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Working the System

Agency advises employers how to duck overtime pay

Dave Lindorff

When the Bush administration announced plans last year for a controversial “reform” of New Deal-era wage and hour regulations, it assured Congress and labor unions that the proposal would make overtime pay available to some 1.3 million low-paid workers—even as it removed many high-paid employees from overtime protection.

It now turns out that the administration’s Department of Labor (DOL), in a little-noticed report on the proposed regulations published in the Federal Register, actually was offering alert employers a set of instructions on how to avoid paying overtime to many of those long-suffering low-paid workers.

The document stated, for example, that employers could raise employees’ pay to the new $22,100 annual salary threshold, above which no overtime must be paid. If an employee were earning $21,000 in base pay on an hourly basis and was typically working four or five hours a week of overtime at time-and-a-half, this option would represent a big savings. The employee would continue to work 44- or 45-hour weeks, but would no longer collect overtime after the first 40 hours.

The report also suggested a tactic to convert an employee’s salary, upon which overtime would now have to be paid for all work beyond a 40-hour week, to payment on an hourly basis. This would reduce the hourly wage to a level that, when overtime was added in, would equal the old salary level. This strategy would have the effect of negating the rise in the cutoff level for paying overtime to salaried workers, which, under the regulations, went from $13,000 a year to $22,100 a year.

“Most employers affected by the proposed rule would be expected to choose the most cost-effective compensation adjustment method,” the DOL document stated, adding that because of this, the financial impact of the new regulations—despite the administration’s claim it would aid lower-paid workers—could be “near zero.” The financial benefit of the regulatory “reform” for low-paid workers also would be “near zero.”

Yet those same regulations, expected to go into effect in two months, will end overtime eligibility for some 650,000 higher-paid workers, while another 1.5-2.7 million other higher-paid workers will be “more readily identified as exempt” from overtime pay requirements, according to the Department of Labor’s own analysis. Labor union studies indicate that the number of workers who can expect to lose out on overtime from the changes is closer to 8 million.

The proposed new rules don’t bar overtime pay for higher-paid workers, which can be included, for example, in union contracts; they simply establish pay thresholds above which employers are not mandated to pay time-and-a-half beyond a 40-hour week.

Suzanne Ffolkes, a spokeswoman with the AFL-CIO, says the DOL study is “just an example of the administration’s attempt to take away essential income from employees who need overtime to make ends meet.” She noted that the study does not bother to offer employees advice on how to take advantage of the new regulations—for example, rejecting a change in pay from hourly to salaried or the offer of a minimal raise that would result in a net loss of income.

“We think it is outrageous that the Bush administration would be giving instructions to employers on how to avoid paying overtime to low-income workers, especially when they told Congress this bill was designed to help more low-wage workers become eligible for overtime,” says Alan Reuther, legislative director for the United Auto Workers (UAW).

A Labor Department representative insisted that the March 2003 report was not meant to serve as a set of instructions to employers on how to avoid paying overtime. “We were required to identify to the regulated community the impact of the proposed regulations,” she said. Added Ed Frank, another department spokesman: “We’re not saying anybody should do any of this.”

But U.S. Sen. Tom Harkin (D-Iowa) isn’t convinced. He is a critic of the proposed rules change and calls the DOL report “a gut punch to American workers.”

Harkin says the study is “proof positive that this administration is dead set on taking away overtime from 8 million Americans and denying even the lowest wage workers overtime protection.”

Last fall, Harkin and most Democratic senators, along with a number of Republicans like Pennsylvania Sen. Arlen Specter, managed to include the Harkin Amendment in the annual omnibus appropriations bill, which would have barred the Labor Department from making any rules change reducing overtime eligibility. Under pressure from the Bush administration, however, the measure was deleted in conference, where negotiations are dominated by leaders of the majority party in both houses of Congress.

The UAW’s Reuther notes that the omnibus appropriations bill, reported out of the House-Senate conference and already approved by the House, awaits Senate action on January 20. “We’ve called on Democratic senators to filibuster it unless they put the Harkin Amendment back into the bill,” he says.

Dave Lindorff, an In These Times contributing editor, is the author of This Can’t Be Happening: Resisting the Disintegration of American Democracy. His work can be found at This Can’t Be Happening.
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