Time (and a half) for a change

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The U.S. Labor Department is expanding the eligibility for salaried overtime pay, a move that could affect 1.3 million workers nationwide, 170,000 in New Jersey. Still, the Sept. 24 rules unveiled by the federal agency represent a scaled-down version of a 2016 Obama administration effort, which was struck down by a federal judge in Texas.

Under the Trump administration’s rules, the overtime eligibility limit, whereby workers earn time and a half, increases from less than $23,660 to $35,586 once it goes into effect on Jan. 1. Obama proposed doubling the overtime threshold to anyone earning up to $47,000, which would have affected roughly four million U.S. workers. The average weekly earnings threshold goes up from $455 to $685 a week. The Fair Labor Standards Act requires time and a half pay for anything over 40 hours.

“This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers,” Acting U.S. Secretary of Labor Patrick Pizzella said in a statement.
The salary threshold was last reset in 2004. The $455 weekly rate has been eroded by inflation over the last 15 years and proponents argued that an update was necessary. Nearly every comment submitted to the Labor Department on the proposed changes argued that an increase was warranted, according to the agency.

Roughly 450,000 workers in New Jersey would have been affected by the Obama proposal, or 280,000 more than what the DOL announced, according to data provided by the progressive think tank New Jersey Policy Perspective.

NJPP Research Director Nicole Rodriguez contended that the salary threshold should be much higher, given that before 2004 the last time the federal threshold was set was in 1975. Experts at the Economic Policy Institute agreed.

“When the Ford administration raised the salary threshold in 1975, it was 1.57 times the median wage. The median wage today is $16.70 per hour,” EPI analysts Jared Bernstein and Ross said in a 2014 report.
“Were we to update that same ratio—1.57 times the median wage—the short-test threshold would be $26.22 an hour, around $1,050 on a weekly basis and $54,536 on an annual basis, suggesting that our recommended $970 weekly threshold is on the low side,” they added.

And with the cost of living in New Jersey, the state ought to pursue a higher overtime rate, closer to 2.5 times their earnings instead of time and a half, Rodriguez said.

Business advocates here reacted frostily to the federal changes, contending that they add to an already high cost of doing business.

“Although we understand that federal overtime exemption laws needed to be updated, our concern is that the expanding pool of employees eligible for overtime in addition to the new minimum wage law in New Jersey will only lead to employers providing less overtime to their workers,” New Jersey Business and Industry Association Vice President of Government Affairs Mike Wallace said in a statement.

Tom Bracken, president of the New Jersey Chamber of Commerce, said he was somewhat relieved that the thresholds were not set at what Obama proposed. “But it’s still an increase, that’s the bottom line,” he said.
Economist Douglas Kruse, a professor at the Rutgers School of Management and Labor Relations, said it is likely employees will get fewer overtime hours, but they will not be earning less.

“Even if the hours go down, the earnings do not appear to, because workers are benefiting from the time and a half,” Kruse told NJBIZ. “They may be working fewer hours… they may go from 60 to 50 hours a week.”
The new overtime rules would exempt certain salaried workers – executives, administrators and professional employees (EAP) – from the new standard, a move condemned by worker’s rights advocates.

“[A] fast food worker… who got promoted to manager, now he’s getting, instead of $10 he’s getting $11, this person would not be eligible for overtime,” Rodriguez said. “You could imagine seeing that employer continually misclassifying workers so that they could deny overtime.”

Salaried workers who might be so affected could include “retail workers, education, hotels, restaurant service, manufacturing, oil, gas,” Rodriguez said.

It is difficult to pinpoint the exact number of New Jersey workers who might be grouped into the EAP provision; the state Department of Labor and Workforce Development told NJBIZ it did not have that data immediately available on EAP and non-EAP workers who fall into that salary range.

But Kruse said it is still unclear how employers would respond; that is, whether they would hire more workers who each work fewer hours.

“Even though the worker’s [hours] have gone down, the workers become more productive. It’s all part of having greater work-life balance,” he said.