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New overtime rules could cost employees


Over the past few weeks, the University of Iowa Labor Center has been flooded with calls from concerned workers wondering whether the overtime pay they’ve come to depend upon will disappear.

That’s because new federal overtime regulations, which opponents say will result in millions of workers being reclassified as exempt from receiving overtime pay, become effective this week.

“The hundreds of people I’ve talked to, these workers know about it and they’re scared about it,” said Roberta Till-Retz, a program consultant for the university’s Labor Center. “At a time when our wages are going down, that they’re doing this to affect workers’ income is very alarming to me. This is kind of an alarming thing for the entire economy.”

Registered nurses, law enforcement personnel, team leaders, assistant managers at retail stores and fast food restaurants, chefs, and others are among the workers that could be affected by the Department of Labor’s new FairPay regulations, which an independent analysis says will result in about 6 million U.S. workers losing their eligibility for overtime pay.

In Greater Des Moines, the financial services, healthcare and restaurant industries are some of the largest industries in which local workers’ status could change, though some companies say the law will have minimal impact on their employees’ classifications.

Under the law that just expired, three tests were generally used to determine whether to classify an employee as exempt and therefore ineligible for overtime:

– The salary-level test — employees earning less than a certain level each week (currently $155) cannot be exempt.      – The salary-basis test — employees must be paid a set salary, not an hourly wage, to be exempt.      – The duties test — a worker cannot be denied overtime pay unless his or her duties are primarily administrative, professional or executive in nature.      Under the new rule, the salary level under which all employees are covered by overtime rules will be increased to $455 per week, or $23,660 per year. Initially, about 400,000 workers who were not covered under the salary level test will now be covered, according to Labor Department estimates.

However, according to conclusions of the independent review completed for Congress by three former Labor Department officials, amendments to the key duties test will dramatically increase the number of workers who will be classified as professional, administrative or executive, and remove millions of additional workers from overtime coverage.

Assault on workers?

Though Labor Department officials say bumping up the regulation’s wage threshold will virtually guarantee that workers making less than $455 per week will now be eligible for overtime pay, critics say the law’s loopholes will result in millions more workers who had been paid overtime now being thrown into the exempt classification.

“By exempting a greater proportion of the workforce from receiving overtime, the new overtime regulations are clearly an assault on American workers,” said Democratic Sen. Tom Harkin. On Monday, Harkin was scheduled to hold a noon rally at the Department of Labor with AFL-CIO President John J. Sweeney and union members to call on the Bush administration to repeal the rules.

Earlier this year, Harkin successfully added an amendment to the JOBS Act that would guarantee that any worker now eligible for overtime pay would not lose that status. That bill is now being considered by a Senate-House conference committee on which Harkin is a member.

The new rules will likely result in the Labor Department’s Wage and Hour Division taking a closer look at how companies are classifying their employees, said Sheila Tipton, a partner at Dorsey & Whitney LLP who specializes in employment law.

Tipton said because Iowa employers are typically conservative in applying the rules, she sees few companies having to make significant shifts in their employee classifications.

“What we’ve been advising is that if employers have any concern at all, that they take a look and make a new determination (on individual classifications),” she said.

“The rules themselves aren’t black and white,” Tipton added. “There is room for judgment, so in that case it’s best to get advice to make sure you have the rationale for the employees’ classification in their files, so you have that documentation.”

Most laborers working under union contracts have clauses that protect them from losing their overtime status, said Mark Smith, president of the Iowa Federation of Labor. The concern is that unions may have to fight to keep that protection as the contracts come up for renewal, he said.

One of the ambiguities of the new law is the duties qualification that exempts workers from overtime if they are deemed to be a team or group leader, Smith said.

“How does that get defined?” he said. “The horror stories are that you could have a kid running the grill at McDonald’s, but he’s also the guy who tells the french fry guy when to make more fries and so he’s a lead person and the poor kid is exempt from overtime.”

Iowa Hospitality Association CEO and President Doni DeNucci said few of the association’s member restaurants have employees that perform both exempt and non-exempt duties, though it’s possible some pastry or sous chefs may be affected.

A matter of interpretation

In the financial services sector, Kathy Bemisdarfer, director of recruiting for American Equity Investment Life Holding Co., said she doesn’t anticipate any changes for her company’s employees.

“The reason we don’t is we don’t have any employee that’s earning less than the wages listed,” she said. “We find that our classifications are in line.”

Under the new rules, many more employees in the financial services industry will be exempt from receiving overtime pay if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts, determing which financial products best meet the customer’s needs and financial circumstances, or otherwise marketing, servicing or promoting the employer’s financial products.

An estimated 160,000 mortgage loan officers, for instance, will lose their eligibility for overtime pay, according to a study conducted by the Economic Policy Institute, a non-partisan, non-profit think tank that studies economic policy relating to low- and middle-income workers.

Currently, most loan officers earn more than the $455 per week exemption limit, but are considered non-exempt because their positions don’t require them to exercise independent judgment and discretion in their duties, one of the tests under the existing rules. Under the new rules, however, because they are analyzing a customer’s credit information, they fit within the administrative exemption.

It’s possible that the new regulations could affect financial services companies, said Cheryl Carpita, a human resource consulting manager who works out of RSM McGladrey’s Davenport office.

“Part of it is employer’s understanding of the regs,” said Carpita, who recently conducted a workshop for employers in Des Moines. “An employer may start looking at the professional exemption, and if they don’t fit in that they may look at the administrative category. It’s a matter of seeing which category fits.”

Whether these new regulations will save companies money or cost them in the long run depends on how they handle some of the compensation questions, Carpita said.

“For those employers who move employees into non-exempt categories and don’t change their salaries, it’s going to end up costing them more (in overtime),” she said. “For those moving into the exempt category, they should be going out and market-pricing positions to make sure they’re being paid competitively, because you don’t want to see the turnover, either.”

Once companies sort through the new rules, they should have a clearer idea of who should be paid overtime, said Tony Townsend, a faculty member with the Industrial Relations Center at Iowa State University’s College of Business.

“From a firm’s standpoint, there are a few things you don’t want to get busted for, and one is not paying overtime,” he said. “It’s a real scary area for companies, and I think what the administration has done is try to create some clarification.”

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