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Low Wages Without Overtime? Obama Wants to Change That

Low Wages Without Overtime? Obama Wants to Change That

Photograph by Gretchen Ertl/The New York Times via Redux

Fairly enough, titans of industry don’t get time-and-a-half pay when they stay late at the office plotting world domination. But over the years the “white-collar exemption” has been stretched absurdly to deny overtime pay to people who earn below-average pay, do very little supervising, and wear uniforms with collars that are every color but white.

The New York Times today published a scoop that President Obama is about to order the Labor Department to draft new overtime rules, making millions more workers eligible for higher pay when they put in more than 40 hours a week.

The International Franchise Association, whose members include fast-food restaurants, is responding badly to the plan, which comes on the heels of Obama’s request for a federal law to raise the minimum wage to $10.10 an hour. “Raising the minimum wage is only going to impact jobs. We view this through the same lens. At the end of the day you’re just layering additional costs to business owners,” says Matt Haller, a spokesman for the association.

This isn’t all bad for employers, though. If properly drawn up, a new rule could draw a bright line between who’s eligible for overtime and who’s not, and that could eliminate lots of costly and time-consuming litigation. “It’s hard to predict how courts will rule and that’s part of the problem. Employers and employees don’t really know where the line is,” Catherine Ruckelshaus, general counsel of the National Employment Law Project, which defends low-wage workers, said today in an interview.

President George W. Bush in 2004 set $455 per week as the threshold for what constitutes a white-collar worker for overtime pay purposes. That amounts to $11.38 an hour, which doesn’t sound like the kind of pay people associate with white-collar work. The White House hasn’t said what the new threshold would be.


Workers’ duties are taken into account, too. There are executive, administrative, professional, computer employee, and outside sales exemptions (PDF). The executive exemption, for example, states:

“The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.”

In practice, fast-food restaurants routinely manage to confer overtime-exempt status on workers who are not primarily managers, says Ruckelshaus. “The label that’s attached to the worker carries a lot of weight,” she argues. “The employer can say, ‘Congratulations, you’re an assistant manager.’ The worker feels great. But she’s not covered by overtime anymore.”

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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