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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | MAY 18, 2000 STAFF & BENEFITS An Overhaul of the Overtime System is Long Overdue Old rules haven't kept up as the New Economy blurs the lines between manager and employee
If you've ever wondered why job titles seem so inflated, consider this: A title can mean the difference between whether your workers are exempt from laws that require you to pay them overtime. Since payroll often makes up the bulk of a small-business budget, it's no wonder some owners get very creative with their definition of manager. In one case cited at congressional hearings last week, a health-care worker in a home for the developmentally disabled -- who earned $12,500 annually for a 47-hour week -- was told he didn't qualify for overtime because he was a "residential assistant manager." In another, a cook and dishwasher who put in 60 or so hours a week for $24,000 a year was labeled a "kitchen supervisor." DATED DISTINCTIONS Why the fancy titles? Because the Fair Labor Standards Act, a 62-year-old law that sets the minimum wage and obligates employers to pay overtime, says managers work off the clock. Subordinates whose jobs don't require them to exercise independent judgment get premium pay for anything more than a 40-hour week. That may have made sense in the 1940s. But the distinctions have outlived their usefulness, says Washington lawyer William J. Kilberg, who represented the U.S. Chamber of Commerce at the May 3 hearing of the House subcommittee on workforce protections. He cites the example of NASA space shuttle instructors collecting overtime pay because they followed simulation scripts and used a manual. Even though their jobs required a high degree of technical knowledge and sophistication, in the eyes of the law, they were indistinguishable from assembly-line workers. "We're not talking about workers who lack bargaining power," says Kilberg. "We're talking about highly compensated workers. The law says, no, we don't trust them to cut their own deals, to determine how they would like to be compensated." "A JOKE." What's more, the tests used to determine exempt-from-overtime-pay status are hopelessly out of date, leaving huge loopholes. "Some of the tests have not been revised in decades," Cynthia M. Fagnoni of the General Accounting Office's Health, Education & Human Services Div. told the subcommittee. Take the salary test, which hasn't been updated since 1975. It says a worker can be declared exempt if he or she is paid more than $155 a week and holds an executive or administrative position, or $170 a week if the staffer falls into the category of "professional" -- nonsupervisory jobs such as teacher or reporter that require higher learning. Those may have been substantial sums a generation ago, but now the pay of almost any full-time worker crosses that threshold. Granted, there's a long list of questions about job responsibilities that employers must answer to win the exemption. But they face a much easier test when workers are paid more than $250 a week. That's just $12,000 year -- "a joke," says Nicholas W. Clark, assistant general counsel for the United Food & Commercial Workers International Union in Washington, D.C. "If it had been indexed for inflation, the cutoff level would be $39,400." That's the level unions would like to see it raised to, says Clark, who admits that certain industries such as fast food and retailing would vigorously oppose that high a boost. Another minefield is the test for job duties. A key distinction is that administrative workers who carry out management policies and operations are exempt, while "line" workers who produce a product, make sales, or perform services are nonexempt. In practice, that means internal salespeople don't receive overtime, while those in external sales do, despite having similar duties. And what about workers with mixed responsibilities -- a supervisor who handles customer services or a fast-food restaurant supervisor who fills orders? "Figuring out what constitutes judgment and discretion is the most difficult requirement for employers," says Dennis R. Sutphen, a human-resources consultant in Parkersburg, W. Va. Some in the business community favor creating a new exempt category -- the highly skilled technical worker. But Clark, who testified on behalf of the AFL-CIO, sees the breadth of the category as a prescription for abuse. "We believe that most of the present problems with enforcement can be remedied by a raise in the salary test." ARMY OF THE EXEMPT The call for reform comes at a time when Americans are working longer hours than ever before -- an average of 47.1 hours a week, according to a 1997 study by the Families & Work Institute, a New York City-based research and policy group. Not coincidentally, the ranks of those exempt from overtime pay have swelled to an all-time high as well, according to GAO figures. An estimated 19 million to 26 million employees, or 20% to 27% of the workforce, toil without overtime pay. This represents an increase of 9 million workers since 1983. Most come from the fast-growing services sector, and 42% are women, up from 33% in 1983. "At a time when workers in this country are working harder and longer than ever, and struggling to juggle work and family demands, Congress should be enhancing, not eliminating, incentives for employers to keep the workweek to a reasonable length," urges Clark. But don't count on anything happening before the election, say political observers. "The chances of reform taking place this year are zero to none," says Deron Zeppelin, legislative director for the Society for Human Resource Professionals, headquartered in Alexandria, Va. Unlike legislation exempting stock-option profits from overtime pay calculations, which sailed unanimously through the House and Senate in the past month, this fight is partisan to the hilt.  By Stephanie B. Goldberg  | | |
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