Federal Overtime Rules: New Headaches for States


Still trying to figure out the new federal overtime rules? You aren't alone.

The Bush administration's new overtime regulations especially are causing havoc for employers in 18 states with their own overtime statutes. Employers there must compare the new federal rules to existing state laws and then follow the combination of provisions that give workers the best deal.

Questions also remain in the 32 states with "me-too" laws that typically adopt changes to the federal wage and hour regulations. At least one governor, Maine's John Baldacci (D), is balking at picking up the federal overtime changes and has unveiled his own proposal.

The U.S. House of Representatives vote Sept. 9 to block the new rules, but that action may not hold. GOP leaders on Capitol Hill vow to strip the language from the overall package an appropriations bill that funds the U.S. departments of Labor, Education and other agencies. The White House has warned that the president may veto the entire package unless lawmakers remove the overtime language.

Ultimately, the November elections could determine whether the new federal requirements stand. Democratic nominee John Kerry, backed by labor groups, has denounced the changes and vowed to roll them back, claiming they provide less wage protection. Likewise, legislative elections could influence acceptance at the state level.

At issue are rules that went into effect in August that spell out which workers get overtime pay, commonly known as time-and-a-half, for working more than 40 hours a week. The new rules affect salaried "white-collar" jobs, such as health-care workers, sales managers and department supervisors. Traditional "blue-collar" jobs, such as construction workers, mechanics and workers covered by union contracts are not affected by the new rules. Public-sector employees, who typically are covered by union contracts, also largely will not be affected by the rules.

The Bush administration issued the new rules to help stave off the flurry of lawsuits from workers suing their companies for overtime. Businesses as varied as Wal-Mart and Taco Bell have been slapped with multi-million-dollar judgments because of overtime irregularities.

Nearly everyone agrees that the federal rules, originally written during the Great Depression when hourly manufacturing jobs dominated the U.S. economy, were long overdue for a rewrite. But that's where the agreement pretty much ends.

Supporters of the rule, including business groups, say the new requirements from the Bush administration's Department of Labor will help 6.7 million workers get paid time-and-half if they work more than 40 hours a week while opponents, such as organized labor, say the rules could cost 6 million workers extra overtime pay.

The reason for the disparity is this: The U.S. Labor Department says more workers are covered because the new rules automatically guarantee overtime to workers who earn up to $455 a week, up dramatically from the $155 salary level under the old rules.

Organized labor and other opponents of the rule agree that the new salary level will help boost pay for more workers, but say that fuzzy definitions in the updated rules will make it easier for employers to deny workers overtime.

For example, unions say as many as 2.3 million "team leaders" who are production workers with no supervisory authority will be deemed "administrative employees" and thus not entitled to overtime. An assistant manager at a burger joint who can't hire or fire subordinates could be classified as an "executive" and thus denied overtime under the new rules, according to a briefing paper from Ross Eisenbrey, vice president of the union-backed Economic Policy Institute, a Washington, D.C., think-tank that focuses on low-wage workers.

Regardless if states agree with how the Bush administration revamped the overtime regulations, the updated rules are the law of the land, at least until the courts, the Congress or a new administration in the White House decides to alter them. States, however, can continue to follow their own overtime rules -- if they are more generous to workers than the federal rules.

Thirty-two states have wage and hour laws that automatically change when the federal Fair Labor Standards Act is altered. Maine is one of those states, but Gov. Baldacci is objecting to accepting the changes on grounds it could cost Maine workers overtime protection. A public hearing on the proposal is expected this fall.

The 18 states with their own overtime rules don't have to change their statutes, but if they don't, employers in those states must do some homework to figure out which rules to follow, generally whichever provisions are more generous for workers. The eighteen states are: Alaska, Arkansas, California, Colorado, Connecticut, Hawaii, Illinois, Kentucky, Maryland, Minnesota, Montana, New Jersey, North Dakota, Oregon, Pennsylvania, Washington, West Virginia, and Wisconsin.

"Employers will grapple with two sets of rules in many states," said Michael Eastman, director of labor law policy for the U.S. Chamber of Commerce. "It would be nice if there was a more streamlined way to do it."

California, for example, requires that workers be paid overtime if they work more than eight hours a day, not simply if they work more than 40 hours a week, as specified in federal rules.

"A lot of HR (human resource) professionals are really struggling right now to determine which standard to use," said Dave Namura, who is in charge of state affairs for the Society for Human Resource Management (SHRM), an association that represents HR professionals.

Pennsylvania, one of the 18 states, says the new federal overtime rules would have "little impact" on its workers, according to a statement from the state's labor department. However, the Keystone State also conceded it's likely the courts will have the final say. "How the regulations are applied by the courts over time will determine whether the greater benefit is provided by the new federal standards versus Pennsylvania's current standards," Pennsylvania Labor & Industry Secretary Stephen M. Schmerin said in a statement.

Illinois is an unusual case in that the state jumped the gun and reworked its own state law in April before the new federal rules were published, wanting to make sure the state overtime protections were more generous than the federal government's. It didn't completely turn out that way. The new Illinois law guarantees overtime to workers who earn up to $425 a week, lower than the $455 threshold that the U.S. Department of Labor sets out. In this way, federal rules trump.

It gets even more complicated for employers with facilities in several states. "It's a nightmare for an employer who operates in multiple states," said Allison C. Blakley, a labor law specialist and partner with Sonnenschein Nath & Rosenthal. It's also a logistical headache for employers who transfer workers temporarily from one state to another with different standards, she said.

No state-by-state analysis is available yet to show the impact of the federal overtime rules.

Employment attorney Blakley said the new rules will throw a new wrinkle into states' competition against one another for jobs and businesses. A state with its own overtime laws might not be as attractive as a state that mirrors federal rules. The question for such a state, she says, is how to be "business-friendly" in a way that doesn't upset organized labor. "Who is going to blink first?" she asked.

Besides being raised in the presidential race, the issue also may top some agendas in 2005 state legislative sessions. Democrat-controlled statehouses likely will attack the Bush administration's new overtime rules while Republican-led legislatures will herald them, predicted Joseph P. Harkins, a partner with Littler Mendelson, a San-Francisco law firm that represents employers and specializes in employment and labor law.

SHRM's Namura agreed. "Obviously the November election will play a huge role in this. ... The makeup of the statehouse is going to determine what states do, if they decide to do anything at all."

The Chamber of Commerce's Eastman said he hoped states would look into their standards. "Why force employers to go through two sets of analyses?" he asked. States should look for a simpler way to provide the level of protection that the states deem appropriate, he said.

Baldwin Robertson, a lawyer for Working America, the community affiliate of the AFL-CIO for nonunion workers, and a wage-and-hour attorney at Woodley & McGillivary, likewise speculated that states will square off over the overtime question. "These regs do need to be re-evaluated," he said. 


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