Overtime rules under microscope

Millions more workers in the United States may soon be eligible for overtime pay. And if workers’ rights advocates in Canada have their way, overtime rules may change here, too.

The United States Department of Labor is proposing to update regulations governing which executive, administrative and professional employees (often called "white-collar" workers) are entitled to overtime pay under its Fair Labor Standards Act (FLSA). U.S. President Barack Obama says the changes would extend overtime pay to almost five million workers.

The FLSA covers most employees in the United States regardless of the state in which they work. Exceptions apply for employees and employers in states that have their own labour standards laws that are stricter than the FLSA.

Under the FLSA, workers are entitled to overtime pay of at least 1.5 times their regular rate if they work more than 40 hours a week unless they are exempted.

The act exempts various types of workers from overtime pay, including salaried white-collar workers who earn at least $23,660 a year (or $455 per week) and whose job duties primarily involve executive, administrative or professional duties defined in regulations under the FLSA.

The Labor Department is proposing to raise the exemption threshold by replacing the specific dollar amount that currently applies with a new measure that sets the threshold at a salary level equal to the annualized weekly earnings of the 40th percentile of all full-time salaried workers in the U.S. For 2015, this would raise the salary threshold to $47,892 a year (or $921 per week).

The department estimates the threshold would rise to about $50,440 a year (or $970 per week) next year.

The department is also proposing to change a total annual compensation threshold that exempts "highly compensated employees" from overtime pay if they meet a job duties test that classifies them as executive, administrative or professional employees.

The threshold is currently set at $100,000 (this includes a minimum salary of $455 per week, plus other compensation such as commissions and bonuses). The department proposes to set the threshold so it equals the annualized weekly earnings of the 90th percentile of all full-time salaried workers (about $122,148 per year).

It also proposes to implement a mechanism to automatically update the thresholds every year. This could include using a fixed percentile of wage earnings or the consumer price index.

The last time the department changed the salary threshold was in 2004. That was the first change since 1975. As a result, Obama says the thresholds have not kept up with inflation.

Citing figures from non-profit, non-partisan think tank the Economic Policy Institute (EPI), the White House says 40 years ago, 62 per cent of full-time salaried workers were eligible for overtime pay under the salary threshold. Today, only eight per cent qualify.

The institute has been calling on the U.S. government to raise the threshold to at least $50,000 a year. In a news release, the organization applauded Obama and Labor Secretary Thomas Perez for their actions.

"It will boost wages, which have been largely stagnant for the past three and a half decades (and) create hundreds of thousands of jobs," said Ross Eisenbrey, vice president of the EPI.

While the National Employment Law Project, a not-for-profit organization that advocates for low-wage and unemployed workers, praised the proposals, it was concerned the draft regulations did not include changes to "duties" tests the department uses to determine whether salaried workers earning more than the threshold are exempt from overtime pay.

To qualify for an overtime pay exemption, an employee must meet both the salary threshold and duties test requirements.

"We are concerned that failure to address the existing tests’ vague definitions, laissez-fair approach to the mix of ‘salaried’ and ‘hourly’ duties required for exempt status, and other shortcomings threatens to deny far too many workers the overtime-pay protections they deserve and the statute contemplates," said executive director Christine Owens in a news release.

Owens added that final regulatory changes must include specific reforms of the duties tests, such as clarifying that exempt workers cannot spend more than half of their time on non-exempt work.

However, the National Retail Federation (NRF) says the new rules could cost jobs and hurt retail and restaurant businesses.

"The plan to revise the overtime rules could cost businesses hundreds of millions of dollars while increasing inequality across the board," said David French, senior vice-president for government relations at the NRF, in a news release earlier this year.

"It would help very few workers while negatively impacting a large segment of our economy and workforce," he added.

An NRF-commissioned report found that a change in the salary threshold could cost restaurant and retail businesses more than $5 billion.

French said new overtime rules could also result in a decrease in employee benefits and compensation and an increase in businesses using part-time and hourly workers.

He noted that this would hurt career opportunities for workers wanting to move into management positions since companies would likely replace middle-management jobs with hourly and part-time positions to save costs.

"There simply isn’t any magic pot of money that lets employers pay more just because the government says so," French said after the proposals were released.

It is not yet known when the final regulations will be in place, although there are indications that it could be next year. The Labor Department has asked for public feedback on the proposals by early Sept.

In Canada, some provinces are considering employment standards changes that may include amendments to overtime rules here. In Ontario, the provincial government recently launched public consultations on ways to amend the province’s Employment Standards Act, 2000 (ESA) and the Labour Relations Act, 1995 to reflect changes in the way people work.

The consultations are looking at workplace trends such as an increase in temporary jobs, part-time work and self-employment, as well as technological change and the rising prominence of the service sector. The consultations began in mid-June and will last until mid-September.

One area in which workers’ rights advocates would like to see employment standards reforms are in overtime requirements. In a preliminary submission to the consultations, the Ontario Federation of Labour (OFL) said employees should be entitled to overtime pay or time off in lieu after working 40 hours a week.

Currently, overtime pay is required after 44 hours a week.

The Workers’ Action Centre, a worker-based organization in Toronto that provides information and rights advice to people in low-wage and unstable employment, is also calling for the ESA to require overtime pay or time off in lieu after 40 hours of work per week.

In a recently released report called Still Working on the Edge: Building Decent Jobs from the Ground Up, the organization said, "Ontario lags behind other jurisdictions in Canada that have established a shorter workweek of 40 hours per week with overtime thereafter."

Both the Workers’ Action Centre and the OFL also want the government to eliminate exemptions and special rules under the ESA, some of which affect who is entitled to be paid overtime.

"Exemptions to overtime rules over the past five decades have resulted in just three out of five Ontario workers (62 per cent) having full coverage under the ESA overtime pay provisions," the Centre’s report says. It adds that this affects low-income workers even more, with only 29 per cent fully covered by the Act’s overtime rules, compared with 69 per cent of middle-income and 71 per cent of higher-income employees.

"Low-income workers such as residential care workers, farm workers, swimming pool installers, and landscapers are just some of the workers fully excluded from overtime premium pay," the report notes.

It also calls on the government to eliminate overtime averaging provisions in the ESA. Averaging allows employers and employees to enter into written agreements to average hours of work over periods of two or more weeks to calculate overtime pay.

"Workers have little bargaining power to negotiate overtime agreements," the report says. "Averaging overtime over an extended period enables employers to not only schedule workers for excessive overtime, but to do so without paying them time and a half after working 44 hours in a week."

Alberta is also considering employment standards changes. Last year, the Ministry of Jobs, Skills, Training and Labour launched a review of the province’s Employment Standards Code. It asked for public feedback on a number of issues, including paying overtime after eight hours of work per day or 44 hours of work per week, special overtime rules for certain industries and overtime agreements that allow employees paid time off in lieu of overtime pay.

The Alberta Federation of Labour (AFL) recommended changes to overtime rules. In its submission to the review, the AFL advocated for overtime pay after 40 hours of work per week instead of 44. It also called for employers to pay double time when employees work more than 12 hours a day, as required in British Columbia.

The organization also spoke out against any plans to allow employers to average hours over a period of weeks. "The demand for averaging overtime hours over a period of weeks allows the employer to cover busy times by balancing with slower weeks and avoid overtime premium pay," it said in the submission.

"What it accomplishes is to ensure the worker receives fewer wages over the time period than if weekly or daily overtime provisions were in place. The worker does not receive premium for the busy week, when the extra work may create home life burdens such as child-care arrangements, missing activities, and a lack of rest and sleep," it said.

With a change in government in Alberta, it is too early to know if or when there will be any overtime changes, says Jay Fisher, a public affairs officer with the ministry.