The debate on overtime pay has surged in the last year: Who should be paid for overtime? How many people should receive these benefits?
As the Department of Labor prepares to revise the rules this month, determining which workers are eligible for overtime pay, employees, unions and employers alike will be closely monitoring the reforms, given the impact on millions of Americans.
The impact of the revised rules boil down to the earnings threshold before an employee qualifies for overtime pay, regardless of his or her work duties. This range will most likely be between $42,000 and $58,000; the latter amount covers approximately 54 percent of salaried workers, or an additional 2.6 million people.
The premise behind revising the regulations makes sense. The salary threshold defined by the Fair Labor Standards Act (FLSA) has only been updated twice in the last 40 years. Because of inflation, the current threshold excludes the vast majority of salaried workers from overtime pay. In 2013, a mere 11 percent of employees were eligible for overtime pay, compared to 65 percent in 1975. In short, people are working longer hours against a lower average salary compared to the previous generation.
Skirting Laws And Skimping Payments
While overtime pay reforms are a step in the right direction, the reality is, looking at the salary threshold as the panacea for overtime pay issues within organizations is a misguided strategy. A long list of businesses have capitalized by skirting labor laws and pocketing millions of dollars -– and the reasons vary.
People are working longer hours against a lower average salary compared to the previous generation.
In 2012, almost $1 billion was recovered in back wages for the victims of wage theft. Frankly, this is a drop in the bucket against the estimated $50 billion per year that employers withhold from employees by making them work off the clock, shave hours off their paychecks, pay for work-related expenses out of their own paychecks or other practices that gouge wages.
Too many companies have come under investigation for not paying their employees properly, whether it be for unpaid hours, off-the-clock work, employee misclassification as exempt from overtime, missed meals and breaks or unpaid internships.
For example, an unpaid overtime class action lawsuit was filed against Staples this year for failing to pay its delivery drivers for all hours worked. (Staples has encountered an FLSA lawsuit before: the company paid $38 million in 2007 to settle a wage-and-hour class action lawsuit alleging it misclassified its California-based assistant store managers as exempt from overtime pay over a period of 12 years.) Walmart, TJ Maxx, Kroger and Chipotle are other companies that have had class action lawsuits filed against them.
While the fast food and retail industries have traditionally encountered the highest percentage of labor-related litigation, tech startups — particularly those that provide goods and services on-demand — could be part of the next wave of businesses contesting class action lawsuits. Uber and Lyft are currently facing separate landmark wage and hour lawsuits from drivers who argue that they are entitled to overtime pay, minimum wage, reimbursement from expenses and other benefits. Uber and Lyft contend the drivers are contractors who are required to pay for expenses out of their own pocket.
With news breaking this week that the California Labor Commission ruled one of Uber’s drivers was an employee, businesses in the sharing economy that rely on a fleet of contract workers to provide goods and services 24/7 should take note of how they classify and pay their employees. This has raised debate about whether similar rulings will follow on employee misclassification, and also whether the success of on-demand companies can be somehow attributed to their ability to previously skirt additional wage payments.
Being Accountable To Your Employees
While many pundits claim that FLSA laws are overly complex and full compliance is nearly impossible, far too often businesses push their employees to work off the clock as they look to cut costs and squeeze more out of their existing resources. Lawsuits and hefty fines are one way of preventing businesses from skirting labor rules –- but organizations must be more proactive and accountable when it comes to such regulations.
For starters, businesses should review their existing job descriptions to determine whether they are accurate and reflect the roles of individual employees. Businesses must also clearly articulate overtime policies to each employee, and foster open lines of communication with individuals should they have any questions regarding their wages.
With details about overtime pay reforms set to be disclosed any day now, understanding and adhering to labor regulations will be critical –- it’ll certainly be more cost-effective than facing any legal embroilments that can have lasting effects on a company’s brand and reputation.