‘Managers used to be middle-class jobs’: Labor Secretary Perez on expanding overtime pay

President Obama is calling for a substantial expansion of who’s eligible to earn overtime pay. His proposal would the lift the salary cap to $50,000 for all workers, even managers and executives. But many businesses have said the president’s idea will backfire. Judy Woodruff talks to Secretary of Labor Thomas Perez about the plan and the opposition.

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    The president called for major changes today that could substantially expand the number of people earning overtime.

    Under current labor law, workers are supposed to earn overtime pay at the rate of time-and-a-half if they put in more than 40 hours a week. But those who earn more than $455 a week, or about $23,000 a year, and are classified as executives are exempt. That usually includes many managers. President Obama would like to lift that salary cap higher in 2016, so that all workers earning up to $50,000 a year would be eligible for overtime.

    Many businesses are opposed and have said this idea would backfire.

    We recently sat down with David French, who is a senior vice president at the National Retail Federation. Even before all the details were released, he said the plan wouldn't help employees.

  • DAVID FRENCH, National Retail Federation:

    Our analysis says that instead of providing overtime for millions more workers, employers are going to make rational choices and they're going to spread the same amount of money across a slightly larger pool of hourly and part-time workers.

    Every employer is going to have to look at their jobs and decide whether or not the job functions that they have match up with the obligation to pay overtime, and they're probably going to redesign a lot of jobs.


    We look at these proposed changes and the concerns surrounding them with secretary of labor, Thomas Perez.

    And he joins me tonight from Charlotte, North Carolina.

    Secretary Perez, thank you for being with us.

    Why is it the responsibility of the federal government to tell private employers what to do on overtime?

    THOMAS PEREZ, Secretary of Labor: Well, this was part of the Fair Labor Standards Act in 1937, a piece of legislation that FDR called one of the most important pieces of legislation other than Social Security to protect workers.

    And under the Fair Labor Standards Act, if you work extra, you should be paid extra. And during — in 1975, if you took the amount of money that a so-called exempt employee would make and simply indexed it to inflation today, they should be making over $1,000.

    And what happened is that managers, when I was a kid, used to be middle-class jobs. And they would be paid decently. They would be paid fairly. They would work over 40 hours, but they were compensated for it. And what happened was, in 2004, the Bush administration put in place a regulation that changed the calculation.

    And it was a regulation designed to help employers and hurt workers. And it hurt workers by making far more workers who should be eligible for overtime not eligible for overtime. And so you have situations where people work 30 — they're working 60, 70 hours a week and making $25,000.

    That's a poverty wage when you're talking about all those hours. And so the president said, we need to fix this. We need to make it fairer to everybody.


    So, how did the administration pick the number? I gather the ceiling is up from in the 20s to $50,000 a year. Why pick that number?


    We looked at the 40th — at the 40th percent percentile of salaried workers, when you look at the research at the 40th percentile, in our judgment, that was a good demarcation line. People who are above that 40th percentile, or about $50,000, they are performing functions that were intended by the Fair Labor Standards Act to enable them to be exempt employees.

    People below that should be overtime-eligible. And so we're fixing the imbalance that was created from the 2004 regulation. And by doing that, we're — again, we're taking these folks who are working 60, 70 hours a week and making $35,000 at the most and saying, that's not fair. You should be compensated fairly, because they're effectively working 10, 20 hours for free in some cases.



    Excuse me.

    So, which workers are mainly going to be benefited by this, assuming it takes place?


    These are managers. These are the folks who open the store. They close the store. They hire workers. They mentor workers. They sweep the floors some days when that's necessary. They are the most valuable employees in the workplace in many cases.

    And what's happening right now is, they're working 60 hours. They're not able to have dinner with their family. They're missing out on the PTA meetings. They're missing out on the ball games for their kids, and they're doing so while they can barely make ends meet. And that's not fair.

    This is a rule about what it means to be middle class in America. Managers used to be middle-class jobs. And the president said, we want them to be middle-class jobs again.


    I understand that you're saying that this is mainly retail workers.

    I want to ask you about some of the pushback coming from business, this argument that this is going to lead many employers simply to cut hours, to start hiring more part-time workers to get around this.


    Well, that's not — that's certainly not been our experience and that's not what the research demonstrates.

    And, you know, we have talked to many, many people during the course of our outreach on this. And, you know, one person I spoke to just this morning was the CEO of HEB grocery store. It's a $12 billion, 80,000-employee operation based in Texas. They compete with Wal-Mart. And their CEO understands that their most precious resource is their worker.

    And there they are, 80,000 employees' strong. And what he said to me was, this is the right thing to do and it's the smart thing to do. And these first-line supervisors are some of our most valuable employees. And of course we should be paying them $50,000. And this compliance for us will be very easily obtained. And this is a large retailer, you know, 80,000 employees' strong.

    And I talk to retailer after retailer. They understand, when you invest in your workers, when you treat them fairly, you create a virtuous cycle, and you do well for your worker and you do well for your business.


    Well, just quickly, quoting from that Retail Federation executive we heard from a moment ago, he said this is going to spread the same amount of money over a larger pool of hourly and part-time workers, and he said it means employers are going to be redesigning jobs.


    I don't believe that.

    And, actually, their own report belies that, when you read the entirety of that report. And what we will see — and we talked to a lot of retailers who said, well, we're paying our employees roughly $45,000. We heard that a lot from retailers.

    So what this means is, your most valuable employee or some of your most valuable employees, what you would have to do here is you raise their salary to $50,000, and what you get for that is, you continue to have this loyal employee and you buy the certainty of knowing that they are an exempt employee.

    Right now,there's been a lot of litigation in the aftermath of the Bush rule because there are way too many people who are being called exempt employees who are not exempt employees. And so part of what we're doing here is making the rule simpler, because there are way too many people who are being misclassified at the moment. And so that will make it help — that will be helpful for everybody.


    Let me just finally ask you very quickly, Secretary Perez, about the Supreme Court announcing that it is going to take up a case involving the power of government employee unions to impose fees on non-union members. What's your reaction?


    Well, I think public sector workers, our teachers, our firefighters, our home health workers who work for states, they do God's work. They are some of our most important employees.

    And I think the ability to have collective bargaining for them is critical. They're not getting rich. They're doing some of the most important work. And I think collective bargaining has been key to their success. And the people who don't want to sign up for those to pay dues, they actually benefit from those, the work that these unions are doing to get higher wages and fair treatment in the workplace.

    And so they want to be able to be free-riders, you know, pay nothing, but get all the benefits. And states have appropriately said, you can require people to pay their fair share. And I think that's the right thing to do. And I think the collective bargaining process for public sector workers is critically important.


    Well, we wanted to get your reaction.

    And we thank you for joining us. Secretary of Labor Thomas Perez, thank you.


    Always a pleasure.

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