Eliminating the right to overtime pay

Department of Labor proposal means lower pay, longer hours for millions of workers

On March 31, 2003, the Department of Labor (DOL) proposed regulatory changes, which if adopted, could make more than eight million white-collar employees ineligible for overtime pay. Under the current Fair Labor Standards Act (FLSA) regulations adopted in 1938, most workers—an estimated 79% as of 1999—are guaranteed the right to overtime pay, or time and a half, for every hour worked beyond the normal 40-hour workweek. For white-collar workers, three tests determine whether they are exempt, and thus ineligible for overtime pay, or nonexempt, and thereby eligible for overtime pay. The rule changes proposed by the Bush Administration in March 2003 would make drastic changes to these tests, vastly increasing the number of exempt employees and making it likely that millions of them will work longer hours at reduced pay.

We estimate that—just in the 78 occupational groups we studied (out of 257 "white-collar" occupations)—2.5 million salaried employees and 5.5 million hourly workers will lose their right to overtime pay if the proposed rules are adopted. The total effect of the proposed rule on all occupations is undoubtedly much greater. Employers will not have to convert hourly workers to salaried, but the financial incentive—the option to require that employees work overtime without having to pay for it—combined with competitive pressure will ensure that most will do so.

Under current law, each of the following three tests must be met to classify an employee as exempt and therefore ineligible for overtime. First, the "salary-level" test stipulates that employees earning less than a certain level each week cannot be exempt. Second, the "salary basis" test states that employees must be paid a set salary—not an hourly wage—in order to be exempt. Finally, the third screening test is the "duties test," which states that a worker cannot be denied overtime pay unless his or her duties are primarily "administrative," "professional," or "executive" in nature.