Obama Acts to Modernize Overtime Rules

In an economic address last year, President Obama declared that his highest priority would be addressing economic inequality and reversing the long erosion of middle-class security. “Whatever executive authority I have to help the middle class, I'll use it,” the president announced. He wasn’t kidding.

In January, the president signed an executive order raising wages for low-paid federal contract workers, even as he urged Congress, businesses, and states to adopt broader minimum wage increases. Now the president has announced he will seek to modernize Department of Labor regulations that keep millions of workers from receiving overtime pay. It’s another step toward helping working Americans bring home more of the gains they contribute to the economy.

The problem is that millions of working Americans are putting in extra hours on the job but not being compensated for it. That’s because the Department of Labor, which is empowered by Congress to set salary thresholds and establish the job duties used to determine which workers are exempted from overtime pay rules, has not updated its regulations in a decade. Now the president is directing the Department of Labor to act, updating the rules and ensuring that millions more workers—from the night manager at Burger King pulling extra shifts to the supervisor of a supermarket meat department who ends up working 60 hours—will get more of the money they’re working for.

“Americans are working longer hours and are more productive—yet wages are largely flat.” That’s the story that the Economic Policy Institute, backed up by reams of carefully analyzed data, has been telling with increasing urgency for many years. So it’s little surprise that EPI’s Ross Eisenbrey has done the definitive analysis on the need to modernize overtime rules.

In an op-ed in The New York Times, Eisenbrey wrote:

As with the minimum wage, which is not automatically adjusted for inflation and tends to lose real value unless it is raised, the overtime exemption threshold generally languishes. That means that many people who once would have been paid 1.5 times their wage when working overtime are not, violating the spirit of the law.

 

For decades, the Department of Labor periodically updated the overtime salary threshold. But today’s threshold, at $455 a week, is far below historical levels in real terms. And at just $2 a week more than a poverty-level income for a family of four, it is indefensibly low. I propose that President Obama raise the threshold to $970, equal in today’s dollars to the 1975 level of $250.

 

In keeping with the original purpose of the overtime rules, this increase would make overtime pay more expensive, creating an incentive for employers to spread work among other workers (an important goal in today’s low-job-creation environment). It would also more fairly compensate those who do work more than 40 hours.

Eisenbrey has noted that approximately 10 million workers would “benefit from a rule that makes clear that anyone earning less than $50,000 a year is not exempt from overtime requirements and must be paid time-and-a-half for any work the do past 40 hours a week.”

By putting money into the hands of working people who will spend it, expanded overtime pay will also increase consumer demand, and that demand gives employers a reason to add more jobs. While many businesses may prefer to continue profiting from employees’ extra work, the economy as a whole will benefit when these workers are fairly compensated for their work.  

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