It didn’t take a new law or a constitutional amendment: just one change to the federal Department of Labor’s “white collar” exemptions to overtime rules will soon make millions of workers eligible for overtime pay, heralding dramatic changes in businesses all over the country. Starting in December, employers will have to pay time-and-a-half wages to anyone working more than 40 hours a week as long as they make less than $47,476 a year.
Currently, regulations make employers pay overtime to some types of workers no matter what their salary, but office workers are generally exempt. The old 1970s-era rules set the threshold for the “white collar” exemption at $23,660 — at the time a middle class wage — and it was left alone for more than 40 years. Now President Obama has raised that ceiling to reflect inflation, and the level will be automatically updated every three years. The Department of Labor estimates that about 120,000 jobs in New Jersey will be affected.
Elizabeth Zuckerman, a Mapleton Road-based employment lawyer who represents workers, says businesses should prepare to adjust to the new rules when they take effect at the end of 2016. She said the new rules would make a big difference in the lives of people who work long hours.
“In my profession, you find a lot of people who are relatively low wage earners, and their employers are requiring them to work many hours because they are paid an annual salary,” she said. “The employer takes the position that they are not eligible for overtime because they are salaried, but that is not necessarily the case. This law makes it clear that anyone who makes less than the threshold is going to get overtime.”
Currently, people who perform certain kinds of jobs, such as management, creative work, or executive roles — in effect, many kinds of professional workers — are exempt from overtime if they also make more than the annual salary limit. Zuckerman says the law is often misunderstood, especially by small business owners who believe that by paying workers an annual salary, or giving them a job title with the word “manager” in it, they are exempt from overtime requirements (see guidelines, page 32).
With the new salary limit coming into place, Zuckerman says it will be more important than ever for employers to keep track of hours to ensure that their workers are being paid appropriately.
“Keeping track of time is the employer’s responsibility and always has been,” Zuckerman said. “There’s no specific way to do that. It could be a swipe card, or just a schedule and a sign-in sheet. It doesn’t have to be a fancy mechanism.” If the employer does not keep track of time, and the employee later sues for unpaid overtime, Zuckerman said the employee usually gets to estimate how much they worked.
She said businesses generally have three options in how to respond to the new regulations: First, they can just pay time and a half to people who are working overtime. Alternatively, they could raise wages so they are above the $47,476 limit so that they don’t have to worry about it. “If an employee is making $45,000, it is probably less expensive to just raise their salary to $47,476,” Zuckerman said. These two options both result in more money in the pockets of employees. Lastly, employers could cut back on hours worked and hire more employees or contractors to pick up the slack.
“The result here is that employees are either going to get paid more, or work fewer hours,” Zuckerman said. “We’re not talking about high paid earners. We’re talking about the sort of entry-level people, whatever type of work it is. I’ve had scientists, bench chemists, who are performing rote functions according to instructions by their employers working 10, 12, 14-hour days because they are paid a salary and their employer thinks they can get away with not paying them overtime.”
Zuckerman said in response to the new rules, large companies most likely already have mechanisms in place, such as in-house lawyers and HR staff, to adjust to the change. She said smaller companies should be sure to follow the new rules and hire an outside lawyer or HR professional if necessary. “There are penalties if an employer is willfully indifferent to these laws,” she said. “Employers need to be careful about them. It’s gotten a lot of media attention already, so there’s no real excuse for not knowing about it.”
Zuckerman and her law partner, George Fisher, practice at Zuckerman & Fisher LLC at 5 Mapleton Road (www.zuckfish.com). The firm, founded in 1997, specializes in representing employees. Zuckerman grew up in South Orange, where her father and uncle were both lawyers. She majored in English at the University of Michigan in Ann Arbor, but decided to put her analytical mind to use as an attorney. She earned a law degree at UC Davis, graduating in 1986 and becoming a deputy attorney general for the New Jersey Department of Law and Public Safety that same year, advising the departments of health and labor. After four years, she became an associate and later partner at another law firm representing employees in labor disputes, and then left to start her own business.
“I’ve managed to get involved in a very interesting area of the law, representing employees in discrimination claims and wrongful termination suits,” she said. “I feel like I’m helping people. It’s almost like you have to have a second degree in social work. People come to me at a very vulnerable time in their lives, when they are being terminated or harassed on the job. I try to offer them counsel, and either negotiate a better outcome for them, or when necessary, file suit on their behalf. I feel like I’m doing work for people who need representation.”
On the other side of the employer-employee divide is John J. Sarno, president of the Employers Association of New Jersey, which has argued overtime cases on behalf of businesses.
When discussing how employers could react to the new law, he offered the same three options that Zuckerman suggested. He said many businesses are now scrambling to evaluate their overtime policies to make sure they can comply with the new rules, and in some cases discovering that they weren’t even complying with the old regulations.
“What the new rule has done, and because of the tremendous visibility this has gotten both in the mainstream media and in the Human Resources press, there’s been a whole new focus on the Fair Labor Standards Act,” he said. “Many small businesses are not too sophisticated when it comes to the FLSA and in fact the U.S. Department of Labor estimates that before the rule change, employees worked unpaid overtime worth about $6 billion a year. The vast majority of that is mistakes that small businesses make. The new rule has oddly put a new focus on an old law, and many small businesses are discovering the compliance issue for the first time.”
Sarno said the part of the law that defines who is exempt from overtime and who must be paid overtime is complicated and that many companies are paying salaries to workers who should have been eligible for overtime pay. The new focus on the FLSA has resulted in lawsuits against major companies. In 2015 workers launched a class action lawsuit against Wal-Mart for failing to pay its assistant managers overtime even though they worked more than 40 hours a week. While the FLSA deems high-level managers exempt from overtime pay, the suit argues the assistant managers were managers in name only, and that their actual job duties included work such as taking inventory and operating cash registers.
“That’s a perfect example of how the law gets violated,” Sarno said. “Classification mistakes. And you have whole business models — restaurants and big box stores — that are based on assistant managers not getting overtime.”
In New Jersey, he said, smaller disputes are generally not handled by class action lawsuits, but by individual employees filing complaints with the state Department of Labor, which sometimes audits the business and directs them to pay overtime or not.
He said that the new focus on overtime rules could result in more of these complaints being filed. “It’s a pretty big, complex law that a small business would not otherwise pay attention to,” he said. “The unintended consequence of the rule change has been to raise the visibility of other compliance issues.”
Sarno said this could be problematic for several kinds of businesses. For the most part, he said, large companies with HR departments will not be affected, and tracking overtime for newly eligible employees will just become another part of the HR department’s job. But small businesses with few resources could have trouble complying. He also said retailers and restaurants could take a “major hit.”
Sarno said most of the opposition to the new law came not from corporations but from nonprofit groups, which generally operate on fixed budgets and cannot raise prices to compensate for increased costs. Before the rule changes were finalized, nonprofits petitioned the government for a longer phase-in for charities to give them time to adapt, but were denied.
The dispute has revived an old constitutional issue, Sarno said. The Fair Labor Standards Act is a federal law, and by the constitution, Congress derives its power to make labor laws from the commerce clause, which gives it the power to regulate interstate commerce. Therefore, Sarno says, the Fair Labor Standards Act only applies to businesses that engage in interstate commerce. But do nonprofit groups, especially local ones, really do business between states? And just what is “interstate commerce” anyway?
Sarno said the issue has yet to be conclusively decided, and that this argument presents a possible way for nonprofits to legally battle the FLSA and the new overtime rules. There are few case rulings on the issue, Sarno said. In one decades-old case, a local swimming pool claimed the Americans with Disabilities Act did not apply to it because it did not engage in “interstate commerce.” However, the government argued that since the pool bought some of its snack bar food from out-of-state vendors, that it came under the interstate commerce clause. If a similar case were to be brought by, for example, a local food bank, the government could argue that it is doing interstate business because it sourced its food from outside New Jersey.
“I think the interstate commerce clause with regard to nonprofits really gets new life now,” Sarno said.
Constitutional issues aside, nonprofit groups are moving to adapt to the new rules. Linda Czipo, executive director of the New Jersey Association for Nonprofits, said she has heard “mixed” reactions from nonprofits.
“I don’t see anybody who says the threshold should not have been increased,” Czipo said. However, she said, overtime will increase costs one way or another. She said some groups objected because they have governmental contracts that were negotiated before the new rules took effect, and there is no mechanism to renegotiate them in order to cover the new costs. “I think people can understand the motivation behind the rule, but at the same time, it is going to present some costs that will be difficult to cover in many cases. Ther are some tough choices to be made in terms of how to comply.”
Other groups, she said, are chronically under-funded and the new laws will make their jobs more difficult. She said she has seen organizations react in various ways. Some plan to raise salaries, others plan to keep their workers to 40 hours a week, and others are looking for ways to raise revenue to cover overtime costs.
Czipo said the new rules have been getting a lot of attention in the nonprofit community, and that her organization is working on a publication that will help nonprofit groups understand the rules.
The Employers Association of New Jersey is holding webinars for businesses about how to comply with the new rule. For more information, visit www.eanj.org.