5 Million People Could See a Raise Thanks to New Overtime Laws

July 2nd 2015

Sarah Gray

After much anticipation, President Obama will formally announce the U.S. Department of Labor's new overtime rules on Thursday at an event in Wisconsin. The rules will lift the wages of five million American workers.

On Monday, in an op-ed for The Huffington Post, President Obama wrote: "This week, I'll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year."

President Obama instructed Labor Secretary Thomas Perez to update the overtime rules in back in 2014. The new guidelines from the U.S. Department of Labor would raise the overtime threshold from a salary of $23,660 per year to a salary of $50,400 per year. The overtime threshold was last updated by President George W. Bush over a decade ago, in 2004, and prior to that it had not seen a shift since 1975.

What are the current overtime rules?

First, let's examine how this could lift the wages of five million workers. The Fair Labor Standards Act of 1938 first established overtime rules. Hourly workers, plus salaried workers who make less than the threshold, must receive time-and-a-half for hours worked over a 40-hour work-week. The law, however, did not mandate that the threshold rise with inflation. Since 1975, the threshold has only been lifted once.

The Fair Labor Standards Act also set up the "white collar exemption," according to the Economic Policy Institute, which exempts executive, professional, and administrative employees.

"In particular, we are concerned that the breadth of the 'duties tests' of today’s OT rules exempts too many salaried white collar workers who, because of the routine nature of their work, their low pay, and the lack of control they have over their time and tasks, should be covered by the act and entitled to OT pay and other FLSA protections, such as the minimum wage," the EPI said in a 2014 report on the subject of overtime rules.

The president acknowledged that some companies take advantage of workers who are labeled "manager" and make above the salary threshold, but do the same physical labor as those who make hourly wages. With the $23,660 per year overtime pay threshold in place, the hourly workers will make time-and-a-half if they work more than 40 hours per week; the salaried workers making more than the threshold, however, do not make overtime pay.

Expanding who is eligible to receive overtime will mean that employers will have a choice: pay overtime for workers below the threshold or limit employees to 40 hours per week. However, prior to going into effect, the proposal will go through a public comment period, the Huffington Post notes.

The threshold of $50,400 is slightly less than what labor activists and congressional Democrats were hoping for. Despite this, it will still raise the wages of around five million people.