Overtime rules revision, millions will benefit

President Obama’s overtime rule revision announced this month will benefit millions of workers, according to Economics Policy Institute Vice President Ross Eisenbrey and Jared Bernstein from the Center on Budget and Policy Priorities.

In their report – New inflation-adjusted salary test could bring needed clarity to FLSA overtime rules – the authors recommend that the US Labor Department increase the salary threshold under which employees are covered by overtime provisions, and link the threshold to inflation. FLSA refers to the Fair Labor Standards Act of 1938.

The FLSA provision entitles workers to be paid at least ‘time-and-a-half’ (1.5 times their regular pay rate) for every hour worked beyond 40 hours each week. Overtime refers to the extra hours people work in addition to their scheduled working week.

New overtime rule to reverse decades of wage stagnation

Eisenbrey said:

“There is not one simple way to reverse the decades of wage stagnation that have dogged American workers, but the president’s directive is an important first step. We need bold action to raise America’s pay and create an economy that works for all Americans.”

Current Department of Labor regulations for salaried employees exempt those earning over $455 per week ($23,660 per year) from being paid time-and-a-half for working overtime. They are classified as executives or managers.

A growing trend has been to classify workers whose duties are mainly non-managerial or menial as “assistant managers”, which exempts them from overtime pay, regardless of how many hours they work each week.

A long time ago, the threshold used to be regularly lifted to take into account price rises (inflation). However, since 1975 it has only been adjusted once.

Current threshold should be more than doubled

Had regular adjustments for inflation been made since 1975, the threshold would currently be $970 per week, more than double today’s amount. The 1975 salary threshold was $250, while inflation has been nearly 290% since then.

overtime rules

Above are some occupations with duties characteristic of covered non-exempt jobs. In each case, many workers earn between the current and proposed thresholds, i.e. they are not covered under present law.

If overtime coverage were lifted to include workers earning between $455 and $970 per week, there would be an additional five to ten million employees with the entitlement.

The authors concluded:

“Our review of the history of OT regulations dating back to their inception in the FLSA of 1938 leads us to conclude that confusing and ambiguous duties tests in tandem with the lack of proper adjustment of salary tests have left too many salaried workers uncovered by time-and-a-half regulations. We recommend raising the salary threshold to $970 per week, which is the 1975 threshold updated for price growth, and strongly urge that this salary be adjusted for inflation going forward.”

“Why the 1975 threshold? While any threshold will have an arbitrary element, the 1975 threshold is consistent with both the qualitative goals articulated by both the FLSA and officials of the DOL and the central goal of the salary test: to ensure that those whose pay did not reflect the status and prestige of exempt workers were covered by the OT protections.”