Who Is Really Covered Under New Overtime Rules?
The Obama administration has proposed new rules that will allow more salaried workers to be eligible for overtime.
Wait. Salaried workers? Overtime?
“I’m very glad that you asked that question and I think the way you asked it underscores what I think is a lot of misinformation about who’s exempt from overtime protections,” Heidi Shierholz, chief economist at the U.S. Department of Labor, told KNPR’s State of Nevada. “We have this core value in the United States of a 40 hour work week. If you work more than 40 hours, you should get time and a half for those additional hours. But we have this intended to be relatively small set of workers who are exempt from those protections.”
In the mid-20 th Century, when these rules were written, those exempt workers were mostly executives, people who took home salaries in the $20,000 or $30,000 a year. The country believed they got paid enough, and could work as long as they wanted.
But just to make sure, the government devised a three-pronged test in order to be exempt from having to be paid overtime, workers had to be paid a salary, that salary had to be above a certain threshold, and you had to actually have the duties of an executive
This is where things became muddy over the years.
In the 1930s, when the Fair Labor Standards Act was written, most people were physical laborers, and the difference between support workers and executives was pretty stark.
Now, there are more white-collar workers than blue-collar workers, and many support staff have duties that are more self-directed.
One way to differentiate, said Shierholz, was to create a salary threshold.
“Workers who earn less than the salary are very unlikely to be exempt based on their duties,” she said. “So, they’re unlikely to be bona fide manager executives and the people who earn more than the salary test are very likely to be bona fide managers executives. What we want is a salary test that is a decent proxy for the duties test.”
But the salary threshold isn’t currently a decent proxy, because it didn’t keep up with inflation, or changing attitudes toward workers.
In 2004, the threshold was set at just under $24,000. A salaried worker making less than that could get overtime pay. A salaried worker making, say, $25,000 could not. In the eyes of the law, they were considered “executives.”
But of course, executives don’t make less than $24,000 a year. The Department of Labor thinks executives make about $50,000 a year.
“We actually don’t get fully there,” Shierhoz said. “The proposed salary threshold is somewhat below the inflation adjusted value of the 1975 threshold.”
The Department of Labor doesn’t think executives make $50,000 a year, but they figured if you make below that amount, you’re definitely not an executive.
Shierholz thinks this makes the case that the department is not going overboard with its recommendations.
“The proposed threshold is well within historical benchmarks,” she said. “The Department is not going off into unknown territory. We believe that this salary threshold does the best job of dividing those who would pass the duties test and those who would fail the duties test.”
Jeff Hayes, a study director at the Institute for Women’s Policy Research, told KNPR’s State of Nevada that the new threshold does change the presumption about who is a manager and who is not.
Hayes pointed out that the new salary thresholds will also be indexed, so that as the economy grows, so will workers’ salaries.
The $50,000 mark is roughly 40 percent of all full-time salaried workers’ pay, including people who make millions. So, even as the 1 percent make more money, lower paid salaried workers will also make more money.
“It’s an actual, real fix to a problem, rather than a Band-Aid,” Hayes said.
It also might help specific kinds of workers. Hayes co-authored a report that concluded that single moms and minority women would likely benefit most from the proposed overtime pay rule.
“We think that the most vulnerable groups might gain from it,” he said.
Employers groups don’t like this. They say it will raise the cost of doing business, and they may have to cut jobs.
Hayes, doesn’t understand how they would cut jobs since the point is there’s so much work to do, employees have to work longer hours just to get it done.
The way he sees it, employers have three choices: Raise someone’s salary above the $50,000 threshold, so they can work more than 40 hours a week; keep people at the same base pay and pay them time and a half when they do work more than 40 hours; or create more jobs by hiring people to take up those extra hours.
“Whether this money goes into a family’s pocket is up to what the employers decide to do,” Hayes said. “We do know employers dislike paying overtime. If you are going to avoid paying the dollars and you need those hours covered, it’s hard to see how they would probably not hire and then avoid the overtime that way.”
Whether employers pay an individual time and a half, or hire people to take up the slack, the Department of Labor’s Heidi Shierholz thinks the rule change will have an added benefit:
“One thing that we think will be a real bonus from this rule is that it is likely that it will lead to reduced litigation.”
UNLV Boyd Law School Professor Ruben Garcia said because the economy has changed from a manufacturing-based economy to a service-based economy the number of people getting overtime has changed.
He believes the change in rules will help eliminate some of the confusion and end the practice of changing a worker's title to avoid paying overtime.
Ruben Garcia, professor, UNLV Boyd Law School