By BLR Founder and CEO Bob Brady
Pondering arcane overtime rules, BLR founder and CEO Bob Brady asks “Isn’t it about time that the U.S. Department of Labor emerges from its cave and joins the 21st century?”
I’m speaking of overtime regulations. At BLR, we have several salespeople earning between $70,000 and $100,000 a year. According to wage and hour rules, they have to punch the time clock because they don’t fit one of the very narrow exemptions under the wage and hour law.
They regard it as demeaning, and they resent our rules restricting overtime. They don’t think of themselves as “9 to 5ers,” and they often want to put in extra time. Those who are commissioned think they can earn extra money, and (being a capitalist, myself) I’m all for that. Others know that putting in extra hours is sometimes the price of admission if they want to advance in their careers. Salespeople are particularly resentful. One woman recently said to me, “I’ve worked in sales all my life. I’ve never had to punch the time clock.”
But our hands are tied. Unless an employee fits into one of the official “exemptions” (administrative, professional, executive, computer, or outside sales), we have to pay time and a half for hours worked in excess of 40 per week. This can be a hefty expense for a highly paid person, especially in today’s economy, so we feel the need to monitor and restrict overtime. (To add insult to injury, the rule for computing time and a half for commissioned salespeople is maddeningly complex.)
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Why Now?
What of the employee who said she’d never before had to punch the clock? Why are we different from her past employers? There are three possibilities. One, her prior employer was violating the law and should have been paying overtime. Two, she was in outside sales, which can be exempt. Three, she fit in the far narrower inside sales exemption.
Most likely, it was the first. There is no question that there are widespread violations of wage and hour laws, whether intentional or not. Employers that violate the law take some pretty big risks. All it takes is one complaint from a disgruntled employee, and a wage-and-hour audit can yield a lot of aggravation and some stiff fines. For us at BLR, there is another risk. We’re in the business of advising employers about compliance. It wouldn’t look good at all.
So, we’re stuck in a very bad place. We have a number of employees who would like to earn extra money and get ahead in their careers, but it is not economically feasible for us to allow it.
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One of our senior managers recently cited this as a case of “liberalism at its worst.” A law that made a lot of sense when it was first passed, 70 years ago, has been extended to its illogical extreme. Instead of protecting employees from overbearing and unfair employers, it prohibits highly compensated, ambitious employees from pursuing their version of the American dream. The law continues to make a lot of sense for low-paid employees doing manual work, but it is so “20th century” in other aspects of its application.
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That’s my e-pinion. I’d love to hear yours. Write me at Rbrady@blr.com
I think that the DOL’s intent, of overtime regulations, is to protect the wages of lower-paid workers, esspecially those who are required to work long hours.. The way the regs are written does not, necessarily, accomplish this. A simpler way of accomplishing this: all employees earning base wages of or less than $15 / hour, $600 / week or $31,200 annually must receive overtime. (The figures can be adjusted every few years). Thank you.
Excellent article; should serve as a reminder to other employers that sales employees are subject to FLSA OT standards unless an exemption is applicable – even though they are on commission and/or are highly compensated.
DOL does not have the authority to create an exemption; only the Congress can do that, by amending the law. During the 2003-2004 revision process of 29 CFR Part 541, DOL was encouraged by some to extend the outside sales exemption to inside sales employees. This is an excerpt from the DOL response in the Preamble to the 2004 regulations: “— the Administrator does not have statutory authority to exempt inside sales employees from the FLSA minimum wage and overtime requirements under the outside sales exemption. Those comments that ask the Department to revise the regulatory definition of an outside sales employee to include inside sales employees, on the basis that they perform much the same functions as outside sales employees, must be rejected as beyond the statutory authority of the Administrator.” See pages 22161 and 22162 at http://www.dol.gov/esa/whd/regs/compliance/fairpay/preamble.htm
Regarding “— the rule for computing time and a half for commissioned salespeople is maddeningly complex” – it is not generally very complicated. In most commission arrangements, the compensation = regular wages for all hours worked. Total regular wages divided by total hours = regular rate. One-half x the regular rate = the OT premium pay. The end result is payment of time and 1/2 for the OT hours because the straight-time pay was included in the commission earnings. It does get confusing (and mistakes result) when an employer believes that it is necessary to compute time and one-half after the regular rate has been determined; that is fine when an employee is paid on an hourly basis, but it will not work for commission or piece-rate employees. Admittedly, the FLSA OT regulations (29 CFR Part 778) do not clearly explain how it is to be done, and the method that I have described is not appropriate in all cases, but it usually is the correct method.
I’m a bit confused. Why are these overtime rules an employee’s career limiting problem? If an employee is adding value, I should be able to construct a comp plan that rewards them appropriately with respect to the value they add. That’s a management problem I think.