I have been thinking a lot lately about the debates in Washington and Lansing about raising the minimum wage and redefining “exempt” and “non-exempt” work statuses. Personally, I think business people should be more concerned about the latter issue than the former one.

I believe that the expansion of the non-exempt category is a ticking time bomb ready to hit employers.  Not only will the “minimum wage” be raised for most if not all exempt workers, but it could create a whole new population of non-exempt employees eligible for union organizing. Not a good thing, especially since unions are on a downward death spiral of their own making.

Raising minimum wage is a yes-or-no issue. The Congressional Budget Office has concluded that raising the minimum wage to any level creates a paradox. Taking the minimum wage to $10.10/hour, as proposed by President Obama, will likely eliminate about 500,000 jobs nationally, but it will raise the incomes of about 16.5 million people and put about two billion more dollars in circulation in the economy (even factoring in those half-million fewer jobs). So raising the minimum wage will both stimulate the economy and put more people out of work. I am in favor of fair wages, but maybe the issue is really a need to tie the minimum wage to the Cost of Living Index, which is also part of the President’s proposal. Had we addressed this issue earlier, we wouldn’t be having this discussion today.

More pressing to me is the issue of redefining exempt and non-exempt. I understand some of the unfairness in the current interpretation of duties, where someone doing 5% exempt work and 95% non-exempt work can still be exempt. As HR and compensation professionals, we need to drive a policy of fairness in paying for the work that is actually being performed. But the issue is that we have to set a bright line as to the proportion of exempt duties being performed. 

Not that setting a bright line will solve the problem by itself. Even if we use California’s state test (50% maximum non-exempt duties), we would still have to ensure that the job description accurately captures the work actually being performed.

A bright line duties test may make it easier to understand exempt/non-exempt conceptually, but it is not that simple, as many ASE members know. Judges will end up deciding what constitutes exempt and non-exempt work. Wage and Hour class-action lawsuits are already the fastest-growing category of employee/employer suits. The bright-line approach will generate a windfall for plaintiff attorneys and time-management consultants.

But the real crux of the memorandum request of President Obama to the Department of Labor, as insiders have discussed, is the raising of the weekly threshold to trigger the exemption from $455 per week (or $11.38 per hour) to nearly $1,000 per week (or $25 per hour). This is the level proposed by economists Jared Bernstein and Ross Eisenbrey. This 220% increase in the hourly wage essentially sets a minimum wage for all exempt employees. This makes no sense. Let’s say a supervisor is making $800 per week (and is therefore non-exempt). If the supervisor works more hours, he or she could make more, with overtime, than a manager who is at or just over the threshold and not entitled to overtime. Is that logical?

I agree that we need to re-look at the weekly wage issue since it has been almost 10 years since the last change, but we have to consider the impact on the workforce. Do we now tell supervisors that they cannot work through lunch? Must supervisors or managers, whether service or manufacturing, clock in and track time? 

There is also a curious phenomenon that further complicates the issue for employers. We get reports all the time from our members whose employees vehemently object to being designated non-exempt. They see it as a lesser status, regardless of the fact that it entitles them to receive overtime pay. I sympathize with employers who struggle with the negative impact on morale that trying to do the right thing creates.

Still, I will not criticize employers for taking advantage of what the law allows them to do. The rules are the rules, and if you must adhere to the ones you don’t like, you gladly adhere to the ones that work to your advantage.  

We have to watch what goes on in Washington and Lansing closely in the weeks and months ahead. But I think revamping of the exemption definitions in the FLSA will have far more important implications for employers than any change we might see to the minimum wage.