Why Millions of Americans Are About to Take Home Bigger Paychecks for Working Overtime
On May 18, the Obama administration announced that it will raise the salary threshold for overtime pay at the end of this year. When the Department of Labor’s new law goes into effect on December 1, millions of workers making less than $47,476 a year will finally be entitled to overtime pay at time and a half, regardless of title or duties.
The current overtime salary threshold is less than half of that—$23,660—and has been adjusted just once since 1975. In 1975, nearly 60 percent of workers qualified for overtime pay. Today, only about 7 percent are eligible.
The overtime rule was also narrowed during the George W. Bush administration, when a 2004 update made it harder for workers to receive overtime protections. The changes included removing the “duties test,” which had exempted workers from overtime based on whether they performed such managerial duties as hiring and firing. The 2004 rules also established a “concurrent duties” definition, which exempted workers who spent as little as 20 percent of their time on such managerial tasks. Segments of the business community oppose the new rule and are expected to challenge it in court.
Ross Eisenbrey is the vice president of the Economic Policy Institute (EPI). He fought the 2004 Bush administration changes and proposed updating the rule in a transition memo to President Obama in 2008. In 2013, he presented a white paper on the issue to incoming Labor Secretary Tom Perez.
Eisenbrey has had a lifelong passion for labor law (one of his heroes growing up was Walter Reuther, who led the United Auto Workers during its rise to prominence), and has been observing the decades-long decline in overtime protections. He spoke with the Prospect in the afterglow of President Obama’s announcement. Below is an edited transcript of that conversation.
The Prospect: How did you decide this was the most important thing to bring to the administration?
Ross Eisenbrey: Jared Bernstein, who was at EPI back in 2003, and I had sort of led a fight against the [George W.] Bush overtime rules, which pretended to be raising the threshold, but at the same time were taking away overtime rights for millions of people. We did a lot of work organizing and analyzing and testifying in Congress against that, and got members of Congress to introduce legislation that would have done pretty much what the Obama rule is doing now. But Bush got re-elected and there was nothing to do about it. Then Obama took over and our case for making [the threshold] over $50,000 helped move them to say that this is the right thing to do and there's a good rationale for it, and they picked it up.
For 29 years, there was no increase in the threshold. I give real credit to Tom Perez and President Obama for the courage to take on the organized lobby that hates this.
Was there more room to negotiate around the threshold than around other areas, such as exemption rules?
RE: The courts have damaged the law in the way they’ve interpreted the regulations since the Bush changes. So there is a strong case to be made for dealing with the duties tests. But the duties tests are difficult to understand, whereas anyone can know: If you make less than $47,476, then you’re entitled to overtime.
What do you think will be the most enduring impact of the rule?
RE: It’s providing a real incentive for better work-life balance. People will get wage increases, salary increases—I’ve talked to employers who have already given salary increases and I know others who are planning to, so there's more money going into people’s pockets and that’s important. But I think the most important thing is providing what the law originally intended: to protect workers from employers encroaching on their time so that they have time with their friends and their family, and time to take part in public life.
There's a lot of conversation around paid family leave now, too.
RE: Yes, families are under a lot of pressure in the United States. [The overtime rule] is a way to help protect parents from the encroachment [into personal time]. You know, at EPI we do it—we’re emailing people at home at night. And it’s one thing if you’re making a good salary and you really are an executive. It’s another thing if you’re making $30,000 or $40,000 a year. You ought to be paid for that time.
Newsweek recently referred to the rule as a “boon for middle-class workers.” But what about poor minimum-wage workers?
RE: The way this rule helps those workers is by spreading employment. You have a lot of companies who have a business model where the managers are doing work that used to be done by hourly workers. They’re stocking shelves, they’re running the cash register, they’re pouring coffee, they’re doing things that an hourly worker could be doing, and yet they’re not getting compensated for it. The employer now will have to pay overtime to a manager making $40,000, or instead shift that work to a minimum-wage worker who needs those extra hours. So the rule is a good thing for them, too.
But there are a lot of exemptions. Why is the trucking industry, for example, exempt?
RE: My goal was to get something done. The trucking industry is regulated under the Department of Transportation; the Fair Labor Standards Act does not regulate them. But here was an opportunity for the president to act without having to go to Congress, without having to change the relationship between the Department of Labor and the Department of Transportation in the statutes, without having to legislate changes in the overtime rule. He could do this himself through regulation.
What was the most challenging part of seeing the rule through?
RE: There was this argument that it would damage [worker] flexibility. But we were able to show, using government surveys, that there’s no difference between salaried and hourly workers making less than $50,000 a year—they really don’t have any flexibility left to lose. There was also pressure to have a lower threshold, and we got outside help from [venture capitalist] Nick Hanauer and some others who came in and said, really, we ought to be talking about a $69,000 threshold. In fact, from the [1970s on], if you just did an inflation adjustment, the threshold would now have been at $63,700. So this was really a modest increase. And it’s not going to have a big leap, really, ever again. Automatically now, every three years, it’ll move up according to the growth in salaries across the country.
How confident are you the rule will withstand legal challenges from the Chamber of Commerce, the National Retail Federation, the National Restaurant Association, probably the Society of Human Resources Managers?
RE: Oh, I have no doubt about [the rule’s ability to withstand challenges] at all. [Those organizations] have done some crazy things. The Retail Federation has been outspoken against it even thoughthey say it will create jobs. They also sent a witness to congressional hearings who was saying this would make them have to track the hours of workers who are currently salaried because they’re going to have to pay them overtime. But the witness herself was already tracking the time of her salaried workers and said that not only did she track it, but she gave people time off based on how many extra hours they worked. That was kind of mind-boggling.
Assuming you can defend it, where does the overtime rule rank among your accomplishments?
RE: Well, I worked for Senator Ted Kennedy in 1995 and 1996 in one of the worst Congresses in the history of the country. And with Newt Gingrich in the House and Bob Dole leading the Senate, we fought off regulatory reform that would have wrecked the whole regulatory structure of the United States and—this is not an exaggeration—would have given any business that wanted to avoid any regulation a get-out-of-jail-free card. We fought off changes to the National Labor Relations Act, the Occupational Safety and Health Act, the Davis Bacon Act, and ERISA [Employee Retirement Income Security Act] protections and many others, and passed a minimum-wage increase. But this [overtime rule] is a big deal, and I'm really proud to have worked on it.
What’s next on the agenda?
RE: Forced arbitration is a campaign that we’re taking on, and we’d like it to end in a Supreme Court victory or, more likely, by passing Senator Al Franken’s Fair Arbitration Act. The problem is that employers are, increasingly, taking away the rights of workers to sue in a court when they’re cheated [not just with wage theft, but any employment issue, like sex or age discrimination]. Employers require, as a condition of employment, that you won’t go to court, you’ll only arbitrate; that you won’t arbitrate in a class action, you’ll only do it yourself; that you’ll pay for half the cost of the arbitration; that you won’t get attorneys’ fees, even if you win. There’s also no punitive damages [for the employers]. It’s sick. My estimate is that workers lose $30 billion to $50 billion per year as a result. It’s an evil thing that’s sort of creeping over the entire U.S. labor market.