The Department of Labor just finalized a new rule extending income-based overtime protections for the first time since 2004.
On May 18th, the U.S. Department of Labor finalized a rule to extend overtime protections to 4.2 million salaried workers not covered under the current policy.
The new rule will come into effect on December 1, 2016, and will double the qualifying salary threshold for overtime protections from $23,660 to $47,476. The policy also requires that this level be automatically updated every three years in an effort to rectify the stagnation that has characterized the past 40 years of compensation rates. While workers’ productivity has risen 72 percent since 1975, hourly pay for a typical worker rose just 9 percent.
Protections for salaried workers who put in more than 40 hours in a given week were first introduced in 1938, as part of the Fair Labor Standards Act. Until 1975, the salary threshold was updated every five to nine years, taking into account inflation rates; by 1975, 62 percent of full-time salaried workers qualified for overtime. Now, that number is 7 percent. Between 1975 and the present, the salary threshold was updated only once, in 2004, to $23,660 or $455 per week—below the poverty line for a family of four.
A report from the Office of the New York City Comptroller Scott M. Stringer notes that had the salary threshold kept pace with inflation—as it did before 1975—the weekly qualifying salary today would be $1,100 per week, an income far above the poverty line for a four-person family.
Under the overtime protection rule as it stands today, “the middle class is getting clobbered,” Vice President Joe Biden said in The New York Times.
While most hourly workers—those performing manual labor or service-industry jobs—are guaranteed protection under federal law, it gets murkier for salaried workers. Those in jobs classified as “executive,” “administrative,” or “professional” can be exempt from overtime, even if their wages are very low. According to the Times, a “duties test” has been used to determine if workers’ on-the-job responsibilities fall into those categories, but the methodology behind the test is “open to interpretation.”
As such, the Comptroller’s office report notes that “overtime protections have long been weakened by employers that misclassify their employees as executive, administrative, or professional, even if they spend only a small portion of their time performing these duties, in order to avoid paying overtime.”
Raising the salary threshold will do away with that ambiguity for salaried workers—starting December 1, if someone earns less than $47,476 per year, they will automatically be guaranteed time-and-a-half, no matter their job description.
It’s a straightforward solution, and predictably, there are opponents, who, according to the Times, are arguing that the measure will strap employers’ finances and result in skimming working hours for employees rather than increasing wages. “By executive fiat, the Department of Labor is effectively demoting millions of workers,” David French of the National Retail Federation said in the Times.
But the New York City comptroller’s report notes that if employers cap the work week at 40 hours, employees’ base salaries will remain constant and they won’t be expected to work additional hours without pay. Moreover, reducing individual workers’ hours, the report adds, “could lead employers to hire new workers or increase the hours of part-time workers, which would create more opportunities for the underemployed and the unemployed.”
Zeroing in on New York City as a test case for how the raised salary threshold will play out, the comptroller’s report estimates that 110,000 salaried workers will gain access to federal protections for the first time. Of this demographic, 89 percent are over 25 years of age; 47 percent are persons of color; 66 percent hold college degrees. Among them will be 67,000 workers not eligible for New York State overtime; their annual income will increase by approximately $300 per year.
Alongside efforts of states like California and New York to raise the minimum wage to $15 per hour, this move represents a heightened awareness of the need to address stagnating wages nationwide. A statement from the White House quoted President Obama saying last summer that expanding overtime protections will be one of the “single most important steps we can take to help grow middle-class wages.” Equally potent is the fact that that people will finally, in December, be compensated with the pay they deserve for working extra hours.