Overtime Pay Could Be Extended to Millions

June 8th 2015

Sarah Gray

President Obama is expected to lift the wages of millions of workers -- without the help of Congress -- as early as this week. After much anticipation, the president is reportedly gearing up to announce updates to the country's outmoded overtime pay threshold.

In 2014, Obama said he wanted "to begin the process of strengthening overtime pay protections for millions of workers to help make sure they are paid a fair wage for a hard day’s work while simplifying the rules for employers and workers alike."

What are overtime laws?

Overtime laws were established in 1938 by the Fair Labor Standards Act. The law protects hourly workers, who work more than 40 hours per week and "any salaried worker who earns below a threshold set by the Labor Department must receive overtime," Politico explained. The Fair Labor Standards Act requires that a worker must earn "time-and-a-half" for time worked beyond the set 40-hour workweek.

The overtime pay threshold, however, is not set to automatically adjust with inflation. The only time the overtime pay threshold was updated after 1975 was in 2004, by President George W. Bush, who raised it to it's current threshold of $23,660. 

This raise however was modest due to the business lobby, who fought against it. "In 2004, business groups persuaded President George W. Bush’s administration to allow them greater latitude on exempting salaried white-collar workers from overtime pay, even as organized labor objected," the New York Times reported in March of 2014.

Another issue is the "'white collar exemption,' which excludes from coverage executive, administrative, and professional employees," according to the Economic Policy Institute, who released a report in 2014 on this segment of the workforce. The issue is that certain companies take advantage of salaried workers, whose day-to-day tasks look more like manual labor. In 2013 the Huffington Post wrote a piece exposing wage theft the Dollar Store, where workers were made "managers" in title only, and given a salary and not hourly pay. Dawn Hughey a Dollar Store manager worked well over 40-hours per week, but because she was making a salary of $34,700 -- which is above the overtime threshold -- she was not paid overtime. President Obama's new plan hopes to address this issue. 

"What we’ve seen is, increasingly, companies skirting basic overtime laws, calling somebody a manager when they’re stocking groceries and getting paid $30,000 a year," President Obama said earlier this year in a Huffington Post interview. "Those folks are being cheated."

So, what's the plan?

A way to close the loopholes employers are using to to skirt overtime laws is to raise the salary threshold, so that more workers are eligible for overtime. Last March, President Obama instructed Labor Secretary Thomas Perez to begin the process of revising overtime pay laws. Currently, salaried workers can only make overtime pay if they make below the $23,660 per year threshold. This number -- $23,660 -- is below the poverty line for a family of four, which in 2015 is $24,250, according to the U.S. Department of Health and Human Services

According to reports, President Obama hopes to raise the threshold to somewhere between $45,000 and $52,000 per year, a move that would extend overtime pay (or time and a half pay) to millions. The Economic Policy Institute estimates that the new rule will raise wages for five to ten million workers. Obama's maximum at $52,000, is lower than what Senate Democrats hoped (they set their sights at $56,680), and it is lower than what some House Democrats hoped for (some wanted a threshold of $69,000). However, the top figure is in line with what labor leader Richard Trumka, president of the AFL-CIO, hoped for. He stated earlier this year that he was aiming for a $51,168 threshold to account for inflation.

Road blocks to raising the overtime threshold?

Already both businesses and some lawmakers are pushing back. Politico reported that the House Education and the Workforce subcommittee will spend time discussing the potential changes overtime rules during a Wednesday, June 10 hearing.

Businesses are arguing that the rule will kill jobs -- stating that employers will eliminate higher salary executive jobs and replace them with lower paying ones.

"The anticipated Department of Labor regulations altering how the statutory exemptions to overtime compensation are applied threaten to upend years of settled law, create tremendous confusion, and have a significantly disruptive effect on millions of workplaces," Randel K. Johnson, a senior vice president of labor at the Chamber of Commerce wrote in a letter to Secretary Perez. Johnson also stated in the letter he hope the Department of Labor would "favor a modest and limited approach to these regulations."

However, others argue that the new overtime laws for salaried workers will create jobs, as more will need to be hired to make up for the extra overtime hours. The argument could also be made that since overtime laws are being updated for salaried workers, the workers will still have the same take home pay, but will just (potentially) work fewer hours (and if they don't they'll then make time and a half).