Millions of overworked, middle-class employees are about to get some relief – and maybe even a salary boost – due to a proposed federal rule that many workers haven’t even heard about.
Under this rule, employees earning less than $50,400 a year would automatically be eligible for overtime compensation (i.e., pay at time and a half) when they clock in more than 40 hours a week. The changes were proposed by President Obama in June, and are currently being considered at the Labor Department. The White House plans to make the rule official law in 2016.
As former White House economist Jared Bernstein wrote in The Washington Post earlier this year, “you’d be very hard pressed to come up with [another] rule change or executive order to lift the pay of this many middle-wage workers.” Bernstein also published an influential paper on the subject back in 2011.
This new overtime rule will likely go a long way toward restoring some long overdue work-life balance to American workers — including hotel and store managers to cooks, bookkeepers, reporters and editors — who may soon see their real hours on the job cut down. Others could end up with a raise. The White House has issued a video to explain the new policy:
Raising the income threshold would qualify nearly 5 million people to be eligible for time and a half status, according to Obama’s press secretary. It would also extend overtime pay to nearly 8.5 million new workers who have formerly been misclassified as ineligible under the current rules, according to a study issued by the Economic Policy Institute.
Moreover, the new rule could create incentives for employers to create 117,000 new jobs, according to the institute’s calculations.
While the overall impact on wealth distribution wouldn’t be as comprehensive as raising the minimum wage, it still signals a major boon for the middle class, said Ross Eisenbrey, a vice president at the Economic Policy Institute who’s tracked issues and statistics involving overtime rules for years (he also co-authored that paper with Bernstein).
“The government can do something to make [middle-class] lives better. To give them back the time they need to spend with their families. Not to make them sick at work,” Eisenbrey said.
His last point is especially important. Workers how put in more than 55 hours a week have a significantly higher risk of stroke and heart disease, according to a recent study.
Originally, our federal overtime law was created during the Great Depression. The goal was to give protection to workers who had been toiling away at jobs for excessive hours with no additional compensation. Many also viewed overtime pay as a tool to create more jobs: compared to paying the same person time and a half, it’s more economical to hire someone new to work those extra hours.
Many workers, however, are exempt from overtime coverage: originally this was supposed to be executives, managers and white-collar employees – in short, positions that were fairly well-compensated. And the part of the workforce that fell into this category used to be a lot smaller. In 1975, 62% of full-time salaried workers were eligible for overtime pay, including a majority of college graduates. Yet today, a mere 8% of workers qualify for overtime.
The primary reason for that shift is the low bar for overtime pay. 2004 was the last time that threshold was raised, but even then the Bush administration didn’t change things significantly, according to Eisenbrey. Bush set the new limit of $23,660 – which was just barely over the poverty line for a family of four.
As a result of that low threshold, a huge number of salaried workers are clocking extra-long hours for extremely low hourly rates. In fact, if you calculate the time they’re putting in, often these employees earn less than minimum wage. Some are labeled “managers,” but they don’t enjoy the flexibility or creative freedom that is often associated with that title.
In some cases, people who have “manager” positions like running a gas station make less than the employees they supervise.
The American Prospect interviewed a CVS night manager earning $34,000 a year, who talked about working extremely long hours, covering for hourly employees who’d been sent home because the company wanted to avoid paying overtime. While the manager isn’t necessarily looking for time-and-a-half pay, she would like to spend more time with her kids at home.
Not surprisingly, most businesses are against increasing the overtime threshold. The National Retail Federation argues that it will cost jobs and penalize business owners from promoting hourly workers to managers. Retailers also claim it will drive employers to cut back on worker hours and hire more part-timer staff. Finally, they worry that payroll costs will go up. The Obama administration estimates the proposed rule could translate into nearly $1.2 billion a year for employers.
Employers could take a number of measures to skirt around the new overtime rules, such as giving raises to bump workers over the $50,400 threshold, cutting worker hours and hiring additional employees to compensate for the difference. “A lot of companies have tried to do a preliminary count and see how many employees would be affected,” Hammer said. The Wall Street Journal reported that businesses are “scrambling” to figure out what to do.
As of last week, nearly 198,000 individuals, businesses and industry groups had commented on the proposed rule. That alone indicates what a big deal this change is. The last time the rule changed, it drew only 75,028 comments over an even greater period of time, according to The Washington Post.