By Stephanie Hammerwold
Just as employers were taking the final steps to make sure they were compliant with the new salary threshold for exempt employees that was set to go into effect December 1, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas granted a preliminary injunction on November 22 in a lawsuit that challenged the Department of Labor’s authority to raise the threshold. The new threshold would have raised the salary threshold for exempt employees from $23,660 to $47,476.
President Obama had pushed for the new threshold, which would have brought overtime pay to approximately 4 million Americans who were previously classified as exempt based on the old threshold. The change was celebrated by employees who had been working long hours for low pay and no overtime pay, but some businesses criticized the new rule saying the threshold was too high and would hurt small businesses. While I understand any change to the wage threshold can have an effect on the bottom line for businesses, especially small businesses, the overtime rule would have been a positive change for the American workplace.
Looking at the Math
I am in California, and the exempt threshold here is currently $41,600 and is set to rise to $43,680 on January 1, 2017. The new law would not have been a dramatic increase here, but other states relied on the old threshold of $23,660 and would have seen a huge jump. When an employee is exempt, they are paid a set amount per week regardless of the number of hours worked. They do not get overtime pay for hours worked beyond 40 per week. If someone making $23,660 per year works a straight 40 hours per week, they make about $11.38/hour. The problem is that many exempt employees work more than that. So, let’s look at an exempt employee at the current threshold who works 50 hours per week. Suddenly their hourly wage drops to $9.10/hour.
You can see how the current low threshold opens up the possibility for abuse. An employer can take advantage of the professional exemption to classify an employee as exempt and save money by not paying overtime. The problem is that the employee is most likely being paid much less than they should be making. Someone could be a manager with supervisory responsibilities and management duties but be making less than $10/hour when all the hours worked are considered, which essentially undervalues their work.
Why Have a Threshold?
A threshold limits the abuse that can happen when an employee is exempt. Aside from the salary threshold, exempt employees must meet a duties test. Exempt employees fall into several categories: executive, administrative, professional, computer employee and outside sales. Title alone does not determine if an employee should be exempt, and exempt status usually requires that the position has independent judgment, advanced knowledge and managerial responsibility. The idea here is that employers cannot get out of paying low-wage workers overtime pay by classifying them as exempt.
Being able to classify an employee as exempt can be useful for managerial positions and certain professional positions because it keeps those positions from being bound by the time clock. Of course exempt status opens up the possibility that an employer could work an employee 60 hours per week and pay them the same as if the employee only worked 40 hours. But, the duties tests are supposed to limit exempt status to position that carry more responsibility and are compensated as such. This is all the more reason to raise the threshold to ensure that lower wage workers are not classified as exempt in order to work them long hours without paying overtime.
By placing further limits on who can be exempt, it also helps to shift the workaholic culture we have by making an employer think carefully before making an employee work long hours. If they now must pay overtime, it may not be worth it.
The Future of the Overtime Rule
It is unclear what the future of the overtime rule will be as we prepare for the Trump Administration. Trump has chosen Andrew F. Puzder to be Secretary of Labor. Puzder has been critical of minimum wage increases and sick leave policies, and he also claims the overtime rule would diminish opportunities for workers. Under Trump and Puzder, it seems unlikely that we will see a push from the new administration to implement the overtime rule.
Some employers had already made the changes prior to the preliminary injunction on November 22. Inside Higher Ed points out that many colleges and universities will still move forward with the changes. Once an employer has communicated a salary or exempt-status change to employees, it can create problems to change things back—especially if the change had benefited the employee. Even in the absence of the new overtime rule, this is a good time for employers to review those employees classified as exempt to ensure that they meet the job duty requirements for that classification.
Ultimately the new rule sent a message that work-life balance is important and that workers deserve to be fairly compensated for their work. This has been a regular message from Obama, a president who continues to push for paid sick leave, paid family leave, raising the minimum wage and other pro-employee policies.
Obama’s push for policies that focus on taking care of employees should serve as a guideline for improving workplaces. In the absence of laws requiring things like paid leave and the overtime rule, employers can still make such changes to improve their workplaces in order to take good care of their employees. This leads to happier workers, and happier workers are more productive.