Overtime Pay Rules Overhaul Overdue

Late last month, President Barack Obama took a step around the longstanding congressional gridlock over labor and employment policies by announcing a plan to boost the salary threshold governing overtime from US$23,600 to $50,440 and to index it to inflation.

Essentially, that means white-collar workers in that salary range, currently exempt from receiving overtime pay, would get 1.5 times their hourly wages for anything over 40 hours.

Late last month, President Barack Obama took a step around the longstanding congressional gridlock over labor and employment policies by announcing a plan to boost the salary threshold governing overtime from US$23,600 to $50,440 and to index it to inflation.

Essentially, that means white-collar workers in that salary range, currently exempt from receiving overtime pay, would get 1.5 times their hourly wages for anything over 40 hours.

The administration estimates this action will extend coverage to an additional five million workers who will either receive overtime pay or work fewer hours at the same salary, with some of their extra work shifted to part- or full-time hourly workers. Either way, the workforce and the economy will record a small win in efforts to raise wages and reduce income inequality.

I have been immersed in this issue for decades, including as a member of the Clinton administration’s Commission on the Future of Worker Management Relations in the early ‘90s and as co-director of the MIT Sloan Institute for Work and Employment Research.

This experience has convinced me that the president’s plan should be just one in a series of executive actions that he, and the person who succeeds him, should take if Congress continues to be incapable of updating our employment policies to catch up with changes in the economy, workforce, and the way people work today.

Blurred lines

The new overtime rules are long overdue. As far back as 1994, those of us on former President Bill Clinton’s Commission on the Future of Worker Management Relations recognized that the salary threshold and other rules governing who was covered and who was exempt from overtime were outdated, overly complex and no longer reflected how work is done in many organizations.

Those rules came during an industrial era when prevailing management principles called for a clear separation of management from hourly employees.

But by the 1990s, the line separating salaried managers who are “exempt” from overtime rules and hourly workers who are covered had become increasingly blurred as tasks previously limited to management were being done by lower-level employees. By then it was common to find low-level managers working side by side or in teams with hourly workers in serving customers, ordering and restocking inventories, and mentoring newcomers – tasks that in the past were “management” responsibilities.

We favored having Congress simplify the rules and set a higher threshold. But unfortunately, by the time our commission wrote its final report and recommendations in January 1995, the Gingrich revolution had gained control of Congress, and we recognized there was no hope of legislative action on these or any other labor policy issues. Therefore, we called for a series of regulatory reforms led by the president and the Labor Department.

Since then, congressional gridlock not only remains, it has gotten worse.

The real value of the minimum wage, for example, currently $7.25 nationally, has shrunk by 47% since 1968. In addition, there is little hope that Congress might follow the sensible lead of states and cities that have heeded the broad public support for an increase.

Our 1935 labor law is “ossified” and it fails to provide workers who want collective bargaining to get through the legal hurdles that block access to it.

Congress has not passed a significant new law nor updated any of the nation’s New Deal vintage labor or employment laws in decades. Given this sustained congressional gridlock, the president and secretary of labor can only search for tools that might make a difference.

The salary threshold is one rule that can change by executive action, albeit a slow process. It took nearly a year for the Department of Labor to develop the new overtime rules, and the proposed changes still need to go through a process of public comment and likely delayed by legal challenges.

What the president could do next

What other actions could happen while Congress remains paralyzed? For starters, the president could call for an overhaul of the criteria the government considers when qualifying contractors bid for government business.

As an example of the magnitude of the problem, The New York Times reported in 2013 that the federal government is one of the largest purchasers of goods such as Marine Corps uniforms from overseas sweatshops that employ child labor.

President Lyndon B Johnson used this approach to good avail by requiring government contractors to take affirmative action to monitor and enforce the 1964 Civil Rights Act.

Two steps could occur now to strengthen bidding processes that would help upgrade employment standards, boost wages, and support movement to a high-productivity, high-wage economy.

First, contractors could be required to provide evidence certifying they comply with all existing labor and employment laws. Knowing firms’ compliance records on safety and health, wage and hours worked, labor relations, and equal employment opportunity laws would help regulators better target their enforcement efforts on the serial violators and allow consumers to reward good and avoid bad employers.

Second, criteria could be added to the bidding process to reward employers that have in place employment practices that invest in training, engage employees in organizational improvement projects and promote teamwork – all practices that research has demonstrated contribute to improving productivity, and support good jobs and fair wages.

Solving the contractor dilemma

Growth in the on-demand economy and whether its workers are employees or contractors is another example of outdated labor laws that deserve updating.

There is a growing business practice of hiring workers as contractors rather than standard employees to skirt obligations to pay social security and comply with other employment laws. A simplification and tightening of the rules governing who is an employee and who is a contractor would help resolve this problem.

Drivers at Federal Express and Uber, for example, are currently embroiled in exactly this legal battle. The quagmire of 20 or so factors that regulatory agencies and the courts now use to decide this issue may provide a full employment opportunity for lawyers but pose high hurdles for enforcement agencies and for workers who believe they are misclassified.

Obviously, executive actions are only stopgaps, partial and very time-consuming steps toward the fundamental reforms and updating needed in employment and labor policies. Eventually the American public needs to change the makeup of Congress and elect a president able to break the political gridlock.

But until that day comes, executive action is the best alternative route available in Washington for getting the American workforce where it needs to go.

Obama should follow overtime plan with more unilateral moves to update labor laws is republished with permission from The Conversation