President Barack Obama’s executive order to raise the minimum wage for federal workers was just the first of such labor law shakeups as he now eyes overtime pay.

Credit - Flickr user geoffbarrattgeoff
Credit – Flickr user geoffbarrattgeoff

On Thursday, Obama released the presidential memorandum instructing the Department of Labor to update who is considered an exempt employee and given overtime protection under the Fair Labor Standards Act. According to The White House announcement

Today, only 12 percent of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections (compared with 18 percent in 2004 and 65 percent in 1975).  Many of the remaining 88 percent of salaried workers are ineligible for these protections because they fall within the white collar exemptions.  Many recognize that these regulations are outdated, which is why states like New York and California have set higher salary thresholds.

Obama’s memo is aimed at building economic security for the middle class by ensuring that more supervisor and management positions qualify for overtime pay. And even though the Department of Labor still has to retool the white collar exceptions, the administration’s move is already coming under fire. Labor lawyer Jason Reisman explains in HR Legalist that

for employers still not out of the woods from the economic downturn, the prospect of having more employees fall out from under these common FLSA exemptions could be harrowing for their future. Strong objection is expected from business and industry groups, especially as regulation changes often yield substantial increases in lawsuits (FLSA lawsuits have already increased more than 350% over the last dozen years) and DOL enforcement actions.

Obama wants the expansion of the FLSA exemptions to be designed for office workers, convenience store supervisors, fast food managers, etc. who may be a salaried employee and make above $455 per week.Because salaries in these types of jobs are not particularly high, unpaid overtime is unfair for these workers. While the memo was issued to ultimately benefit these lower paid white collar workers, Paul DeCamp, former administrator of the U.S. Department of Labor’s Wage and Hour Division, calls this “bad policy” in the Wage & Hour Law Update.

The reality is that curtailing exemptions will result in less pay for these same workers.  Employees converted from salaried exempt to non-exempt will find that their new hourly rate reflects the overall work schedule such that they will earn the same amount as they earn now, including overtime, if their working hours remain the same.  However, the natural consequence of making these workers overtime-eligible is that employers will see the overtime expense as a controllable cost and will reduce working hours in order to avoid having to pay an overtime premium.  Just as with the Affordable Care Act, the major unintended consequence here will be to cut back on working hours, and thus pay, for the very workers the Administration claims it is trying to help.

Brookings Institute labor fellow Gary Burtless echoed similar sentiments in an interview with Fox Business and that companies may scale back new hires and raises under a new policy.

It’s too soon to peg the changing exemptions as a job killer, however.

Receiving pay for extra hours worked is a mental boost for employees and is likely to increase worker efficiency, according to Rick Newman in The Exchange blog on Yahoo Finance.

To create a scenario in which more overtime pay actually costs the economy jobs, you’d have to argue that the added cost of hiring part-time workers to do work full-timers used to do beyond 40 hours  — basically for free  — is so onerous the company would lose business, be forced to lay off other workers, or shut down altogether. Is there any such business, so dependent on unpaid overtime that it can’t function without it? Maybe an illegal sweatshop or two. But any legitimate business that meets this description is probably underpricing what it sells or doing something else terribly wrong.

While the memo is causing a panic, the Department of Labor still has to decide what the new exemption requirements will be. According to labor and employment attorney Brian Steinbach for the Wage & Hour Defense Blog, the regulatory process will take at least 18 months and Congress may decide to step in during that time.

Instead of worrying about the worse, businesses have 18 months to look at how they classify employees and what exactly nonexempt ones are doing to count as overtime.