WASHINGTON (Reuters) - U.S. Labor Secretary Tom Perez offered details this week about the Obama administration’s push to revise overtime pay regulations, confirming the Labor Department may close a “loophole” in the test used to determine which workers are managers.
Perez said the Labor Department’s current test is a “loophole” in U.S. wage-and-hour law that lets employers treat many workers as overtime-ineligible managers even if a lot of their work is the same as non-managers, who do get overtime.
“I think that’s wrong, the president thinks that’s wrong,” Perez said in a speech on Monday at an International Association of Fire Fighters legislative conference in Washington.
President Barack Obama last week directed the Labor Department to weigh revamping overtime rules related to the country’s wage-and-hour law, the Fair Labor Standards Act.
Under the FLSA, non-management workers are entitled to extra pay for hours worked beyond 40 hours a week at one-and-half times their regular hourly wage.
That is not the case for many, though not all, so-called “white-collar” workers, or “executive, administrative and professional” employees who receive a salary.
Overtime pay can be claimed by salaried employees who make below a set salary threshold, which has been at $455 per week since 2004. Obama, a Democrat, said he wants to raise that threshold, making more people eligible for overtime pay.
“That threshold has failed to keep up with inflation, only being updated twice in the last 40 years and leaving millions of low-paid, salaried workers without these basic protections,” according to a White House overtime fact sheet.
Only 12 percent of salaried workers today fall below the current threshold, compared with 18 percent in 2004 and 65 percent in 1975, the fact sheet noted.
Obama’s overtime proposal is one of several worker-friendly initiatives he is pushing ahead of November’s mid-term elections, with his effort to raise the federal minimum hourly wage blocked by Republicans in the House of Representatives.
Perez’s speech at the IAFF conference made clear that Obama’s “update” to the overtime rules will include re-examining the Labor Department test used to assess whether workers are managerial or non-managerial.
“As a result of a loophole that was written into the regulation in 2004 by the Bush administration, quite literally somebody can work 1 percent of their time on management issues, 99 percent stacking the shelves and doing other work that has nothing to do with management, and you’re considered a manager, and you are no longer entitled to overtime,” Perez said.
He was referring to a lawsuit brought by a former store manager for Dollar General Stores that alleged she and other managers had been improperly classified as executives when they spent the “vast majority” of their time on “nonexecutive tasks,” according to court filings.
The store manager who brought the case worked 50 to 65 hours a week and earned a weekly salary of $400 to $655 during her years with the discount chain. She testified that about 99 percent of her week was spent stocking merchandise, manning the cash register and doing janitorial work.
A district court dismissed the case. The ruling was affirmed by the 4th U.S. Court of Appeals, which hears appeals from federal courts in South Carolina, where the store was located.
“While she catalogs the non-managerial jobs that she had to do, claiming that they occupied most of her time, she does so without recognizing that during 100 percent of the time, even while doing those jobs, she was also the person responsible for running the store,” the 4th Circuit wrote.
When the Labor Department last updated overtime regulations in 2004 under Republican President George W. Bush, the salary threshold was raised to $455 from $250.
But the agency also revised the “primary duty” test that determines whether workers are managerial, refocusing it toward multiple subjective factors and away from time spent on a particular duty. This change opened the door to the idea of concurrent duties, experts told Reuters.
“When the Fair Labor Standards Act was passed, one of the principle notions of it was, if you work more than a 40-hour week, you should be paid time-and-a-half,” Perez said. “And that has been an article of faith, but that regulation in 2004 has eroded that article of faith.”
Editing by Kevin Drawbaugh and Chizu Nomiyama