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Overtime Differences May Snag New Wage Plan

March 20, 1985|HARRY BERNSTEIN

Walter Reuther, the late United Auto Workers president, didn't live to see a dream of his come true: annual salaries instead of hourly wages for all workers.

Reuther's dream of a "guaranteed annual wage" is still a distant goal for most working Americans. But it just might be achieved for workers who will soon start making General Motors Corp.'s new Saturn small car.

The idea is logical and, if it is adopted and works well at Saturn, it ought to spread to other hourly employees at giant GM and then on to millions of other workers across the country.

In January, the UAW and GM announced broad agreement on a host of new, imaginative ideas to reduce--if not eliminate--the traditional adversary relationship between workers and managers. And one of the ideas, it has recently come to light, is to put Saturn workers on a salaried basis.

That could mean, for instance, that if less work is required some days than others, the worker would still get full salary. Many union contracts now have guaranteed workweeks and supplemental benefits during layoffs, but a guaranteed salary by the month or year would offer far greater economic security.

Of course, an annual pay system is commonplace among top executives and many middle-level workers, who in most cases are exempt from federal and state laws involving minimum wages and hours. The Saturn workers, on the other hand, would be "salaried, non-exempt" employees. And there is a critical difference between the two groups.

Exempt employees are not entitled by law to extra pay for overtime work. Usually, their jobs are "primarily intellectual, managerial or creative" and require "exercise of discretion and independent judgment," according to the law.

Actually, the definition of "exempt workers" is so loose that they can earn as little as $900 a month. The title may sound good, but it really means only that such workers get no additional pay for overtime work.

However, both federal and state laws require that "salaried, non-exempt" workers be paid extra for overtime work.

A changeover to that status could create problems for workers and employers because state and federal laws have different formulas for computing overtime pay.

In California, for instance, rules for calculating overtime pay for salaried, non-exempt workers are much more generous than those used by the federal government. In cases where state law is more generous than federal law, the state law takes precedence. Employers in California have been trying to get the state to adopt the federal system, which would be less costly to management.

Under both systems, a worker with a weekly salary of, say, $500 is entitled to that amount even if he or she works less than 40 hours a week. In addition, workers are entitled to overtime pay if the workweek is longer than the standard 40 hours.

But the big difference between the two systems is the method of calculating the rate of pay for overtime.

Under the state system, an employer would compute the overtime figure by dividing $500 by 40, the basic workweek. This would put the hourly rate for the basic week at $12.50. Since the worker is entitled to time and a half for each hour of overtime, or $18.75, he would get $687.50 for 50 hours of work.

In sharp contrast, under the federal system the salary is first divided by the number of hours worked, rather than by 40.

For instance, the employee with a $500 salary working 50 hours in one week would have a base rate of only $10 per hour. Hence, his overtime premium would be only $5 an hour and his total salary for the 50-hour week would be just $550.

If the same employee worked 60 hours, the employer would divide the $500 by 60, making the basic hourly rate even lower--$8.33. The overtime premium would be half that figure.

In other words, the more hours of overtime the worker puts in, the lower the overtime rate.

A ruling last week by the state 4th District Court of Appeal in San Bernardino rejected the pleas of most management groups in California to set aside the more generous state system and follow the federal law.

Richard J. Simmons, a management attorney, said the decision is "extremely unfair to employers and produces an enormous potential windfall to employees at their employers' expense."

Even though the stricter state system has been in effect for many years, it has rarely been enforced and was generally not known to employers, contends Simmons, who represented the California Chamber of Commerce, the California Manufacturers Assn. and several other employer groups in the case.

He insists that, if the more generous California system is not upset by further court appeals, by the Deukmejian Administration or by the state Legislature, it will be difficult if not impossible to persuade employers to switch hourly workers to salaries.

And, even more significantly, the management attorney said, California employers might start switching workers who are already on a non-exempt, salaried basis to hourly rates.

But critics scoff at Simmons' arguments.

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