By significantly increasing the salary threshold below which salaried workers get overtime pay, President Obama just took a big step toward updating a critical labor standard with the potential to boost the paychecks of millions of middle-wage workers, many of whom should be getting overtime but are not.
In this case, the reconnection involves the updating of labor standards introduced in the Fair Labor Standards Act (FLSA) of 1938, legislation that included a national minimum wage and time-and-a-half pay for hourly and certain salaried workers after 40 hours of weekly work.
Why cover any salaried workers? Because the law needed to preempt the possibility that some employers might just label someone a salaried worker to avoid having to pay time-and-a-half. So a salary threshold was introduced, below which workers were automatically non-exempt. The problem is the threshold wasn’t regularly adjusted for inflation, and while it has been sporadically raised, it has fallen well behind its historical levels, once you adjust for inflation (the new rule also proposes to index the new threshold to either price or wage growth; which one will be decided during the forthcoming comment period, where outside stakeholders can weigh in on the proposed rule).
The current threshold is only about $23,700. The president’s proposal takes it up to $50,400, about $970 per week.
As Ross Eisenbrey argued in a paper written a few years ago (for the 75th anniversary of the FLSA), that’s the 1975 threshold, adjusted for inflation. To us, that level made most sense for a variety of reasons:
- The salary threshold is one way we avoid labeling someone a “manager” while paying them what are clearly non-managerial wages. So you want a threshold well above the median wage, which in our economy tends to be the wage paid to the typical production, nonsupervisory employee, someone who clearly should be paid overtime. When the Ford administration raised the salary threshold in 1975, it was 1.57 times the median wage. When Ross and I did our research, the median wage today was $16.70 per hour. Were we to update that same ratio—1.57 times the median wage—you’d get around $26.20 an hour, $1,050 a week, or $54,536 a year. The administrations $970 per week fits neatly in that ballpark.
- Earlier analysis by policy makers who still understood the intent of the FLSA argued that the salary threshold should be “considerably higher” than the level of newly hired “college graduates just starting on their working careers.” The 1950 rule set the level 25 percent above the college entry-level wage; applying that same ratio today would yield a salary of $1,000 a week, again, in the ballpark of the president’s new rule.
- The Bureau of Labor Statistics publishes data on supervisory workers by occupation and median weekly earnings (bona fide supervisors should typically be exempt from OT). For management occupations, the BLS breaks out four levels of supervisory responsibilities, and the median weekly earnings range from $1,520 to $3,995. In other words, by this metric, the new threshold is well below a level associated with supervisory, and presumably exempt, duties on the job.
- BLS grades the responsibilities of occupations by a metric they call “leveling factors” (scores given to each occupation based on its demands for skill, knowledge, and responsibilities). They find the hourly wage of about $24 ($970/40) to be consistently below level 7 (out of 15), fully consistent with nonsupervisory responsibilities.
Yes, that’s all pretty weedy and wonky. Here’s the way the president put it:
Right now, too many Americans are working long days for less pay than they deserve. That’s partly because we’ve failed to update overtime regulations for years — and an exemption meant for highly paid, white collar employees now leaves out workers making as little as $23,660 a year — no matter how many hours they work.This week, I’ll [present] my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t.
Trust me on this: you’d be very hard pressed to come up with a rule change or executive order—i.e., non-legislation—to lift the pay of this many middle-wage workers. That’s important, because we live in a time when the bargaining power of many who depend on their paychecks is much diminished relative to the clout and power of those whose income derives from their wealth portfolios.
This isn’t the first time in our history when such conditions prevailed. In fact, the FLSA was born of the acute realization that one role of government was to help rebalance those powers, to stand up for those who, absent rules like OT, risked exploitation, overwork, and inability to claim their fair share of the productivity growth they themselves were helping to generate.
All the president did Monday was to put a powerful thumb on the scale to add some balance on behalf of working people. And for that he deserves our thanks.