How Obama Plans To Increase Overtime Pay Eligibility [e203]

July 6, 2015

Nasir and Matt discuss Obama’s plan to increase the threshold for who can qualify for overtime pay.

Full Podcast Transcript

NASIR: All right. Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: And here we are on our 204th episode and I think we should be due for a recap episode in about, what, sixteen or so? So, I’m looking forward to that.

MATT: Yeah, if we did it like the first hundred, but I think we ran out of topics.

NASIR: Yeah, right!

MATT: We’re just going to talk about the things we talked about in the first episode and see if there’s anything new.

NASIR: Well, really, we should start with Episode 4 or whatever we covered in Episode 4 we could cover in 204.

MATT: Hmm.

NASIR: And see how it’s updated.

MATT: I’m trying to think what that was.

NASIR: I can look it up right now.

MATT: I think Phil Mickelson was Episode 6.

NASIR: Some memory there.

MATT: I don’t remember any of the other ones but, for some reason, the Mickelson one I think was 5 or 6 maybe. I don’t know. Are you actually looking it up?

NASIR: Yeah, I’ll let you know in a little bit.

MATT: It’s coming up on two years ago so I guess that would be a pretty impressive memory.
So, President Obama has been in the news – not as much as maybe he used to be.

NASIR: By the way, starting the sentence with “President Obama in the news” is probably not that unique.

MATT: No, I know. I said “probably not as much as he used to be.”

NASIR: Oh, okay.

MATT: Because there’s the new presidential election so he’s kind of fading out.

NASIR: Episode 4, by the way, sauce versus crust – classic episode.

MATT: I should have known that. Now I’m ashamed. Let’s edit that out.

NASIR: Let’s edit that out?

MATT: I definitely remember that now.

NASIR: I don’t even know what you’re talking about with Phil Mickelson. I don’t even remember covering him – ever.

MATT: I’ll try to look it up.

NASIR: Oh, yeah, that was Episode 9.

MATT: Gosh, not bad. All right, enough of this.

NASIR: Anyway…

MATT: So, we’ve talked a lot about minimum wage and most of it has been not only just specific states but I guess more specific cities as well though we’ve talked about I know San Francisco. We mentioned recently the city in Washington State that changed their minimum wage but we haven’t talked too much about overtime pay and eligibility for it so, like I said, Obama’s administration’s coming to an end. This is the perfect time for him to kind of get some of these things in before he exits the White House and this is quite a change from just raising minimum wage a dollar or whatever it was. This deals with overtime pay and, now, on the federal level, he’s raising the threshold, the minimum threshold from what’s currently $23,660 to $50,440 so I guess that would be more than double the current amount that it’s at and so those people are now eligible to receive overtime pay within certain restrictions but I think I saw this as estimated to affect five million workers in the US. I think I saw that somewhere but pretty significant change to what it currently is.

NASIR: What’s the federal minimum wage now? I think that’s $8.25 I want to say? Actually, no, $7.25. So, $50,000 a year, that’s about three times… I’m trying to do my math which I’m horrible so $50,000 is about $24 an hour just to make it simple. That’s about, yeah, three and a half – almost three and a half – times the minimum wage which is a substantial increase. But let’s break down what this whole overtime exemption is. We’ve talked about independent contractors and employees and the differences between the two and it’s one of the most common misclassifications that employers can do. But the second is probably the difference between exempt and non-exempt. When we say exempt, it can mean a lot of things. But, generally, people mean that we’re referring specifically to exempt to overtime requirements so they may other exemptions as well but just to kind of make it simple. In the federal exemption, there’s basically two requirements that they’re being – or I should say three – that they’re being paid a salary and that their salary is such that it is equal to or more than $23,660 which now Obama’s changing to $50,000, and that their duties are such that what are called exempt duties like professional job duties or administrative duties or executive job duties as they’re defined in federal law. Basically, that minimum wage – that $20,000-something number – has basically been changed now and that’s what we’re changing here.

MATT: Yeah, and I did look and they are quoting roughly five million people this is going to affect so this is going to be quite the change and we’ll just continue on with the episode assuming this does end up getting approved just to make things simple on our front.

NASIR: Let me back up here. How Obama actually announced this was kind of interesting. He did it through a Huffington Post article which is pretty unique. But then, how he’s implementing this law is through I guess some kind of executive order which needs to go through some administrative process of getting feedback from the public and so forth. So, I think this is going to be a law soon. I’m not sure on the timelines but, basically, one thing that the administration has basically outlined is they believe that there are three categories of workers that this law’s going to affect and a majority of them – you know, three to five million workers that are referenced – are those workers that they feel that are within that salary range – maybe just under $50,000 or so – that are already exempt employees that, as a result of this new threshold that, in order to keep them exempt because it may be an employer’s best incentive to keep them exempt as opposed to keeping track of the overtime, they’ll just raise their salary to $50,000 which I think is a little optimistic.

MATT: Yeah.

NASIR: And then, there’s two other categories that I think is very applicable to most employers. That is this second category where the workers are in the targeted salary range and they should be eligible for overtime pay but they are somehow misclassified as exempt employees and so they don’t really have any kind of managerial or supervisory component to their duties. So, now, by increasing this threshold, they’re going to be clearly outside of the scope of this exemption. And then, it’s the third category who they’re eligible to receive overtime and currently receive it but are basically vulnerable to this reclassification.

MATT: Yeah, and I think the ones that are close to the proposed threshold amount, I don’t think that’s going to be as big an issue. I think you’re right in that, if they’re close to the line, they’re probably just going to push them up so they don’t have to really consider it. I think the interesting one – and I don’t know how many people fit this category but the interesting one – are the people that are going to be affected but, like you were saying, were misclassified as exempted when they shouldn’t have been and it might not have been as big an issue before but with this change in the salary, more than doubling what it was, I mean, that’s definitely going to raise an eyebrow for those people and say, “Hey, maybe I should try to do something about this.” Like I said, I don’t know how big of a group this is going to be for employers but it seems like a group that could cause a lot of trouble at least and now there’s going to be more of an incentive to do so. I think that’s something to keep an eye on assuming all this kind of gets pushed through.

NASIR: I agree and, if anyone’s wondering kind of the impact or how significant this is, let me put this in perspective here. I think everyone understands that, in California, California tends to be much more employee-friendly than any other state – probably the most out of all states – and, in California, they also have a state-specific minimum wage, so to speak, for exempt employees. With the last minimum wage increase back in July 1st 2014, the minimum wage for salaried exempt employees in California was $37,000 and, when the minimum wage goes up again in 2016, it’ll go up to $41,000 which means that even the state exemption in California is going to be less than the federal exemption which, of course, then means that the federal exemption’s going to apply. It’s going to supersede the state exemption. But, to me, that’s pretty significant. It’s not unusual that federal minimum wage is less than the California minimum wage. But, when we’re talking about exempt employees from a state that is pretty conservative when it comes to this stuff and the federal minimum wage for exempt employees is higher, it’s pretty crazy.

MATT: It wouldn’t be what you would think given the history of California and how they’ve been, like you said, not the best towards employers. You know, if this does end up getting changed, then I would think California will probably follow suit – I mean, not that it necessarily has to but I actually wouldn’t be surprised if it bumped it up even higher. I mean, I think you’re right the fact that California hasn’t even tried to make this change itself – or maybe it has and we just haven’t heard about it. I mean, this is going to be a pretty significant increase and affect a lot of employers. It’s not like the minimum wage where the federal minimum wage might get pushed up and, you know, it doesn’t even affect some states but the fact that this is going to be over, just reaching over the entire country, I mean, it’s going to be a big thing.

NASIR: My assumption is that, somehow, the Department of Labor is in charge with setting that number and it’s not specifically outlined in a statute so somehow that gives the president authority to amend that which, I mean, that’s fine. I mean, I guess that’s how it’s going to work. I haven’t seen any kind of objections to the procedural aspect of it. But, back in California, I do want to keep in mind that the number that is derived for that minimum wage is basically twice the state minimum wage for a full-time employee assuming 40-hour workweeks. So, I haven’t seen any effort to actually increase that exempt minimum wage but I do wonder if, in response to this, that might be a next step which I think that’d be pretty aggressive, I think, on a legislation part.

MATT: Yeah, it would, but I wouldn’t be shocked. So, what can employers do? If this happens, what can employers do? I guess the one thing that comes to mind is make it so your employees don’t work overtime and they fit within the restrictions of an 8-hour day and a 40-hour week. Maybe it will cost them shuffling around of who works when and maybe you might even have to bring on an extra employee or two but that’s kind of the way to combat this.

NASIR: And that’s what people are saying. You can actually restrict your employees from working overtime. You can restrict them, “Okay, you cannot work more than forty hours a week,” or, if in California, it’s also defined more than eight hours a day unless there’s an alternative workweek, et cetera. But there are some that are suggesting like you just did that some employers will basically take the employees that are working more than forty hours a week, make them to forty, and then add another employee or two to replace that missed work whether it’s part-time or so. In theory, this could be a boost to the economy and, as a result of this, there’s some criticism of that. Some people say that this is just going to hit hard with customer service and people are going to cut back because there’s just not enough of a correlation to what people are thinking the positives of this are going to be.

MATT: Yeah, I mean, that could happen. I mean, I’m sure it will in some instances but I don’t think it’s going to affect it too much.

NASIR: I even saw there’s one article, you know, trying to figure out who this is going to affect. Apparently, the media industry is going to be affected by this because, you know, those magazines or website content producers and so forth – which kind of makes sense because a lot of them are going to be not necessarily making $50,000 a year but probably making more than $23,000 – and may have some exempt like duties. But, once that threshold is brought up, they’re going to have to be paid overtime and, you know, with deadlines and so forth, I can easily imagine them being in a world where they’re working more than forty hours a week. So, I’m sure there are some industries that are going to be affected more than others – just like anything.

MATT: Oh, yeah, of course. You know what, one of the jobs I had – well, as we’re recording this, the 4th of July is coming up but, by the time this comes out, it’ll have already passed but I remember I used to get time and a half – basically, overtime pay for working a holiday because I had to work on the 4th of July once.

NASIR: Yeah.

MATT: Then, if you work overtime, if you work more than eight hours in that day, you get, like, double overtime – two times what you normally made which probably was, like, $10 an hour at most – actually, probably even less than that.

NASIR: You’d be making a million dollars an hour, basically.

MATT: Yeah, I was trying to think of other ways to keep racking up the overtime to triple it or quadruple my pay.

NASIR: And, if you do your job bouncing on one leg the whole time, then you get five times the amount. That’s what I would put on my employment manual.

MATT: And double the amount of pay is pretty big for a high school kid.

NASIR: Well, double the pay is probably big for everyone.

MATT: Also a good point, I guess.

NASIR: Ah. We’ll let you know when this law actually goes into effect but I think this was just announced, what, yesterday or today? So, it’s pretty fresh still.

MATT: I was going to say, maybe I’ve just been busy but I didn’t even really see this.

NASIR: I don’t think the world – actually, not the world – I don’t even think the news articles have really grasped the impact this will have yet because I think there’s a lot of unknowns. I mean, the statistics of which people actually fall under the exempt category between that target range I think is very difficult to easily ascertain. It may just be kind of one of the wait-and-see kind of things and what employers are going to do and react to it, it’s hard to tell.

MATT: Yeah. This is all, like I said, all assuming that this ends up happening too. This is the proposal so it might not even happen.

NASIR: Very well. Thanks for joining us everyone.

MATT: Yeah, keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.

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