Low Income Managers May Start Getting Paid for Overtime

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The Obama administration is moving to provide overtime pay protection to low salaried managers who don’t currently qualify for it.

If a manager at a fast food chain or a large retailer in the U.S. works well over 40 hours a week, he or she may never see a cent of overtime pay.

But that could change between late February and April, due to the Obama administration’s move to provide overtime pay protection to low salaried managers who don’t currently qualify for it.

Under the current rules laid out by the U.S. Department of Labor, companies can classify employees making over $23,660 a year as managers, making them salaried workers who are “exempt” from overtime pay. Administrators and sales employees with managerial roles can be listed as exempt as well.

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“We see a tremendous amount of wage abuse in the Commonwealth of Massachusetts,” said attorney Philip Gordon of Gordon Law Group LLP, a legal team that specializes in employee advocacy. “Tightening up these rules would – I won’t say eliminate the problems—but would help tighten up real loopholes that employers have found through the court system and through the laws.”

Policy experts anticipate the Labor Department will propose raising the income threshold from $23,660 to somewhere between $42,000 and $52,000, so that more U.S. employees (up 47 percent from 12 percent) qualify for overtime. The Labor Department could also change the definition of administrative responsibilities that make an employee exempt, which are now vaguely defined as “the exercise of discretion and independent judgment with respect to matters of significance.”

Gordon said many employees labeled “managers” hardly perform different tasks from the employees they are managing. “Show me a company who truly has, as managers, individuals who are making $23,000 a year,” Gordon said. “That’s just a farce.”

Gordon said this type of job misclassification is common in the fast food, retail, and tech industries. But it is also found in construction and cleaning services.

Michael Harper, professor of labor law at Boston University, called the changes to overtime protection “long overdue.” The salary threshold has only been updated twice in the past 40 years, and the Fair Labor Standards Act no longer serves the purpose it was designed for, he added.

“Salary has just not increased with inflation,” Harper said.

As a result, many families hugging the poverty line aren’t eligible for overtime pay, Harper added. The poverty line for a family of four sits at $23,850, just $190 above the current income threshold.

The purpose of the 1938 Fair Labor Standards Act was to provide a minimum wage, and to give employees working over 40 hours per week with time-and-a-half, or 1.5 times their usual hourly rate. Those exempt from overtime were employees in an executive or administrative capacity, but as U.S. industry has shifted with time, the idea of “manager” has also changed.

“When the Fair Labor Standards Act passed, the overtime model was more for manufacturing and construction, where the white collar worker was more likely to not be in need of the protection as much as many white collar workers are today in the expanded service and retail industries,” Harper said.

Some employers cite concern over the proposed changes, saying the increased spending on overtime pay will force companies to cut staff or reduce benefits.

Other employers say that if their employees are shifted from salaried to hourly positions workers will lose schedule flexibility, vacation time, and merit-based incentives like bonuses or raises. The adjusted income threshold could have an even bigger impact on workers who currently work on commission.

John Councilman, the president of the National Association of Mortgage Brokers, said mortgage originators—people who work with borrowers to complete mortgage transactions—are just one sector that could be hurt by the overtime changes, since originators typically work on commission.

Councilman said originators don’t work well on salary or hourly wages because of the cyclical nature of their job – when mortgage rates are low, business heats up.

“They should be entirely on commission,” he said. “It’s difficult to track their time, hard to know when someone is working on a file or just driving around…this is a cyclical business that’s extremely busy at times and not at all at other times.”

But Harper and other labor law experts say the benefits of the administration’s plan outweigh the costs, which Harper described as “overstated.”

“Employers will say, ‘Well, if we increase any wages and overtime, either we have to cut back on jobs or cut back on other benefits like sick leave, and the markets ultimately set the wages anyway,’” Harper said. “There’s some truth to that but it’s not the whole truth. Ultimately, this is about addressing income inequality.”

Economic research shows that an increase in minimum wage and an increase in those who get overtime does not lead to a comparable drop off in jobs, he said. And if employers stopped providing vacation time, paid sick leave, and some sort of pension plan, employees might not want to work for them anyway, Harper added.

Just how much more companies could pay is still up in the air, as the income threshold has yet to be decided. The Labor Department is reportedly considering applying geographic specific thresholds, since the cost of living varies dramatically from city to city.

Spokespeople from both the Massachusetts Attorney General’s office and Boston Mayor Marty Walsh’s office said they could not comment on the proposed changes until the new income threshold and exemption definition are officially set by the Labor Department.