The Overtime Rule in the US: Key Issues

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Table of Contents

Introduction
The Overtime Rule
The Minimum Wage Issue
The Current State of the Overtime Rule
The Legal Issue in the Overtime Rule
The Impact of the Raise in Exemption Threshold and Our Company Response
Conclusion
References

Introduction

The U.S. Department of Labor (DOL) predicted the salary threshold raise for white-collar exemptions after issuing a proposed overtime rule. The Trump administration developed a new overtime rule that suggested doubling this point (Nagele-Piazza & Smith, 2018). However, the Society for Human Resource Management (SHRM) opposed such rapid changes, offering a raise from $23,660 to slightly above $30,000 per annum (Nagele-Piazza & Smith, 2018). Historically, the American labor law was unique in many ways compared to other industrialized countries (Goldman & Corrada, 2018). Specifically, contractual relationships between employees and employers are protected by collective agreements (Goldman & Corrada, 2018). Moreover, employees gained bargaining power due to the introduction of minimum wage and overtime laws in the 1930s when the government developed the Fair Labor Standards Act (FLSA) (Hanvey & White, 2018). For example, it is illegal for employers to pay less than the established minimum wage (Hanvey & White, 2018). Furthermore, they are restricted in using child labor and must record the working hours for all employees (Hanvey & White, 2018). The current state of the overtime rule and its impact on our employees will be discussed in this memo.

The Overtime Rule

The overtime law that was developed during the Great Depression required employers to pay workers for extra hours that they need to spend to complete their duties. However, this rule applies only to employees who are not exempt from FLSA (Hanvey & White, 2018). Specifically, the recent exemption threshold was $455 weekly or $23,660 per year, which means that workers with a salary below this amount must receive overtime payment (Quach, 2020). Conversely, those who had wages higher than that threshold were exempt from the overtime rule. Although DOL was trying to double this threshold in May 2016, this rule was injuncted by the federal judge (Quach, 2020). Indeed, Obama’s office and Equal Employment Opportunity Commission (EEOC) tried to endorse pro-employee rules, and “they placed a greater focus on wage and hour issues” (Hanvey & White, 2018, p. 14). However, these proposals were reversed after Donald Trump’s election in 2016 (Milkman, 2019). Still, the Trump administration suggested making the white-collar exemption line twice as high in 2018 (Nagele-Piazza & Smith, 2018). It appears that this increase in the exemption threshold may alter the productivity and performance of our company.

The Minimum Wage Issue

It was clear to the government, employers, and employees that the minimum wage of less than $25,000 per year is too low for one of the wealthiest economies in the world. According to DOL regulations, employers must pay non-exempt workers at least $7.25 per hour with overtime payment no less than one and a half times higher than an hourly rate (Hanvey & White, 2018). However, the proposed doubling of the exemption threshold was believed to be unreasonably high; therefore, the federal judge stopped this change (Weisman, 2017). Although the 1938 act restricted the number of operating hours per week to 40, employees could still work more, provided if they were paid appropriately (Weisman, 2017). Still, the exemption rule was a significant demotivator for workers to spend long hours to achieve better results because they would not qualify for the overtime rule. This rule seemed to cause performance issues in our company previously, too. Specifically, we had to discourage overtime among the staff because many of them have salaries above the minimum wage; thus, they cannot receive overtime pay.

The Current State of the Overtime Rule

It is challenging to predict how this rule will change and who will be considered exempt from this law in the future. According to the recent update, 1.3 million Americans were added to the list of non-exempt employees who will receive compensation from their employers for extra work time (Judish et al., 2019). However, the main problem of this rule was the low threshold which did not allow workers slightly above it to get additional payment. Since SHRM rejected the 2018 proposal of doubling this threshold, the Trump office suggested a modest rise of $35,569 per year in September 2019 (Judish et al., 2019). This legislation required all companies to provide overtime pay to all employees who have to work longer hours and have salaries below the minimum wage. Moreover, this rule states that employers can make one-time payments to their workers to reach the target level for one year (Judish et al., 2019). It seems that the new exemption threshold will significantly improve the income of hourly employees. However, there will be no influence on salaried workers after the implementation of this rule.

The Legal Issue in the Overtime Rule

The central legal issue in the overtime rule is that it does not require employers to pay for overtime work to employees who are exempt from this rule, discouraging employees from working more. The American jurisdiction is different because it “has the competence to resolve particular disputes” and “authority to impose rules on particular groups of people or to regulate specific forms of activity” (Goldman & Corrada, 2018, para. 49). For example, according to the overtime rule, some employers may bring the salaries to a minimum wage level to avoid overtime pay (Quach, 2020). However, the major problem is that each case should be reviewed separately because employees perform a distinct type of work for the same amount of time (Hanvey & White, 2018). It means that employers may decide not to pay overtime if some tasks are general and could be performed within the established period of 40-hour-per-week. Conversely, the high-complexity work during extra working hours will require compensation (Hanvey & White, 2018). Both situations can be mistreated by the companies, who may demand more work without paying for staying longer to finish projects essential for the firm’s prosperity.

The Impact of the Raise in Exemption Threshold and Our Company Response

Since our company is growing, a tremendous amount of work should be done by the technicians. However, many of them are limited in their working hours by the old exemption threshold. The recent update on the exemption threshold removed our concern about fair payment because we are an employee-oriented firm that wants to give appropriate rewards for hard work. Since some of our technicians had to stay longer without registering their extra working hours due to the nature of the duties in laboratories, they worked more without being compensated for it. Therefore, the 2019 final rule about the increase in exemption threshold resolved this issue (Judish et al., 2019). Our company is pleased to announce that all employees with salaries below the new threshold started to receive compensation for overtime work beginning in January 2020.

The changes to some employees’ contracts were made after the meeting with the company leaders. According to the new rule, U.S. employers had to make appropriate salary changes by January 1, 2020 (Judish et al., 2019). Therefore, new classifications and alterations were completed by December 15, 2019. We believe that this will increase the staff’s satisfaction and boost performance, expanding the firm’s productivity in the next three years. However, workers with a salary above that threshold will not receive overtime pay; thus, additional work beyond employees’ schedules will be done voluntarily and awarded at the end of each fiscal year.

Conclusion

In summary, the overtime rule suggested by President Trump’s administration raised the white-collar exemption threshold. According to this rule, American employees with salaries below that threshold are required to receive an additional payment for overtime work. Many issues related to employment in the United States are regulated by the Department of Labor, which controls that workers are paid fairly and can have appropriate rest from their duties. Our company has been trying to follow the standards of employer-employee relationships. All hourly and salaried workers with an income below the exemption threshold have received extra payment according to the overtime rule. The new proposal about the raise in pay was reviewed at the meeting with the company CEOs, and the appropriate amendments to some employees’ contracts were made with relevant notification. Specifically, workers with salaries below the new exemption threshold will receive overtime pay if they need to stay longer to complete their duties or do additional tasks. We believe that this raise will improve employee satisfaction and boost productivity in our firm in the next three years.

References

Goldman, A. L., & Corrada, R. L. (2018). Labour law in the USA. Kluwer Law International B.V.

Hanvey, C., & White, J. (2018). Wage and hour legal context. In C. Hanvey (Ed.), Wage and hour law (pp. 1-17). Springer.

Judish, J.E., Kuei, J.F., Rizzo, R.C., Weber, P.M., & Lauria, A.J. (2019). How employers should respond to the Trump administration’s final overtime rule. Pillsbury.

Milkman, R. (2019). The world we have lost: U.S. labor in the Obama years. In W.C. Rich (Ed.), Looking back on President Barack Obama’s legacy (pp. 115-131). Palgrave Macmillan.

Nagele-Piazza, L., & Smith, A. (2018). 8 workplace legal trends for 2018. SHRM.

Quach, S. (2020). The labor market effects of expanding overtime coverage. SSRN, 1-97.

Weisman, Z. (2017). Consigned to purgatory: The uncertain fate of the 2016 overtime exemption rule.SSRN, 1-24.

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