Proposed Overtime Regulations are Good News for the Middle Class

On July 6, 2015, the United States Department of Labor published a proposed rule that would modernize longstanding overtime exemptions for white-collar employees, which is intended to greatly expand the pool of American workers entitled to overtime pay for work beyond 40 hours in a work week. The proposed overtime expansion was issued in response to a March 2015 directive by President Obama to update outdated rules governing overtime for white-collar workers.

The 40-hour week had been a rallying cry for the labor movement for decades before Franklin D. Roosevelt signed the Fair Labor Standards Act (FLSA) into law in 1938.The FLSA set a standard workweek of 44 hours, which was reduced to 40 hours in 1940, and disincentivized employers from requiring their employees to work longer than the standard number of hours.

One disincentive was overtime pay. The FLSA required employers to pay employees 1.5 times their regular wage after 40 hours of work in one week. This protected workers’ mental and physical health and made good economic sense. When an employer had to pay a premium to keep one employee on for the length of two shifts, for example, the employer was incentivized to hire a new employee to work that second shift. This reduced the unemployment rate and encouraged a competitive labor market, increasing base wages.

However, some groups of workers have never benefitted from overtime protections, including so-called “white-collar” workers. The FLSA excludes from its overtime requirements any “white-collar” workers who: (i) are paid a fixed salary not dependent on the quality or amount of their work; (ii) are paid a salary that is higher than a certain dollar threshold; and (iii) have primarily executive, administrative, or professional job duties. As the Department of Labor explained in its summary of the proposed new rules, that “exemption was premised on the belief that the exempted workers earned salaries well above the minimum wage and enjoyed other privileges, including above-average fringe benefits, greater job security, and better opportunities for advancement, setting them apart from workers entitled to overtime pay.”

Under current rules, however, salaried workers who work more than 40 hours a week are guaranteed overtime only if their salary is $23,660 or less. This protects only 8% of U.S. workers, and means that a worker with a family of four could live below the poverty line and still not be entitled to overtime pay. In the almost 80 years since the enactment of the FLSA, the Act has become a less and less useful protection for workers.

The Department of Labor’s proposed new rule will make the FLSA a more robust protection for white-collar workers. Under the proposed rules, the maximum salary for overtime protection will increase significantly, from $23,660 to $50,400 annually, regardless of whether the employee’s job duties are primarily executive, administrative, or professional. This change, if adopted, will render almost 5 million more Americans eligible for overtime pay. Further, the newly increased salary cutoff will be subject to periodic additional increases indexed to inflation.

The workers who will benefit most from the proposed new overtime rules are those on the cusp of the middle class, including information technology workers, and managers of banks, restaurants, and retail stores. As venture capitalist Nick Hanauer wrote in a prescient article on overtime last year, “it turns out that fair overtime standards are to the middle class what the minimum wage is to low-income workers: not everything, but an indispensable labor protection that is absolutely essential to creating a broad and thriving middle class.”

The Obama administration hopes to implement the proposed rules in January 2016, following a period of public comment. Whenever the new rules take effect, expanding the proportion of workers who are eligible for overtime pay should have the result of lowering unemployment and, eventually, strengthening middle-class wages.

If you have questions regarding your status under the FLSA and how these proposed rules may affect your entitlement to overtime pay, or if you have other questions concerning fair pay for a hard day’s work, please contact any of the Labor and Employment attorneys at Willig, Williams & Davidson.