On President Obama’s Directive Expanding Overtime Pay

Statement of NELP Executive Director Christine Owens:

The National Employment Law Project applauds President Obama’s directive to the Labor Department to review and update its rules denying overtime protections to millions of America’s workers. Expanding overtime pay will help ensure that workers receive the pay they deserve for the long hours they work. Combined with his recent executive order raising minimum wages for employees of federal contractors and his support for a higher minimum wage for all workers, the president’s initiative on overtime reflects further progress in addressing the related crises of stagnant wages, declining incomes and expanding inequality. With corporate profits and CEO compensation growing healthily, it’s past time for our nation’s leaders to focus on raising wages and making sure workers are paid what they have earned. We commend the president for using the tools at his disposal to do so.

Fixing our outdated overtime rules is important and timely for another reason: Not only will the Labor Department’s action in response to the president’s directive strengthen a core labor standard, but fixing the overtime rules will also create a strong incentive for employers to increase hiring, something our economy badly needs. One of the purposes of the Fair Labor Standards Act’s premium pay rule for overtime is to encourage employers to spread work among more employees rather than saddle fewer employees with more hours. That purpose is every bit as important today as it was in 1938, given our continuing unemployment problem and the crisis of persistently high long-term unemployment.

At the president’s direction, the Labor Department will now undertake review of existing rules interpreting the “white collar” exemptions to the FLSA. These exemptions allow employers to deny overtime (and minimum wage) coverage to certain salaried employees classified as executive, professional or administrative. The existing rule, last updated 10 years ago, allows employers to exclude workers making as little as $24,000 a year from coverage. To put this in perspective, the existing salary threshold (currently $455 per week, or $23,660 per year) that authorizes exempting an otherwise-eligible employee from overtime is below the federal poverty level for a family of four. Indeed, a family of four struggling to make ends meet on this salary would be eligible for SNAP (food stamps), Medicaid, and the EITC. The white-collar exemptions were never intended to create a shield allowing employers to avoid overtime pay for workers whose near-poverty-level wages require them to rely on public assistance to get by. Updating the salary threshold will address this egregious result, benefitting lower-paid workers in fast food, retail, restaurants, customer service, hospitals, and other low-wage industries.

There is already strong precedent for raising the salary basis threshold: California’s threshold is currently $640 per week, and New York’s is $600 per week. California’s is set to rise to $800 in 2016, while New York’s will increase to $675 in 2016.

In addition, the Labor Department’s review may clarify the sections of the rules that define the types of duties workers must perform to be exempt. Workers with executive, administrative and professional duties are 2 exempt under the current rules, but the white-collar exemptions are often abused so that many workers with certain job titles but whose supervisory duties are minor are shut out from overtime pay. A worker may spend the vast majority of her day washing dishes or sweeping floors or stocking shelves, but even if she spends just half an hour supervising another employee, that worker may be denied overtime under the current rules.

Even among low-wage workers clearly entitled to receive overtime pay, overtime abuse is widespread. In a groundbreaking 2009 survey of more than 4,000 low-wage workers in Chicago, Los Angeles and New York, NELP and its research partners found that 75 percent of workers entitled to overtime pay had been wrongly denied it. The overall cost of wage theft to these workers, their families and communities was enormous: Fulltime full-year workers lost an average of $2,634 annually (out of total earnings of $17,616), translating into a loss in consumption capacity within the three cities of more than $56.4 million per week.

The existing rules governing the white-collar exemptions, with their exceedingly low salary threshold and ambiguous duties tests, legalize denial of overtime pay to millions of workers who ought to earn it. We hope that the upshot of the Labor Department’s rulemaking, with notice and opportunity for comments by all stakeholders, will be updated regulations that once again extend meaningful overtime protections to all workers who need and deserve it.