Hard-working Americans have something to celebrate: Overtime pay will soon be a reality for millions of additional workers.
The Department of Labor is changing the country's overtime regulations to double the salary threshold to $47,476 a year, which the White House said will provide overtime pay to an additional 4.2 million workers. Some economists believe the rule change will actually help far more people than that. The left-leaning Economic Policy Institute estimates that 12.5 million salaried workers will see a direct benefit.
Back in 1975, about 62 percent of salaried American workers were covered by overtime protections, a share that has dropped to just 7 percent today, according to the White House. The current salary threshold of $23,660 has remained in place for more than a decade, and it fails to cover many middle-class and low-wage workers, given that it stands below the poverty line for a family of four.
Boosting the overtime threshold will put more money in the wallets of middle-class workers, will help others recover a work-life balance and is likely to lead to thousands of new jobs, said Ross Eisenbrey, vice president of the Economic Policy Institute on a call Wednesday to discuss the policy change.
"Americans are working longer hours, but they still aren't getting ahead," said Bill Samuel, legislative director of the AFL-CIO, who also spoke on the call. "Millions of people will get a long overdue raise."
To be sure, not everyone is happy about the change, with some businesses arguing that the regulation will backfire. Andy Puzder, CEO of Carls Jr. owner CKE Restaurants, warned in a Forbes' op-ed piece that some employers will "reclassify salaried employees as hourly," while the rule will add compliance costs and hinder workers' chances of joining the middle class. As Puzder put it: "Turning highly sought-after entry level management careers into hourly jobs where employees punch a clock and are compensated for time spent rather than time well spent is hardly an improvement on the path from the working class to the middle class."
Businesses will need to examine their employees' pay to ensure they're complying with overtime, and in some cases they may have to make some decisions to change how they manage their workers' time. Anne Babcock-Stiner, an attorney and human resources executive at PathStone Corp., said on the Wednesday call that her nonprofit doesn't have the financial flexibility for additional overtime pay or raise salaries to above the new overtime threshold.
"We could adjust salaries downward to account for built-in overtime, but we can't do that. It'll cause turnover and resentment. So we're committing to getting our jobs done in 40 hours a week," she said. "We will take it as an opportunity to get work done in 40 hours a week and to get work-life balance back."
She predicted that lawsuits related to overtime will likely decline in frequency because the new regulation makes it clearer about who should receive overtime. She noted: "Now I only have to go to my payroll database. There's not that much to argue about. You are either over or below the threshold."
Here are 7 things to know about the new regulation.
It doesn't go into effect until December. The rule will take effect on Dec. 1. Before that happens, employers should notify their workers if they will qualify for the new regulations on overtime pay. Still, it's not a bad idea to talk with your employer about the regulation and where you fit. There are some exemptions, such as for businesses that make less than $500,000 in sales or for nonprofits that do charitable work.
It covers both hourly and salaried workers. The new rule will cover anyone -- regardless of whether they make hourly wages or a salary -- earning less than $47,476. Workers who make less than that figure will be paid time-and-a-half for every hour they work beyond the standard 40-hour workweek.
The pay threshold will be adjusted every three years. The pay threshold, which is based on the 40th percentile salary for employees in the lowest-income Census region (which is now the South), will be readjusted automatically every three years. "The salary threshold will never erode again," Eisenbrey said.
Some employers may give raises to avoid paying overtime. Economists believe some employers will increase their workers' pay to just above the overtime threshold. For instance, post-doctoral workers will likely see salary increases, given that they average about $43,000 in annual pay while often working 50 to 60 hour weeks, Eisenbrey said. "I'm sure they'll raise the salaries of those postdocs above the threshold," he said.
Teachers won't qualify for overtime. Teachers are one group that's exempt from the overtime regulations, as well as doctors and lawyers. Still, while the average doctor and lawyer earn a six-figure annual paycheck, teachers at the K-12 level aren't that fortunate. The average teacher salary is about $56,000, but many entry-level teachers earn far below that.
One generation will see the biggest boost. Younger workers are most likely to benefit. EPI estimates that 4.5 million millennials will get a lift from the new rules. Workers between 16 to 34 are about 28 percent of the salaried workforce, but account for around 36 percent of the workers who'll benefit from the change.
Workers in these states are most likely to benefit. Workers in Southern states are the most likely to see a benefit, although employees in all 50 states will be affected. For instance, more than 30 percent of the salaried workforce in South Carolina, West Virginia and Arkansas will benefit from the new rules, according to EPI's calculations.