How AI may make more employees eligible for overtime pay

Artificial intelligence is not just disrupting the way employees get work done, but how they'll be paid for it, too. 

Under the current Fair Labor Standards Act (FLSA), all employees in the U.S. must be paid their rate of time, plus one-half of that rate for every hour worked outside of the standard 40-hour workweek, unless they fall under certain exemptions. But as AI continues to change the nature of employees' work responsibilities, those exemptions may no longer apply — leaving compensation tactics up for debate. 

"The Fair Labor Standards Act established baseline protections for minimum wage and overtime, and the existing legal framework works," says Brad Kelley, labor and employment attorney at Littler Mendelson. "But the [regulation] went into effect in 1939, and the technological changes that have occurred since that time have been pretty incredible." 

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Individuals typically exempt from overtime pay include those who exercise independent judgment and discretion in their role, which means that their job involves making important decisions and typically calls for them to be more highly compensated, like executive, administrative and sales employees. As AI automates certain parts of employees' workplace responsibilities, it could begin to change the definition of what it means to use independent judgment and discretion in their role, and make it possible for roles that didn't previously qualify for overtime pay to become eventually eligible. 

For example, if a marketing executive were to begin relying on programs such as ChatGPT to generate content and material for the brands they represent instead of doing it themselves, the unique skill set that landed the marketing executive a salaried, overtime-exempt position would no longer meet the FSLA's exemption criteria, Kelley explains. But as for whether or not this will actually happen, Kelley remains unconvinced. 

"It's all theoretical at this point," Kelley says. "AI takes away the mundane aspects of work — the administrative and time consuming functions that people don't really want to do. It's allowing them to focus on more of the complex detailed areas of their job."  

While there's always a possibility that employers will need to consider this in the future, Kelley argues instead that as AI takes a more prominent role in employees' workflow, the need to exercise independent judgment and discretion will actually increase. Now, employees using tech tools will have to be able to act as a reliable checks and balance system for AI. 

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"We've always been dealing with a workforce transformation issue — people adapt and they overcome," he says. "It's a new era now and technology is changing rapidly, but we've always been able to catch up with it." 

Kelley also acknowledges that AI wouldn't change jobs' eligibility overnight. Employees wouldn't be able to suddenly bill their employers for overtime pay; instead, the concern is that over a period of time, regulatory organizations would have to revisit and update which jobs are and aren't exempt due to AI use. 

"It's not like a light switch suddenly goes on and off," he says. "It's hard to pinpoint how much of an employees' independent judgment discretion has been altered — which is part of the problem. It's not instantaneous." 

As of now, the Wage and Hour Division hasn't issued any sort of guidance on whether AI could affect overtime exemptions or not, but it could be prudent for employers to have safeguards in place and educate themselves on how employees are using the tech, and whether it could potentially violate the FLSA, according to Kelley.  

"It's important to realize that ultimately, artificial intelligence will help both employers and employees," he says. "We can't be afraid of being proactive, so having internal best practices and being transparent is going to be critical."