White House Overtime Rules Hammer Private Sector, Exempt Public Sector

Workers inspect hot metal forgings of model 1911 handguns on the production line at the Smith & Wesson factory in Springfield, Tuesday, Dec. 19, 2006. Mike Golden, Smith & Wesson's CEO for the past two years, has targeted new technologies and sales to the military and police departments to ensure …
Charles Krupa/AP

The U.S. Department of Labor’s final rule change that expands overtime for salaried employees earning $23,660 to $47,476 will cleverly hammer the private sector and generally exempt the unionized public sector.

The new federal rules force employers to update employee classification and operational guidelines to ensure compliance by the December 1 implementation date, according to the Law Firm of Best, Best & Krieger. While federal, state and local governments are subject to this new rule, few public sector employees will be affected.

The Labor Department raised the overtime salary ceiling to twice its current standard of $455 a weekly pay, or $23,600 a year. That is approximately the 20th percentile of earnings for a full-time salaried employee. The new ceiling is the equivalent to the 40th percentile of earnings, or $913 in weekly pay and $47,476 in annual earning.

The Labor Department also increased the salary threshold for overtime exemption for “highly compensated employees” from $100,000 a year to $134,004, equal to the 90th percentile of earnings for salaried full-time workers.

The new ceilings and threshold supposedly will have no impact on workers who are currently classified as non-exempt hourly workers, people who are working 40 hours or less, and highly compensated salaried workers.

But the Fair Labor Standard Act – which sets standards for private, federal, state and local employers — makes all hourly employees automatically eligible for overtime pay and all salaried employees overtime eligible unless specifically exempted.

Executive, administrative and professional employees who are paid a salary must now meet more rigid standards to remain exempt from overtime. Although these include “white-collar exemptions,” the Labor Department is emphasizing that employee’s actual job duties, not their title, will determines if they continue to be exempt from overtime pay.

Outside of exempt “highly paid” safety workers (police and fire), government workers are generally salaried and not subject to variability in their 40 hour workweek, due to any seasonality of product sales and service demand. Once annual budgets are set, public employees perform duties in 40 hour workweeks over 12 month periods.

Most public sector employers have already been sued by unions demanding pay for “pre-shift activities.” Such challenged activities include picking up and putting on equipment, reviewing employer memos, travel time, and at-home work such as answering work-related calls. Consequently, employee eligibility for pay and overtime is specifically defined in public sector union contracts.

But private sector “pre-shift activity” for salaried middle managers making $23,660 to $47,476 is almost never clearly defined. The new Department of Labor rules create an especially lucrative opportunity for class action litigation against fast food franchisees and mobile service employers.

The Department of Labor estimates these changes in overtime and wage regulations will boost private employee wages for 4.2 million workers by approximately $1.2 billion per year. But Best, Best & Krieger attorneys warn the number could be much higher, especially in liberal states like California.



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