Updating Overtime Rules Is One Important Step in Giving Americans a Raise

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http://www.epi.org/publication/updating-overtime-rules-important-step-giving/

Americans are working longer hours and are more productive—yet wages are largely flat. Indeed, the median worker saw a wage increase of just 5.0 percent between 1979 and 2012, despite overall productivity growth of 74.5 percent (Mishel and Shierholz 2013). One reason Americans’ paychecks are not keeping pace with their productivity is that millions of middle-class and even lower-middle-class workers are working overtime and not getting paid for it. This is because the federal wage and hour law is out of date. Fortunately, the Obama administration can remedy this through executive action.

This policy memo argues the Secretary of Labor should exercise his authority to raise the salary threshold that helps determine which workers can receive overtime pay. The memo explains that if the threshold were raised from its current $455 per week ($23,660 annually) to $970 per week ($50,440 per year)—the latter amount being equal to the threshold’s 1975 level, adjusted for inflation—millions of salaried workers would be guaranteed the right to overtime pay if they work more than 40 hours in a week.

Background on overtime laws
Most of the U.S. workforce has the right, provided by the Fair Labor Standards Act of 1938, to be paid overtime for working more than 40 hours in a week. Each extra hour beyond 40 is supposed to be paid at 1.5 times the regular rate of pay. Employers usually want to avoid paying overtime, so they schedule their employees for 40 hours a week or less. This is why we have a standard workweek of 40 hours—five eight-hour days. Before the federal government set rules for overtime, most employees worked longer hours, and millions of Americans worked six or seven days a week, as Chinese factory workers do today.

Workers who make below a certain amount are entitled to overtime pay. However, relatively low-paid workers are being excluded from overtime pay—and even minimum-wage protection—because the Department of Labor has failed to raise the salary threshold that helps determine which workers can receive overtime pay. Salaried workers, too—not just hourly workers—have the right to be paid a premium for overtime work, unless they fall into an exempt category as a professional, an administrator, or an executive. Each of those exempt categories is defined by a set of duties showing that the exempt employee is skilled and exercises independent judgment, or is a boss with a department and employees to supervise. Each exempt category also has a salary test: The employee has to earn a salary high enough to qualify as an executive, a professional, or an administrator. But many companies have worked to get around these overtime rules; for example, cooks can be called “managers” so that their employer can deny them overtime. The too-low salary threshold, and outdated definitions of who is exempt from overtime, can and should be fixed by the Secretary of Labor.