Contributed Column

Personnel Points

by Dave Mount, Westaff

Overtime pay moves to the forefront

See also Dave Mount's column New rules for employers from June 2016

Every business owner that I know dreads the legislative session each year. Every year in the past decade there has been a bill that affected our businesses, from minimum wages to workers’ compensation adjustments to things like family leave and paid sick-pay.

Now, out of the blue, the federal government has made a proposal that will change the fabric of many businesses and which could be very costly.

First, a little background.

In 1938, Congress passed the Fair Labor Standards Act. It established a minimum wage, which has been amended a number of times and which can be superseded by state law, which it is in Vermont. It is also the law that sets the overtime rate at one-and-a-half times the straight time rate for hours over 40 per week. The U.S. Department of Labor administers many of these rules.

This is the law that created the categories of “exempt” and “non-exempt” employees. The word exempt refers to handling overtime payment under the Wage and Hour Division. Exempt employees do not receive overtime pay; if they are non-exempt, they do. The law attempted to make a distinction between the two by establishing the supervision standard — if a person supervised others, he or she was considered exempt. The law handles outside sales reps and professionals such as doctors, engineers, and programmers differently so they do not enter into this discussion.

At the present time, employees who earn less than $455 per week ($23,660 annually) are eligible to receive overtime pay. Those earning more than that may be considered exempt if they do any kind of supervision. That may mean being in charge when someone else is out to lunch or anything like that. It is not what I would think of as a genuine supervision.

Note that I said that a person earning more than $455 may be considered exempt. That is a discretion that rests with employers. Even those making more than $455 a week can be paid as non-exempt if they do not supervise.

I think that is what the law always intended, but it got muddled by years of non-enforcement, changes in administration, and employers who want to get around the overtime rules.

The Obama Administration has proposed raising the threshold from $23,660 per year to $50,440. They have also proposed some form of indexing so that the amount would rise annually with inflation.

The administration has cited statistics that only 8 percent of salaried workers are eligible for overtime pay today as opposed to 60 percent in 1975. This is also an attempt to raise the standard of living among the middle class which has suffered the most during this current economic “recovery.”

Critics contend that employers will start to eliminate overtime among the formerly exempt employees and either make do or hire more people. The latter is laudable and will further reduce the unemployment rate in the United States and in Vermont but the former is a little scary. It may mean less service than we have now.

So what can you do?

• Keep up to date on this as it is a proposal and has not yet been enacted.

• Take a look at your entire pattern of employment. If you are using the rule of $23,660 annual pay to exempt people from overtime, it might be a good idea to rethink your approach.

• Take a look at the work your employees do. Anyone who is considered exempt should be looked at especially hard. Does that person really supervise and does that person really need to be exempt?

• Understand the cost. Obviously, raising a $23,660 person to $50,440 per year is not the answer, so the framework of the question should be how much more money will it cost me to pay a person overtime to do the same job?

My bottom line to you is to understand the wage and hours law and stay within its framework. As always, you might want to discuss any unusual circumstances with a good employment attorney. •

Dave Mount is the founder of Westaff in Burlington.

Index of Contributed Columns

For information on submitting a contributed column see here.