Last month, the Department of Labor published a proposal to set the salary threshold under which almost all workers are entitled to overtime pay to $679 per week, or $35,308 for a full-year worker, in 2020. While an increase in the overtime salary threshold is long overdue, the current proposal would leave behind millions of workers who would have gotten new or strengthened overtime protections under regulations finalized in 2016.
Under the Fair Labor Standards Act, workers eligible for overtime must be paid “time-and-a-half” or 1.5 times their regular pay rate for each hour of work per week over 40 hours. Currently, hourly workers in most service and blue-collar jobs are guaranteed the right to overtime pay.
For salaried workers, the right to overtime is determined by their pay and nature of work. Currently, salaried workers who earn below $455/week ($23,660/year) are eligible for overtime, but workers who earn more than $455/week can be exempted from overtime if their occupations are considered professional, administrative, or executive.
The current salary threshold has not kept pace with inflation or the changing economy. In 1975, the overtime salary threshold covered about 62 percent of all salaried workers, compared to just 8% today. Had the threshold kept pace with inflation since 1975, it would be about $58,000 by 2020.
In 2016, the Obama administration proposed raising the salary threshold for overtime protection from $23,660 to $47,476 a year, and indexed it to wage growth, extending overtime protections to millions of workers and restoring much of the lost value. The 2016 rule would have covered 33 percent of salaried workers, which while less than the historical coverage, would have extended overtime protection to millions of workers.
According to an analysis from the Economic Policy Institute, the Trump proposal of $35,308 would only cover about 15 percent of salaried workers, far less than the Obama proposal and even further away from the historical amount. The new proposed rule is around $23,000 less than the inflation-adjusted 1975 level.
If the department finalizes its new proposal, millions of workers who should get overtime protections will fall through the cracks. In West Virginia, 14,000 fewer workers would receive new overtime protections compared to the 2016 proposal, and an additional 23,000 will miss out on strengthened protections. Workers who get strengthened protections are salaried workers who earn above the old threshold and below the new threshold but who are not bona fide managers, supervisors, or learned professionals. These workers should have overtime protections under the old threshold—but because they earn a salary and earn above the threshold, they are vulnerable to being misclassified by their employer as overtime-exempt. However, once the threshold rises above their earnings level, their status as overtime-eligible becomes very clear. Nationally, 8.2 million workers would be left behind, including 3.1 million workers who would have gotten new overtime protections under the 2016 rule and 5.1 million workers who would have gotten strengthened protections under the 2016 rule.
The number of workers left behind by the Trump proposal grows over time because the proposal does not include automatic updating, whereas the 2016 rule would have automatically updated the threshold every three years. The total number of workers left behind grows from 8.2 million in 2020 to an estimated 11.5 million over the first 10 years of implementation.
The lower salary threshold of the Trump proposal will also translate into lower earnings for workers. The total annual wage gains from workers who get new protections are $1.2 billion dollars less under the Trump proposal than under the 2016 rule, including $4.6 million for West Virginia workers. This includes both wages lost by workers who would have gotten new protections under the 2016 rule but would not get new protections under the Trump proposal, and wages lost by workers who would get new protections under either the Trump proposal or the 2016 rule but who would have gotten a larger raise under the 2016 threshold than under the 2019 proposal.
The 2016 proposal was a long overdue updating of the nation’s overtime rules. Strengthened overtime protections provide an incentive for employers to balance the additional hours they ask of their workers with the costs of either overtime pay or of raising salaries to the new salary threshold. That incentive is consistent with a fundamental principle embodied in the Fair Labor Standards Act—that workers should receive a fair day’s pay for a long day’s work. The new rule falls short of meeting that principle.
