Tammy McCutchen woke up to a bit of a shock yesterday morning: She learned the revised overtime regulations she helped rewrite in 2003 and 2004, as the Department of Labor’s wage-and-hour administrator under President George W. Bush, were about to be changed significantly by President Barack Obama. Under Bush, overtime regulations were changed so that employees who earn up to $455 per week can be classified as exempt and employers were given greater leeway in determining which employees could be exempt. Obama wants to significantly raise the pay threshold and to modify the “duties” test that employers use to determine exemption.
“This is going to be hugely controversial,” says McCutchen, who’s now a shareholder in Littler Mendelson’s Washington office. “It’s going to keep people like me very, very busy.”
Part of the reason why is the sheer number of employees potentially affected: at least several million fast-food managers, loan officers, computer technicians and others classified as “executive or professional,” according to a White House official who briefed the New York Times. Opponents of the 2004 rule, particularly organized labor, said it gave companies too much leeway to classify employees as exempt so they could avoid paying them overtime.
California recently announced changes to its overtime rules so that by 2016, no employee making less than $800 per week can be classified as exempt from overtime. Should President Obama choose a number close to that, says McCutchen, employers will need to state their case loudly and clearly that such a move will hurt them economically.
“That wage level may make sense in Los Angeles, New York and San Francisco; it does not make sense in Waterloo, Iowa,” says McCutchen. In the rural Midwest and South, setting the exemption level that high will cover a vast number of employees, given the lower wage levels and lower cost of living in those areas, she says.
“When we worked on the revised rule in 2003 and 2004, we looked at Bureau of Labor Statistics data to analyze current salary levels and I hope the DOL does the same level of analysis rather than just picking a number out of thin air that happens to sound good to people who live in large cities,” she says.
Kevin Hyde, chair of Foley & Lardner’s labor and employment practice, says Obama’s move represents part of his effort to raise the minimum wage through indirect ways. He advises HR to carefully look at all the classifications of employees they currently have and determine what their status would be once the new rules are implemented, and budget accordingly.
There’s still some time left: Both McCutchen and Hyde anticipate that the rulemaking process — which will include time for the public (including employers) to comment on the proposal — will take at least 12 to 18 months. They both urge employers to make use of that time by making their voices heard.
“Get involved with your local Chamber of Commerce or send your comments directly to the DOL — talk candidly about the impact this will have on your business,” says Hyde. “Remember, the [National Labor Relations Board] has been trying for years to require employers to display posters on employees’ unionization rights and those rules still aren’t close to being implemented, thanks to the large number of negative comments about them.”
One potentially potent weapon for employers, says McCutchen, is commentary from workers who don’t wish to be non-exempt.
“President Obama may think most employees want to be non-exempt, but there are many employees who consider themselves professionals who have no desire to punch a time-clock,” she says. “There’s a trade-off for everything: If you’re exempt, you don’t get overtime but you also can’t be docked pay for working less than 40 hours a week, so you have more flexibility. There’s always two sides to every story, and the most compelling is testimony from an actual employee.”