Building an Economy that Works for Everyone

New overtime rule from Obama administration means better pay, more jobs

By Fabio

Photo: Fabio Venni, via Flickr Creative Commons

Today President Obama makes up for four decades of neglect of middle wage workers by both Republican and Democratic administrations.

That’s thanks to a new federal rule on how and how much employers pay workers. This new rule will result in workers gaining literally thousands of dollars more in earned income in our state.

So what happens today? The Obama Administration is raising the threshold to be a salaried employee from $23,360 to $47,500. Under the Fair Labor Standards Act, when an employee works more than 40 hours in a week, she is entitled to time-and-a-half pay for those overtime hours. So, if she is making $16 an hour, and works 50 hours one week, she would get 40 hours at $16 an hour and 10 hours at $24 an hour. That amounts to $880 in wages for that week, about $45,000 a year. But the law has a category for “exempt” employees, and corporations are excused from paying overtime for these employees. So if her employer just puts her on salary at $16 an hour, her compensation would be about $33,000, she could be forced to work 50 or 60 hours a week and receive no overtime. Her employer saves $12,000. It is free labor for the company and forced labor for the worker.

The law mandates specific job responsibilities for these exempt positions. They are supposed to be professionals, administrators or executives. But that definition and categorization is left up to the employer, so that if you are a retail store assistant manager and spend 90 percent of your time waiting on customers, you can still be classified as exempt. So long, overtime pay!

The law also has a mechanism to adjust the compensation level for designating an employee as exempt. This threshold was $984 a week in 1975. Since then, there was one minor adjustment, in 2004, which simultaneously enabled corporations to move even more people into salary status and avoid paying overtime. The consequence of not adjusting the threshold is that now employers can designate you as exempt when you make as little as $11.38 an hour! Then they can pile on the hours, and you are stuck with a weekly wage of $455.

Today’s new rule changes the game for Washington workers. Now if your employer pays you less than $22.50 an hour you must be paid time-and-a-half for each hour you work over 40 hours. The threshold from designating a worker as exempt is moved up from $23,660 a year to $47,500 a year. Over 200,000 workers will directly benefit from this new rule — one fifth of Washington’s total salaried workforce.

This rule gives employers an interesting option. They can either increase their employees’ wages to exceed the threshold of $47,500 and keep them as exempt, whereby they don’t get overtime pay, or they can simply keep their compensation at a level under $47,500 and pay time-and-a-half when they work more than 40 hours a week, or they can hire more workers and avoid paying overtime for waged employees. In each case, workers benefit. If you are making $24,000 as an “exempt” worker and get no additional compensation for overtime work, your salary will double. If your employer decides to not push your compensation up to the new salary threshold, you get time-and-a-half for each hour of overtime. If your employer decides not to give you overtime and not to increase your pay, the only other choice he has to maintain business is to hire additional employees. That’s why the National Retail Federation estimates that the new rule will create 117,100 jobs in the retail and restaurant industries across the country. And with more workers and fewer unemployed, workers as a whole have greater bargaining power for wages and benefits.

In our state we are working to increase the minimum wage to $13.50 with a ballot initiative. But even as we raise the wage floor, this doesn’t push up wages for the typical middle class worker. The Obama administration has found the way to do that with this rule increasing the threshold for exempt employees. It is a step up for middle wage workers, who have borne the brunt of wage stagnation over four decades. Today is their day….. and our day as citizens and workers in this great country of ours!

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