The Labor Department announced Tuesday that it completed one of the most ambitious economic reforms of the Obama era, finalizing a new rule that will extend overtime protections to millions of additional workers.
The administration will accomplish that by raising what’s known as the overtime salary threshold. Nearly all workers earning salaries beneath that threshold are entitled to time-and-a-half pay whenever they work more than 40 hours in a week.
The current threshold is just $23,660. The White House will be doubling that number, to $47,476, guaranteeing overtime rights for salaried workers earning less than that. The Labor Department will now update the threshold every three years to make sure it keeps pace with inflation.
The White House estimates that the change will bring overtime rights to 4.2 million workers who are currently excluded. It will also clarify eligibility for another 8.9 million workers who may or may not have overtime protections under the current rules, officials said.
On a call with reporters Tuesday, Labor Secretary Tom Perez said the reform was meant to address "both underpay and overwork."
"The overtime rule is about making sure middle-class jobs pay middle-class wages," Perez said. "Some will see more money in their pockets … Some will get more time with their family … and everybody will receive clarity on where they stand, so that they can stand up for their rights."
With a minimum wage hike blocked on Capitol Hill, expanding overtime was the most aggressive way for the Obama administration to raise wages for private-sector workers. The White House is making the reforms through the executive rule-making process, under the Fair Labor Standards Act. It doesn’t need congressional approval to do so, although Republicans may still try to block the reforms through the appropriations process. Obama first laid out his overtime plan in a blog post on The Huffington Post last year.
Passed during the Great Depression, America’s overtime law was meant to protect workers from being worked too long and paid too little. The rules guarantee that workers get paid extra when they work extra. The rules also discourage employers from working employees long hours by making it more expensive to do so, through a time-and-a-half premium.
But under the current regulations, many working-class employees who earn above the low salary threshold are classified as "managers" and therefore don't have overtime rights. Employers have an incentive to pile work onto these employees, since their extra time essentially comes for free. As a result, in retail some store managers will clock 60, 70 or even 80 hours, but only take home a modest salary in the $30,000 range.
The percentage of workers who are overtime-eligible has fallen dramatically in recent decades. In 1975, 62 percent of salaried workers had overtime rights; now, that share is a mere 7 percent, according to White House estimates.
"And you wonder why the middle class is struggling," Vice President Joe Biden said Tuesday. "If you work overtime you should actually get paid for working overtime."
Left-leaning economists have been urging the White House to make the overtime rules more generous to workers. The rules are fairly complicated, and the last time they were adjusted was in 2004, during the George W. Bush administration. Whether workers are entitled to overtime depends not just on their salary but also on their job duties, and whether they qualify as a manager or a professional. According to the Economic Policy Institute, a left-leaning think tank, the changes during the Bush years made it more difficult for many workers to prove they qualify for overtime.
While the new rules will vastly expand eligibility, they are not as aggressive as they first seemed. The White House first signaled it would raise the threshold to $50,440. The final number is roughly $3,000 less than that. (The White House’s decision to scale back the proposal was first reported by Politico.) Perez said officials made that decision based on feedback during the rule's public comment period. They chose $47,476 because it represents the earnings of the 40th percentile of salaried workers in the South, the lowest-income region.
Ross Eisenbrey, vice president of EPI, said the final rule does a "great job" of addressing two issues for the middle class: "the need for more time and the need for more money."
"Overworked and underpaid managers, postdoctoral researchers, social workers, insurance claims workers, and many others will have their lives improved one way or another by this rule," said Eisenbrey, who was one of the most vocal voices for the reform. "It’s great to see the government doing something significant to help the struggling middle class."
EPI estimates that the effects could be greater than the White House anticipates. The group projects that 12.5 million workers will "directly benefit" from the new rules -- slightly more than half of them women, and a disproportionate share of them African-American and Hispanic. The biggest effects will be felt in the South, where a larger share of workers are carved out of protections under the current rules.
Business groups lobbied hard against the new rules, claiming they would lead employers to cut back on hours, and force workers to start tracking their time as hourly employees. What the rules will undoubtedly do is give many employers a hard choice: Either limit workers’ hours to 40 per week so they don’t incur the time-and-a-half premium, or start paying workers more for the extra time they work.
In a statement Tuesday, the National Retail Federation, a trade group for retailers, called the reforms a "career killer." "With the stroke of a pen, the Labor Department is demoting millions of workers," the group said. "In the retail sector alone, hundreds of thousands of career professionals will lose their status as salaried employees and find themselves reclassified as hourly workers, depriving them of the workplace flexibility and other benefits they so highly-value."
The White House finalized the rule now so that Republicans in Congress can't bottle it up through the Congressional Review Act. Repub best shot now would be attaching a rider to spending legislation to block it, but it's unlikely Democrats or the White House would go along with that. The new rules are slated to go into effect on Dec. 1.
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