Experts weigh in on how Obama's overtime rule change could benefit millions of workers and employers
But in the more than 70 years since the policy was became law, the parameters have rarely been updated to account for inflation. Several US influencers are hoping that changes.
"The problem we have now is that the people these laws were designed to protect are no longer being protected," said Ross Eisenbrey, Vice President of Economic Policy Institute, a nonprofit think tank, in a recent video about overtime protection.
Currently workers covered by the Fair Labor Standards Act (FLSA) of 1938 must be paid at least time-and-a-half for each hour they work beyond 40 hours a week.
"No matter what your boss calls you - store manager, shift supervisor, assistant to the regional manager - if your salary is below the threshold, you have to be paid for your extra hours," Eisenbrey said. "This is a simple and important protection."
But the salary threshold under which workers are eligible to receive overtime pay is a mere $23,660 a year (or $455 a week). Anyone who makes more than this cannot receive overtime pay.
"That's worth less than half what it was 40 years ago," Eisenbrey said. In 1975 the FLSA covered about 61% of all salaried workers, he said - today it protects only 8%.
Employers, he explained, can easily avoid paying overtime currently by giving employees manager titles and paying them just above the $23,660 annual threshold.
"The threshold is meant to protect workers from being taken advantage of by their employers, but it's just too low to actually work," Eisenbrey said. "If we want overtime protection to work like it's supposed to, the Labor Department has to update the law."
"This problem has a very straightforward solution: raise the overtime salary threshold and index it to inflation," he said.
A new policy change pioneered by the Department of Labor and endorsed by leaders like President Barack Obama would bring the FLSA into the 21st Century by raising the salary threshold to $50,440 a year (or $970 a week). The rule change could also prevent future problems by automatically updating the salary threshold based on wage growth over time.
This would affect nearly 5 million American workers within the first year of implementation.
"Right now, too many Americans are working long days for less pay than they deserve," Obama wrote in a Huffington Post op-ed Monday.
During a press conference Tuesday afternoon, Eisenbrey applauded the proposed policy change, saying, "It's a win win for the workforce."
He predicts work will be shifted from overworked employees to either new employees or part-time employees, citing a new study by Oxford Economics that found if the salary threshold were raised even to $808 a week, 76,000 part-time workers would be hired to fill the labor needs of businesses.
And according to an article Eisenbrey published on the Economic Policy Institute website, under the new threshold, 3.1 million mothers and 3.2 million fathers would be guaranteed overtime pay, which would also affect about 12.1 million children.
The policy isn't just good for workers who want fair pay, Obama explained in his oped. The policy should help business owners who are already paying their employees what they deserve, he said, because those who are doing right by their employees are often undercut by competitors who aren't.
"That's how America should do business," Obama wrote. "In this country, a hard day's work deserves a fair day's pay. That's at the heart of what it means to be middle class in America."
"Unlike a lot of things that go on in Washington, this is really simple," he said.
According to the Department of Labor website, the White House's Office of Management and Budget has reviewed and approved the proposed policy change's notice, but the document has yet to be published in the Federal Register.
Christine L. Owens, executive director of National Employment Law Project, a workers' rights advocacy organization, said during Tuesday's press conference that the rule should be published in the Federal Register for public comment sometime next week.
Upon publication of the proposed rule change, interested parties can submit written comments at www.regulations.gov to be considered as part of the rulemaking record.
Owens predicted the rule will be adopted by the end of 2015 to take effect in the beginning of 2016. She said it's unlikely the threshold will be lowered from what's currently being proposed, as it's still below historic standards.
Jared Bernstein, a former chief economist to Vice President Biden, senior fellow at the Center on Budget and Policy Priorities, and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity,' wrote in a Washington Post oped Tuesday that, because this is a "rule change," which is comparable to an executive order, it doesn't have to go through this Congress, where conservatives would surely try to kill it.
He said that the proposed threshold of $970 a week makes sense for a number of reasons:
- "The salary threshold is one way we avoid labeling someone a 'manager' while paying them what are clearly non-managerial wages. So you want a threshold well above the median wage, which in our economy tends to be the wage paid to the typical production, nonsupervisory employee, someone who clearly should be paid overtime."
- When the Ford administration raised the salary threshold in 1975, it was 1.57 times the median wage. Today, 1.57 times the median wage would be $1,050 a week, which is close to the administration's threshold of $970 a week.
- In 1950 policy makers argued the salary threshold should be 25% higher than the entry-level wage of a college graduate. Today, that would yield a threshold of $1,000 a week.
- According to the Bureau of Labor Statistics, people in real management positions currently earn somewhere between $1,520 and $3,995 a week. "In other words, by this metric, the new threshold is well below a level associated with supervisory, and presumably exempt, duties on the job."
- The Bureau of Labor Statisticsa also finds $970 a week to be consistently less than how much workers with nonsupervisory responsibilities make on average.
"This isn't the first time in our history when such conditions prevailed," he continued. "In fact, the FLSA was born of the acute realization that one role of government was to help rebalance those powers, to stand up for those who, absent rules like overtime, risked exploitation, overwork, and inability to claim their fair share of the productivity growth they themselves were helping to generate."
"This is an important step forward in updating our nation's labor practices and will ensure a fairer overtime wage for more workers, including women, low-income people, and people of color," wrote Nancy Zirkin, executive vice president and director of policy of The Leadership Conference on Civil and Human Rights, in a press release.
Of course, not everyone is convinced. Some conservatives and business groups argue against the threshold increase because they feel it is too high or it could decrease workers' compensation.
Still, overwhelmingly the rule change has been met with resounding support.
"We applaud the Obama Administration and Secretary of Labor Thomas E. Perez for this important step forward in ensuring that more workers can pursue the American Dream," Zirkin said.