You will not be surprised by my assertion that presidents do not always mean what they say, or at least they often lack follow-through. Well, when he said he’d do what he could to help working people get a better shot at seeing more of the economy’s growth in their paychecks, with or without Congressional support, President Obama appears to have meant it.
His administration just announced their intention to change a rule governing eligibility for overtime pay. For a number of reasons I’ll get to in a moment, a significant number of workers—in the millions—should be eligible for time-and-a-half when they work more than 40 hours in a week, but they’re not.
Why not? If you’re an hourly paid worker, you’re automatically eligible for OT pay, but it’s a bit more complicated if you’re paid a salary. First, there’s a weekly-pay threshold below which you must get OT. Otherwise, unscrupulous employers could arbitrarily change an hourly worker to a salaried one, even if they earn very little, and avoid OT. That threshold was last increased a decade ago, and stands at $455 (it is not adjusted for inflation).
Second, there’s a test of whether what you do at work involves supervising others. If so, and if your salary is above the threshold, you’re typically ineligible for OT. But things have devolved in unfortunate and unfair ways: at this point, if your employer classifies a tiny proportion of what you do as supervisory, you can be exempted from OT.
The administration aims to fix these problems and the beauty is they can do so through rule changes which do not involve Congress. Following a comment period where stakeholders can weigh in with the Labor Department, the administration can raise the salary threshold below which you must get OT; they can also change the rules such that you have to be bona fide supervisor—i.e., spend the majority of your time at work actually supervising or doing similarly executive-type tasks—to be exempted from OT coverage.
Simply adjusting the 2004 threshold for inflation would take it up to around $550; Ross Eisenbrey, with whom I’ve worked on this issue, and I point out that in today’s dollars, the 1975 threshold would be about $970, and our work provides a number of what we view as compelling rationales in support of the higher number. For example, when the 1975 threshold was about 1.6 times the median wage; updating that ratio using today’s median wage results in a threshold of around $1,050, above our recommended $970.
Ross and I also note, in favor of a $970 threshold (and it should of course be indexed for inflation):
- BLS publishes data (most recently from 2010) of supervisory workers—and thus presumably exempt from OT pay—by occupation and median weekly earnings (U.S. BLS National Compensation Survey). For management occupations, the BLS breaks out four levels of supervisory responsibilities, and the median weekly earnings range from $1,520 to $3,995. By this metric, our threshold is well below a level associated with supervisory, and presumably exempt, duties.
- Looking at the full list of median earnings for supervisory jobs in management, only “team leaders” who were preschool education administrators, food service managers, property managers, and lodging managers earned below our threshold. Many of these are precisely the type of workers we’d want the rule change to cover.
The employers’ lobby—whose agenda increasingly diverges from that of employers’ themselves—will certainly complain loudly over the proposed change, but I’d stress that much of what we’re talking about here is simply an inflation adjustment to an eroded threshold—and thus an eroded labor standard.
I’d also note that one of the motivations of the OT rule in the first place (it was part of the 1938 Fair Labor Standards Act) was to incentivize increased job creation for employers who want to avoid paying someone overtime. An employer who doesn’t want to pay OT to a newly-covered worker can always hire someone else at the straight-time wage, which happens to scratch another labor market itch we have right now (and the newly-covered worker is no worse off).
So I applaud the administration for doing what it can in the face of stifling politics to improve and uphold labor standards, and for introducing a bold measure with the potential to help a lot of working people get the overtime pay they deserve.