Millions of Americans will get a raise beginning December 1, and not because their employees will have a sudden outbreak of Christmas generosity. Rather, it will come courtesy of the Obama administration, which on Tuesday evening released the final version of a long-planned update to the nation’s overtime regulations.
Under the new Department of Labor rules, salaried employees earning less than $47,476 annually will automatically receive overtime pay when they work more than 40 hours in a week, double the current $23,660 ceiling. Administration officials estimate that more than four million workers will be impacted by the change, which will increase their pay by an estimated $12 billion over the next decade. “It is based on a simple proposition. If you work overtime, you should actually get paid for working overtime,” Vice President Joe Biden said on a press call.
The change in overtime eligibility rules was first proposed by the Obama administration two years ago, and immediately ran into opposition from pro-business groups like the Chamber of Commerce, the National Retail Federation, and National Restaurant Association. Opponents claim the change will be a job- and income-killer, forcing many businesses to either cut their employees’ hours, make do with less workers, or even switch more work over to automated technology that minimizes or eliminates the need for human involvement.
It’s no surprise that some of the most entrenched opposition to the rule came from the relatively low-wage retail and dining sectors. Here’s why: Hourly workers are almost always entitled to receive overtime pay. But salaried workers—that is, those in managerial or professional roles who are paid not by the hour, but at a flat rate—aren’t automatically eligible unless they earn under the threshold.
The result? Companies have been sued by current or former employees claiming that their fancy-sounding manager titles don’t match their lowly job responsibilities. Instead their resume-boosting positions, which paid more than the $23,660 ceiling, were effectively a corporate dodge that permitted their employers to deny them overtime no matter how many hours they worked a week. Chipotle is the current target of one such suit. A franchisee for Waffle House lost another. An operator of more than 50 Massachusetts Dunkin Donuts is fighting a lawsuit in the same genre.
The new overtime threshold won’t end this chicanery, but it will almost certainly curb it. In fact, it’s likely employers will handle the overtime increase in a variety of ways, including raising wages of some employees so they earn more than $47,600 and aren’t automatically eligible for overtime, and more rigorously monitoring the hours of others, so they ultimately see their time on the job reduced. On the other hand, as Biden pointed out, those workers will gain free time, which isn’t a bad thing.
One aspect that was dropped from the plan: A reform of the standards determining what makes an employee eligible for overtime if he or she earns more than the ceiling, something that would have done an even better job addressing the practice of deeming employees managers to avoid paying them overtime. A number of administrative and professional job categories, including engineers and, uh, journalists, would likely have become candidates for mandatory overtime as well, even if they were salaried and paid more than $47,476 a year.
The Obama administration initially planned to tackle this exemption, but retreated in the face of fierce opposition from business groups. This loophole traces back to the last time the overtime rules were adjusted—in 2004, when the threshold jumped from $8,060 to the current $23,660. But in exchange for that leap, the Bush administration tightened up the regulations governing who must receive overtime if they earned more than the new income standard, effectively leaving overtime pay for white-collar employees to the discretion of management. Labor interests squawked at the time, but it didn’t matter.
One heartening thing about the new rules: Never again where there be a 12-year gap between raises in the overtime threshold. It will now update on a three-year cycle, using the 40th percentile for a full-time, salaried employee in the lowest income region in the United States as a baseline.
The importance of that final change can’t be overestimated. When we talk about the causes of worsening income inequality, we often attribute it to things like skyrocketing pay for CEOs while salaries for most jobs stagnate. We don’t think so much about how regulations like mandatory overtime can play a role in raising households’ incomes, and how its gradual withering over the past four decades contributed to the increasing precariousness of middle-class life.
Think about it this way: Biden claims 62 percent of workers automatically qualified for overtime in 1975. Today, that number is about 7 percent. No wonder middle-class households found themselves falling further and further behind.
This change was way overdue. Thanks, Obama.