Overtime-pay system gets an overdue federal upgrade

For the first time in decades, federal policies on overtime pay are getting an overhaul.

The change can't come too soon for many Americans. Millions of workers clock more than 40 hours per work, and the rise of two-income households and megacommutes has increasingly put free time at a premium. Any change that lets more people get extra pay - at a "time and a half" scale - for their extended work hours is welcome.

But although the proposed Labor Department rules are viewed by many as a step of progress, they could cause one worker to lose time-and-a-half benefits for every two who gain it, a fact that rankles with labor groups. By one estimate, 1.3 million new workers would gain the right to overtime-pay; 640,000 would lose it.

The overtime issue is being addressed on a separate front in Congress, with a bill allowing companies to let workers choose to have their overtime compensated not with money but with time off.

The point of both moves is to bring a Depression-era law out of its time warp and into line with the realities of the modern workforce. The overtime rules in the Fair Labor Standards Act of 1938 have been tweaked along the way, but they still hark back to the days of key-punch cards, not computers. Everyone agrees major changes are long overdue.

The rules, for instance, exclude administrative employees from overtime pay if they regularly exercise "discretion and independent judgment." In 1940, 75 percent of American workers didn't even have a high school diploma, says Ed Potter, president of the Employment Policy Foundation in Washington. But now, "in most jobs, there is a lot of employee discretion [as to] how work is done, and a lot more employee input."

In addition to revising the tests employers use to determine which workers can be "exempted" from overtime pay, the new rules would update an obsolete salary threshold so that anyone making less than $22,100 a year will automatically qualify for overtime pay.

Some labor advocates would rather see the government offer radical new protections instead of shoring up an old law that puts no limits on mandatory overtime.

Other experts say a free-market approach, with minimum government standards, is adequate: Even though one-third of the American workforce falls into white-collar categories that don't qualify for overtime pay, they say, employers ignore calls for flexible work options and reasonable hours at their own peril.

"Overwork among the professional class is pretty rampant," says Randy Hodson, a sociology professor at the University of Ohio. But federal law, and more-stringent laws in a few states such as California, are not the only answer, he adds. "Lots of employers offer comp time even if people are 'exempt.' This whole issue of family-friendly [policies] is big news, and employers are having to address it."

That's not much comfort to the people in the gray areas who may lose their overtime eligibility once the Labor Department's plan kicks in. A worried legal secretary in Orlando, Fla., who supplements her $37,000 salary with about $12,000 of overtime pay sent an e-mail to the Labor Department and copied it to a reporter at the Orlando Sentinel: "I understand you are trying to help the lower-income people, but the middle-income people are the ones who will suffer," she wrote.

About 640,000 people will lose overtime eligibility, says Tammy McCutchen, the Labor Department's wage and hour administrator. But 1.3 million low-wage earners - such as a fast-food worker now excluded because of some supervisory duties - will gain overtime protection.

"It's a fair tradeoff," Ms. McCutchen says. People making under $22,100 "are the most vulnerable and low-paid workers in our society today, and it is the purpose of the Fair Labor Standards Act [FLSA] to protect [them]." The public comment on the proposed changes runs through June.

But labor advocates worry that millions of people who depend on overtime pay could be pushed into exempt categories. Some want overtime pay to be guaranteed to anyone who makes less than $100,000.

The comp-time bill in Congress, due for a vote in the House as early as May, would allow employers to give overtime workers a choice between extra comp time and extra pay. About 3 out of 4 workers surveyed by the Employment Policy Foundation say they'd like this flexibility.

Americans feel overworked not because they are working much longer hours than their historical counterparts, Potter says, but because family patterns have changed so dramatically. In 1940, 70 percent of households had one parent at work and one at home, but now more than half are headed by single parents or dual-income couples. Of the 63 million workers covered by the FLSA, about 1 out of 5 actually works overtime.