It’s official. On December 1, 2016, almost every salaried worker making less than $47,476 per year will be entitled to overtime pay. The new mandate, which is being called a “rule,” rather than a law or regulation, is part of President Obama’s long-standing effort to modernize the labor protections enshrined in the Fair Labor Standards Act, a federal law that has only been revised once since the 1970s.
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President Obama’s Labor Department says that 4.2 million workers will now be entitled to overtime wages. Over the next 10 years, according to a White House press release, the new rule will raise wages for by $12 billion.
After Years Under Poverty Line, Salary Threshold Gets Update
Labor advocates are asking why it took so long for the administration to act.
The overtime salary threshold was last changed in 2004, rising from $10,400, the level set in 1969, to $23,660. Before that, during the 14 years from 1990 to 2004, the salary threshold was actually below the national poverty line for a family of four. After the threshold was raised in 2004, it only took eight years for the poverty line to catch up again, rising above the cut-off for salaried overtime in 2012. Obama’s new change, which raises the threshold to $47,476, will place the salary threshold at about twice the current poverty line for a family of four, which is $24,300 in 2016.
Failing to raise the salary threshold in line with wage increases and inflation has left more and more workers toiling long into the night for less pay. In 1975, nearly 62% of salaried workers were eligible overtime. Today, at the current level of $23,660, only 7% of salaried workers are. After the new rule goes into effect on December 1, 2016, an estimated 36% of salaried workers will be entitled to overtime pay.
Keeping Pace With A Changing Economy
Why $47,476 per hour? It’s not the administration’s first choice. Back in 2015, the Labor Department was floating a higher number, $50,440, according to a Washington Post story run on June 30th of that year. But after negotiating with business interests, including the US Chamber of Commerce, the Obama administration agreed to the slightly lower number that is now set to become official. $47,476 per year also happens to represent the 40th percentile of full-time salaried workers in the lowest income Census region (right now, that’s the southern United States). That’s a long phrase which essentially means that, in the South, 40% of full-time salaried workers make less than $47,476.
But that won’t always be true. Wages increase, generally, over time. In April of 2016, wages grew by around 2.5%, according to the Economic Policy Institute. That’s great, except you also have to factor in inflation, where money loses value over time. More accurately, inflation occurs as the prices of goods and services rise. Over the last hundred years, inflation has been the rule of the land, at least in America.
During the Great Depression, when the US banking sector was collapsing, the dollar actually became more valuable, because there were fewer dollars to spread around. Prices dropped by around 10% between 1930 and 1933, which isn’t a great equation for economic growth. But that isn’t the norm. In recent years, the inflation rate has been on something of a roller-coaster ride, dipping to 0.1% in 2008, then rocketing to 3% in 2011 and stabilizing around 1% over the last four years. It has, though, remained positive, so the cost of goods and services has been rising for American families.
President Obama’s real innovation isn’t so much raising the salary threshold, but writing into the Fair Labor Standards Act a mechanism that will allow the overtime rules to keep up with wage growth and inflation.
Is The “Duties Test” A Thing Of The Past?
No. For workers making more than $47,476 per year, overtime eligibility will still be decided based on what kinds of work you do.
Most hourly workers have a legal right to overtime pay, no matter how much they make per hour or what kind of things they do at work. But the law is different for employees who get paid a salary, a guaranteed amount of money regardless of hours worked. Salaried workers aren’t automatically exempt from overtime pay, but the law does become more complicated.
Where salaried employees are concerned, eligibility for overtime hinges on two factors. One factor is the kind of work they perform. Generally, salaried workers who are exempt from overtime are exempt because they fall under one of several “white collar” exemptions. The Labor Department uses a series of “duties tests” to figure out whether or not salaried workers actually fall into one of those exemptions. Nothing about these tests is changing.