Economy

With New Labor Rule, 5 Million Americans Will Now Be Able To Get Extra Overtime Pay

CREDIT: Jacquelyn Martin, AP

Labor Secretary Thomas Perez

On Tuesday morning, the Department of Labor released its proposed changes to the rules regarding who is eligible for overtime pay to expand the coverage to more workers.

The proposal would increase the salary threshold to $50,440 by 2016, meaning anyone who makes that much or less would have to be paid time-and-a-half for putting in more than 40 hours a week. It would also increase the total annual compensation a worker would need to make to be exempted as a highly compensated employee, raising it to $122,148 a year for full-time salaried workers. And it would automatically update both requirements to make sure only actual executives and administrative and professional workers get exempted.

On a call with the media, Labor Secretary Thomas Perez estimated that for the subset of workers who work more than 40 hours a week and will become newly eligible for overtime pay, they will collectively see $1.2 billion to $1.3 billion in extra compensation as a result of the change.

overtime-laws-final

CREDIT: Dylan Petrohilos/ThinkProgress

The proposed change will now undergo a 60-day comment period beginning when the rule gets formally published at the Federal Register. After that, a final rule will be announced. The National Retail Federation immediately released a statement criticizing the proposed rule, stating, “we will continue to fight a subjective problem with quantifiable facts based upon the reality of running a business and creating jobs in today’s economy.” Angelo Amador, senior vice president of labor and workforce policy at the National Restaurant Association, said, “Supporters of these regulations say they want to increase Americans’ take-home pay, but these sweeping changes to the rules could mean anything but.”

Yet Cecilia Muñoz, White House director of the domestic policy council, noted that the rule is “totally within the [Labor] Department’s regulatory authority,” adding, “We believe we have more than sufficient support for the rule to go final and be implemented.”

Currently, the salary threshold stands at $23,660, so workers who make more than that don’t have to be paid extra for putting in longer workweeks. That threshold hasn’t gotten an update since 1975, which means the cutoff has effectively lowered as inflation has risen. Loopholes also mean that anyone classified as an executive, administrative, or professional is exempt from overtime, but that has been so widely applied that someone who oversees a clean up crew can end up classified as an executive and denied the extra pay. The number of salaried workers who were covered by overtime requirements was over 12 million in 1979, but that share has plummeted to just 3.5 million today.

The change will mean an estimated 5 million additional Americans would be covered by overtime requirements in the first year. The Economic Policy Institute has previously estimated that a slightly higher threshold, $51,168, would cover 6.1 million workers, 47 percent of whom would be salaried. That would have brought it in line with the rise in inflation since 1975. A $58,344 threshold would have covered the same share of salaried workers as in 1975, adjusted for inflation.

The rule change came after President Obama announced an executive order in March to update the overtime rules in the Fair Labor Standards Act.

Americans will likely appreciate the extra money in their pockets. They have suffered a decade of stagnant or falling wages and wage growth hasn’t gotten much of a boost from the economic recovery, growing at just 2.3 percent over the last year.

It could also change an American workplace culture that has most people working far beyond a 40-hour week – the average is currently 47 hours. Perez noted that for those who don’t benefit from the rule change by seeing more pay for extra work, “other workers [benefit from] having an equally precious gift, the gift of time. They will not have a salary increase, but they will work less hours.” This ties back to the White House’s push for better work/family balance, and Muñoz noted it will make sure “Americans have greater flexibility to balance their obligations at work and to their families,” along with other policies the Obama administration has pushed such as paid sick and family leave and affordable child care.

While the workweek has been shrinking over recent decades across the globe, we put in longer average workweeks than many peer countries and we’re far behind everyone else in getting our hours down. But some of the most productive countries are putting in the fewest hours.

UPDATE JUN 30, 2015 10:33 AM

This post has been updated with information from a White House call with the media and statements from industry groups.

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