New Overtime Regulations Impact the Memphis Area

James R. Becker and JoAnna N. Becker

January 6, 2020

Ronald Regan once said that the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.”  In March of 2019, the Trump administration announced a rewrite of the federal regulations concerning overtime, this proposal was sent to the White House in early April 2019 for review and on September 24, 2019 this rule was finalized. As of now, it is the law of this land.  This regulation rewrite raised the threshold for mandatory overtime from $23,600 to $35,308. This raise in the income threshold will have a positive impact for those who fall in this category. The Department of Labor expects there to be 1.3 million more workers who are entitled to overtime wages as a result of this regulatory change.  (U.S. Department of Labor)  However, this benefit will not be without pain.  

History of Overtime-Fair Labor Standard Act of 1938

 The overtime laws that we have come to know today, were unheard of until President Franklin D. Roosevelt during the Great Depression pushed for the New Deal labor protections. One of the purposes of this law was to discourage hiring one employee and making him or her work 80 hours a week as opposed to hiring two employees and having them work 40 hours a week.  This law was put in place by the Fair Labor Standards Act of 1938 (“FLSA”).  However, for the last 80 years the overtime rule has been weakened, this law and its benefits have not changed appreciably while the cost of living has continued to rise. In the 1970’s the overtime benefits covered around 65 percent of salaried workers today less than seven percent are eligible to earn overtime.  (Vox analysis for changes to FLSA)  To understand what the rule change does, you also need to understand what the overtime laws do and do not do.

Overtime Laws in Tennessee

The state of Tennessee does not have state laws controlling overtime, so the rules and regulations set by the federal government are the governing law when it comes to determining who is eligible for overtime in Tennessee.  Under the FLSA, the overtime pay rate is 1.5 times the employee’s regular pay rate. Since there is not a law that limits how many hours an employee can work in one week, this is the only limitation on an employee’s total work hours.  

However, under the overtime laws there are certain types of jobs that can exempt a person from overtime eligibility.  If, for example, the employee is considered to be a professional employee or hold the title such as “executive, administrator, outside salespeople, inside salespeople” or as a learned professional, the employee is not entitled to overtime wages if the worker receives a salary which exceeds the minimum set by the law.  (Tennessee Wage and Overtime Laws)  Under the previous regulations, that minimum salary was $442.31 per week.  If you earned $500.00 per week , on a salary basis, and worked in an “exempt” position, you were not eligible to receive overtime.  Under the new regulations, you would be eligible to receive overtime unless you earn more than $684.00 per week on a salary basis. This change creates an overtime eligibility for an estimated 1.3 million workers in America.

How This New Overtime Law Affect the Memphis Area

The median income for the Memphis area is $713.44 per week.  This means that many workers in Memphis and the surrounding area sit squarely on the eligibility line.  While the median is above both the old and new regulations, the new regulation is close enough to expect that the new overtime law will disproportionately affect many Memphians.  These workers will now be eligible for overtime compensation.  

Beginning last week, employers were required to start paying the new overtime wages.  As a consequence, employers are being encouraged to schedule employees so they do not get overtime, cut costs to budget for more overtime hours, hire more employees so no one is eligible for overtime, or increase the salaries for some employees so they exceed the new threshold for overtime pay.  (The Federal Overtime Rule Was Just Updated. Here’s What you Need to Know Now.)  With the volume of workers in the Memphis area that are now entitled to overtime wages this will put a strain on employers to still be able to afford the same number of workers, working the same number of hours. Even though these employees are now eligible for overtime, their employers can cut their hours, so they never make it to more than 40 hours in a work week, making them not eligible for overtime pay.  As a consequence, this could wind up cutting individual wages while at the same time creating more open jobs. 

It is expected that this new regulation, the employers that would most likely have a negative impact in covering these new costs are small and mid-size businesses owners.  When this law takes effect it has been predicted that hiring will curb and hours will be cut.  

According to David Frenchon, National Retail Federation( NFR)  Senior Vice-President for Government Relations, “ There simply isn’t any magic pot of money that lets employers pay more just because the government says so.” Frenchon is not the only one to make this point.  Alexander Passantino, an attorney at Seyfarth Shaw stated, “It doesn’t mean [the worker will] get a giant pile of overtime pay. The employer isn’t going to work them the exact same amount they were working before.” During the Obama administration’s effort to increase overtime wages, a report was released by the NFR which maintained that employers were much more likely to cut wages and bonuses or reduce hours, to reduce the cost of them having to pay more of their employees overtime.  (Los Angeles Times)

Looking back in history at what happened in 1938 with the passage of the FLSA, it is possible that there will be a negative impact on the small and mid-sized business owners and consequently the employees that work at these establishments.  While more workers may be employed, it is also possible that individual worker hours will be cut, and other benefits could possibly be cut due to new budgeting for overtime of other employees.  

So, while more workers are now entitled to overtime, it is possible that hours are going to be cut and consequently wages may be reduced … as Ronald Reagan once said the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.”