White-collar exemptions for blue-collar workers

Did you know that a worker can make wages below the federal poverty line (currently $23,850 for a family of four), work long hours performing mostly manual labor, and still not necessarily qualify for overtime pay?  Strange but true.

The federal wage and hour law (the Fair Labor Standards Act, or “FLSA”) celebrated its 75th anniversary in 2013, just as Title VII turned 50 this year.  During its history, the FLSA has done a great deal to protect workers and ensure they are treated and paid fairly.

The FLSA is a response to an era where workers were at the mercy of their employers and could be made to work long hours without adequate compensation. It has two basic aspects: the minimum wage and the requirement that workers be paid time-and-a-half overtime for all hours worked over forty hours per week.

The overtime requirement has three fundamental purposes: (1) to ensure that workers receive a fair day’s pay for a fair day’s work; (2) to protect employees from the evils of overwork and enable them to maintain healthy and productive lives outside of work; and (3) to reduce unemployment by spreading the available work. If an employer has to pay time-and-a-half overtime, it has an incentive to hire additional employees to cover the work.

For these reasons, there is a strong presumption that workers are entitled to overtime under the FLSA. There are certain exceptions, known (strangely enough) as “exemptions.” These exemptions disqualify certain categories of workers from getting overtime pay. Exemptions must be “narrowly construed.” Employers must prove that an employee “plainly and unmistakably” comes within both the terms and spirits of an exemption.

This entry concerns the so-called “white-collar” exemptions to the overtime requirement. These exemptions are meant to cover well-paid employees performing high-echelon work: bona fide administrative employees (those select employees helping to run the business rather than the typical ranks of workers); executive employees (bosses who determine the working lives and fate of other workers); and professional employees (doctors, lawyers, and CPAs).

But the regulations regarding the white-collar exemptions are out of date, leading to strange results.

One element of the exemptions is that the employee must be paid a fixed salary of at least $455 a week. This equates to $23,660 per year, or below the federal poverty line for a single mother raising three children.  This minimum salary level is hopelessly antiquated, having been raised just once since 1975.

Further, the regulations state that an employee’s “primary duty” must be exempt work, such as – in the case of “executive” employees – managing other workers.  But primary duty can be fuzzy. In practice, some courts have found that employees such as store managers who perform even 75 or 80% routine manual or clerical work (cleaning, stocking shelves, etc.) but have a minor role in supervising other employees can be exempt from overtime.

This means that an employee making $455 or above per week ($23,660 per year), if exempt, can’t earn another cent for overtime work, even if he or she works 60, 70, or even 80 hours a week.  Guess who is going to be stuck working after hours and performing double shifts.  Why hire an extra worker to do the job?  There is a certain element of irony here: during an economic downturn, workers are most likely to accept such conditions in order to keep their jobs; but it is also when new jobs are needed the most.

There are proposals gaining steam to revamp the outdated white-collar exemption regulations by increasing the minimum salary level to account for inflation and adopting a quantitative threshold for an employee’s primary duty. For example, to be exempt under California state law, an employee must spend more than 50% of her time performing exempt work to be disqualified from receiving from receiving overtime pay.

These are common-sense adjustments that will add clarity and fairness to the law.  They will benefit working women, employees in general, and the economy as a whole.

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