Overtime rule corrects abuses but challenges payrolls

By Bill Heltzel

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Area employers are bracing for a new federal overtime rule that proponents say will correct abusive practices but that businesses worry will drive up costs and even hurt workers.

The U.S. Department of Labor announced on May 18 that most salaried workers earning up to $47,476 a year must receive time-and-a-half pay when they work more than 40 hours a week, beginning Dec. 1. That’s double the current overtime threshold of $23,660.

“It’s one of the single most important steps we can take to help grow middle-class wages,” President Barack Obama said last summer.

Only 7 percent of full-time salaried workers qualify for overtime today, down from 62 percent in 1975. Overtime protection, according to the administration, has eroded over the past 40 years as a result of inflation and efforts by lobbyists to weaken the rule.

Business groups see the issue differently.

“Unfortunately, at the end of the day many employees will end up suffering,” said Eric Gjede, assistant counsel for the Connecticut Business & Industry Association. “It’s tough to see a silver lining.”

Employers will face a few stark choices. They can keep an employee at the same base rate and pay overtime. The base salary can be reduced to offset overtime payments. The salary can be increased to just beyond the $913 a week to keep the employee exempt from overtime. Or overtime hours can be reduced or eliminated.

The white collar test is a crucial aspect of salaried positions. Employees can be exempted from overtime if their duties are primarily executive, administrative or professional in nature.

Critics of overtime practices say businesses have abused the duties test and misclassified many salaried workers.

“If you call people management at $23,660, that’s a joke,” said John Cavallero of White Plains, a retired businessman who was one of 270,000 people who submitted comments on the proposed rule to the Department of Labor. “That’s pretending the jobs are management for the purpose of getting their time for free.”

The Economic Policy Institute, a Washington think tank associated with the labor movement, says salaried fast food assistant managers are sometimes forced to work as many as 20 to 30 hours a week for free. By doubling the salary threshold, EPI says, the new rule makes it more difficult to misclassify employees.

The White House says the rule will extend overtime protections to 4.2 million more workers and boost wages by $1.2 billion a year.

EPI, which also counts salaried workers already eligible for overtime, estimates that 12.5 million workers will benefit directly from a clearer rule. That includes 982,000 in New York and 113,000 in Connecticut.

The rule will probably have less impact in Westchester and Fairfield counties than elsewhere, human resource experts said.

The cost of living in this region is high, so salaries are more likely to exceed the new threshold. New York already has a $35,500 threshold for overtime, so there is less of a gap between the old and new overtime rules.

Connecticut, at 16.2 percent, has the lowest rate of salaried employees in the county who will be affected by the rule, according to the EPI.

That does not mean there will be no impact here.

The overtime rule is being implemented at the same time as a higher minimum wage and family paid leave.

“If employers keep getting these things placed on their back they will have to make some tough decisions,” said John Ravitz, executive vice president and cief operating officer of the Business Council of Westchester.

“We’re most concerned about the nonprofits, retail and those in the hospitality industries,” Ravitz said.

Instead of hiring one person at $42,000, said human resource consultant Greg Chartier of Maryknoll, companies will consider hiring two people for 20 hours a week to avoid paying overtime.

Businesses will have to track hours more closely and will be less likely to allow flexible arrangements. “No more working from home or Starbucks,” Chartier said.

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About the author

Bill Heltzel
Bill Heltzel has covered criminal justice, courts, government and sports – as a beat reporter and investigative reporter – for daily newspapers in Florida, Indiana, Ohio, and Pennsylvania. He worked for Bloomberg LP in training and sales. He joined The Business Journal in 2016.

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