The Obama Administration’s New Overtime Rule: How the Updated Rule on Employee Overtime Pay will Help Workers
This past Wednesday, the Department of Labor issued its long-awaited new rule regarding federal overtime regulations. In short, the rule is designed to dramatically increase the number of employees who are eligible for overtime pay.
The White House has touted the rule as a boon to middle-class families, saying the rule “is expected to boost wages for workers by $12 billion over the next 10 years.” Naturally, Congressional Republicans are fiercely opposed to the rule, with House Speaker Paul Ryan calling it “an absolute disaster for our economy.”
The new rule does not take effect until December 1- and even then, Congressional Republicans are already looking for ways to block the rule from taking effect. Proponents of wage justice, however, can take heart in knowing that the rule is a step, however tentative or small, in the right direction.
Overview of the New Overtime Rule(s)
Under the Fair Labor Standards Act, an employer only has to pay time-and-a-half overtime pay to a salaried employee when that employee’s salary is under a certain threshold, currently $23,660 per year. In other words, if an employee’s salary is over $23,660 per year, then the boss is not obligated to pay them overtime even if they are working well over 40 hours in a week.
The Obama administration’s new overtime rule raises that threshold: now, all salaried workers making under $47,476 per year will be eligible for overtime pay when they work over 40 hours in a week. Raising the threshold extends overtime eligibility to an estimated 4.2 million workers.
In addition to the main rule change, the Department of Labor announced that the salary threshold will be automatically updated every three years to keep up with inflation. This move is necessary as the reason the current threshold is so low is because there is no mechanism to regularly update it, meaning the number of full-time workers qualifying for overtime pay has fallen from 62 percent in 1975 to 7 percent today. The D.O.L. is also seeking to make it more difficult for employers to deny overtime pay by misclassifying workers.
Notably, the rule in question only affects salaried employees, as opposed to hourly employees. Workers who are paid hourly in this range of compensation are already eligible for overtime pay.
What the New Rules Mean for Workers
Though the White House touts front-and-center in its press release the above line that the rule is “expected to boost wages for workers by $12 billion over the next 10 years,” the new rule should not be viewed as an effort to increase employee compensation on an individual level.
The Department of Labor outlined two official policy objectives in announcing the rule changes. First, the D.O.L. aims “to spread employment (or, in other words, reduce involuntary unemployment) by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours.” Second, the rules seek “to reduce overwork and
its detrimental effect on the health and well-being of workers.”
The D.O.L. outlined several ways for employers to comply with the new rule, including paying the time-and-a-half required to workers newly eligible under the rule, increasing employee salaries above the threshold, limiting workers to 40 hour weeks, or some combination thereof. Based on the Department’s own policy objectives, it looks like the D.O.L. anticipates that most employers will take the third option and limit their employees’ hours, and as a result will, rather than pay overtime, hire more workers at the regular rate in order to maintain current levels of productivity.
Still, the policy objectives outlined by the D.O.L. should not be underestimated. The 40 hour work week was once a staple of American working life, but the erosion of overtime eligibility over the past several decades has practically made it a thing of the past in some jobs. The incentive to spread employment should not only help re-establish 40 hour weeks, but do so by making more middle-class jobs available as employers stop relying on their employees working 60 or 70 hour weeks for increased productivity, and instead simply hire more workers.
Opposition to the New Rules
As stated above, Republicans in Congress have already moved to block the new overtime rule from taking effect. In March, while the new rules were still being planned, Republicans introduced the Protecting Workplace Advancement and Opportunity Act (PWAOA), which, if enacted, would nullify the new rules. Conservative object to what is effectively a regulatory compliance cost being placed on employers, who will now have to much more carefully track and manage the hours worked by their employees. They also argue that the rule will prevent highly driven individual employees from working more hours to get ahead if they want to, as their employers will stop them in order to avoid paying overtime.
The opposition from conservatives and business-interest groups is to be expected; much more disappointing is opposition from “progressive” non-profits who have announced opposition to the rules on the grounds that it will hurt their own organization’s agenda. For example, U.S. PIRG issued a press release opposing the new overtime rule on the grounds that “to cover higher staffing costs forced upon us under the rule, we will be forced to hire fewer staff and limit the hours those staff can work.”
While it is understandable that non-profits would feel a strain under a new rule that requires greater compliance and potentially increases costs, such a position shows a severely disappointing lack of solidarity with employees of modest means across the country. A non-profit cannot be so singularly focused on its own mission to forget that it is operating in a complex and interconnected economy, and thus if the non-profit engages in unfair or unjust employment practices in the name of pursuing its mission, it is helping create as many problems as it is solving.
Regardless, Michael Hancock notes in Morning Consult that “over 50 law professors who submitted comments about the new rule to the Department of Labor concluded that the impact on the nonprofit sector would be ‘quite small.’” Most non-profits will not be affected by the new rule, as the vast majority are not engaged in interstate commerce and so are not subject to the Fair Labor Standards Act, under which the rules are promulgated.
Conclusion
The new overtime rules should be viewed as overall beneficial to working people. Though they may not raise many individual employees’ total compensation, the rules are likely to create middle-class jobs and help re-establish the 40 hour work week as the standard in many jobs.
While the new rules are overall a positive change, for those who are particularly interested in economic justice, enthusiasm should be somewhat qualified. By their very nature, the rule changes are designed to help middle-class earners, as opposed to low-income people. Indeed, Senator Chuck Schumer of New York has described the new overtime rule as “the middle-class equivalent of raising the minimum wage.” The description points to both a benefit and a shortcoming of the new rule: while it certainly makes many more middle-class working people eligible for overtime pay, the rule does not change (and is not designed to change) job conditions for the working poor.
Thus, the new overtime rule should not in any way temper support for the Fight for $15 or other efforts that are aimed at securing economic justice for the most vulnerable working people in the US. Furthermore, when it comes to middle class earners, the overtime rule does not diminish the need for improved collective bargaining powers- as Lawrence Mishel, Director of the Economic Policy Institute, has said, “the single biggest factor contributing to middle-class wage stagnation is the erosion of unions and collective bargaining rights.”
The new overtime rules are a significant step. Ideally, they will be a victory that will open the door to many more necessary improvements in working conditions to come.
