It’s official: More Americans are going to get extra pay when they work extra hours.
All workers paid hourly are always owed two and a half times their normal rate for working overtime hours. But currently, salaried workers who make over $23,660 a year aren’t guaranteed any extra pay when they put in more than 40 hours a week, a threshold that hasn’t been updated since 1975.
Under final rules announced by the Obama administration on Tuesday evening, however, the cutoff will be increased to $47,476, covering anyone whose pay falls below that threshold starting in December. The administration estimates that the change will extend overtime protection to 4.2 million people — more than half of whom are women and more than half with a college degree — who currently aren’t eligible and raise wages for them by $12 billion over the next decade.
The new threshold will also be automatically updated every three years based on overall salary growth so it doesn’t lose value thanks to inflation. The administration believes that will bump it up to more than $51,000 by the beginning of 2020.
Vice President Joe Biden said on a call with media that the rule change “goes to the heart of what the president and I think is the defining issue of our time: restoring and expanding access to the middle class,” adding, “if you work overtime you should actually get paid for working overtime.”
The Fair Labor Standards Act, the law that dictates overtime protection, “became the crown jewel of worker protection and helped build the middle class” after it was passed, Labor Secretary Thomas Perez said on the call. “But the crown jewel has lost its luster.” Twelve million salaried workers were covered by the overtime rules in 1979, but thanks to inflation’s erosion of the threshold and the widening of loopholes, that number has dropped to just 3.5 million people today. “Today’s announcement will go a long way toward restoring the luster of that crown jewel,” Perez said.
The finalized threshold is lower than the original proposal that the Obama administration released, however, in which the threshold would have been increased to $50,440. At the time, the administration estimated that five million workers would be newly covered by overtime requirements within a year. In a fact sheet about the final rule, the administration noted that it is “responsive to public comments regarding regional variations in income” and set it at the 40th percentile of what full-time salaried workers make in the lowest income region of the country.
The final rule is also lower than what 26 Democratic senators had urged the administration to do in early 2015, when they called for raising the threshold substantially higher to $56,680. A previous EPI estimate had found that by increasing the overtime threshold to $51,168, where it would be if it had kept up with inflation since 1975, 6.1 million workers would have been covered.
The final rule will also keep some loopholes in place. The Labor Department had originally proposed changing the “duties test,” which determines whether someone who makes more than the salary threshold should still get overtime pay. Anyone who can be classified as an executive, administrative, or professional is exempt, and that has been so broadly interpreted that someone who oversees a clean-up crew can be denied extra pay. But the department will instead leave things the way they are rather than update the guidelines. “The business community overwhelmingly said, ‘Do not touch the duties test,’ so we didn’t,” Perez said on the media call.
The overtime rule will also raise the “highly compensated employee” threshold for those who are easily classified as exempt from overtime from $100,000 to $134,004, and for the first time it will allow employers to count bonuses and incentive payments toward up to 10 percent of the salary threshold.
The update will still mean a significant change for a number of people. Americans have experienced a decade of stagnant or falling wages at the same time that the typical workweek has stretched far longer than 40 hours. Overtime coverage guarantees either extra money for extra hours or an incentive for employers to bring the workweek back in line with 40 hours.
“More than four million workers are either going to get paid more or get their time back to raise their family, go to school like so many of them are, or retrain to get a better job,” Biden said.