Bush Labor Dept. Explains to Employers How to Avoid Paying Overtime

You'd think the Labor department was about helping workers, at least in an election year. But not this one. The Dept. is preparing new rules which will no longer require that employers pay millions of higher-paid employees overtime; in the future, however, 1.3 million low-paid employees (paid under $22.1K per year) who are not covered by the current overtime requirement will have to get time and half if they work over 40 hours. In a combination of chutzpah and political ham-handedness, the Bush Labor department is explaining to employers how, they can evade this new rule in order to keep down their lowest-paid workers' pay packets: they could, for example, cut hourly wages, so that with the overtime the total pay remains the same.

The AP story explaining this was in the Miami Herald, but doesn't seem to have made either the NYT or the Washington Post. It contains the most bald-faced denials of reality by a press spokesman, one Ed Frank, I've seen for a long time: Despite publishing instructions on how to avoid paying workers extra for overtime, “We're not saying anybody should do any of this.” Right. We're just explaining their options to them very carefully. Let's nominate Mr. Frank for a Ron Ziegler Award. [Sadly, Tammy McCutchen can't be included among the nominees, because she's an administrator, not a press secretary. Even though she's the Labor Department's Wage and Hour Division administrator who said that making a “payroll adjustment” which lowers hourly wages but keeps the total including overtime constant, one that results “in virtually no, or only a minimal increase in labor costs,” is not a pay cut.]

In fairness, I should note that the Labor Dept. also lists raising base salary above the threshold as another way to avoid paying overtime (although for workers near the cap, this 'raise' may paradoxically reduce their total takehome when they are required to do substantial ovetime).

The Labor Department is giving employers tips on how to avoid paying overtime to some of the 1.3 million low-income workers who would become eligible under new rules expected to be finalized early this year.

The department's advice comes even as it touts the $895 million in increased wages that it says those workers would be guaranteed from the reforms.

Among the options for employers: cut workers' hourly wages and add the overtime to equal the original salary, or raise salaries to the new $22,100 annual threshold, making them ineligible.

A final rule, revising the 1938 Fair Labor Standards Act, is expected to be issued in March. The act defines the types of jobs that qualify workers for time-and-a-half if they work more than 40 hours a week.

Overtime pay for the 1.3 million low-income workers has been a selling tool for the Bush administration in trying to ease concerns in Congress about millions of higher-paid workers becoming ineligible.

But the Labor Department, in a summary of its plan published in March, suggests how employers can avoid paying overtime to those newly eligible low-income workers.

“Most employers affected by the proposed rule would be expected to choose the most cost-effective compensation adjustment method,” the department said. For some companies, the financial impact could be “near zero.”

Employers' options include:

• Adhering to a 40-hour workweek.

• Raising workers' salaries to a new $22,100 annual threshold, making them ineligible for overtime pay.

If employers raise a worker's salary “it means they're getting a raise — that's not a way around overtime,” Frank said. The current threshold is $8,060 per year.

• Making a “payroll adjustment” that results “in virtually no, or only a minimal increase in labor costs,” the department said. Workers' annual pay would be converted to an hourly rate and cut, with overtime added in to equal the former salary.

Essentially, employees would be working more hours for the same pay.

The department does not view the “payroll adjustment” option as a pay cut. Rather, it allows the employer to “maintain the pay at the current level” with the new overtime requirements, said the Labor Department's Wage and Hour Division administrator, Tammy McCutchen.

Labor unions criticized the employer options.

Mark Wilson, a lawyer for the Communications Workers of America who specializes in overtime issues, said the Bush administration was protecting the interests of employers at the expense of workers.

“This plan speaks volumes about the real motives of this so-called family-friendly administration,” Wilson said.

He says cutting workers' pay to avoid overtime is illegal, on the basis of a 1945 Supreme Court ruling and a 1986 memo by the Labor Department under President Reagan.

But McCutchen disagreed. If changes were made week to week to avoid overtime, they would be illegal. A one-time change is not, she said.

“We had a lot of lawyers look at this rule. We would not have put that in there if we thought it was illegal,” she said.

“Unless you have a contract, there is no legal rule … prohibiting an employer from either raising your salary or cutting your salary,” she said. “We do not anticipate employers will cut people's pay.”

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5 Responses to Bush Labor Dept. Explains to Employers How to Avoid Paying Overtime

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  2. Dan says:

    Please provide refernces and sources in future documents, makes it helpful to verify accuracy.

  3. Dan says:

    When this rule was up for comments, I vehemently opposed it, as a technical worker who has been on both sides of the salary/hourly fence, I had even lobbied a previous employer to switch employees to salary when they deserved to stop filling out time cards. Then I realized how the system is working to rape and pillage every last minute and dime from the have-nots. It’s all about coercion, consumption, and share prices. Nothing in the world of business is oriented toward good products, good families, or good work.
    It was a struggle even to make comments to the labor department, as the notice about the proposed rule was in an obscure news article, and the Labor Department website wasn’t open for comments until a couple of days before the proposal was going to be put into effect.
    There is no integrity in our government. Only sales and marketing. You can’t vote the bums out anymore, so just stop buying, reduce your work hours, and simplify your life. Buy local, buy less, buy only what you need. Stay home. Eventually, the system will run out of money. Everyone needs to invest in thier local community, no more box stores, no more food distributors, no more centralized schools. Keep your kids away from conformity, TV, and business. Make your own stuff, or get it by barter with your neighbors. STop living for entertainment and start living.

    Good day.

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  5. Jerome Carlson says:

    I always thought that people who were on fixed salary were exempt on causal overtime….Is there a limit on the number of hours worked before overtime would start..

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