executive can make recommendations that carry weight regarding employment status.
Labor leaders say slight changes in wording could exempt millions from overtime pay. The Labor Department says duties are more clear and make status more certain, resulting in “few, if any” losing overtime.
The changes will prompt “a whole new round of litigation to determine what these phrases mean,” said Baldwin Robertson, a Washington labor lawyer hired by Working America to answer workers’ questions on its Web site.