Adjusting Overtime Salary Threshold Would Ensure 'A Fair Day’s Pay for a Fair Day’s Work'

by Katie Tracy

A fair day’s pay for a fair day’s work.” This is the premise on which the Federal Labor Standards (FLSA) Act was enacted 75 years ago. By 1938, the Great Depression had brought about high unemployment and had left workers with little leverage to negotiate over working conditions or hours, setting the stage for employers to squeeze labor by requiring long work hours without additional compensation.

To prevent this unfair practice from continuing, the FLSA’s overtime provisions require employers to pay all hourly and many salaried employees overtime pay (time and a half) when they work more than 40 hours a week. Salaried employees making below a certain salary threshold automatically qualify for overtime pay, and those making more than the threshold qualify unless they are exempt (i.e., they are “employed in a bona fide executive, administrative, or professional capacity”). However, the law does not set the salary threshold to adjust automatically based on inflation, and thus, from time to time, the threshold has been updated to reflect economic growth.

Earlier this month, on July 6, the Department of Labor (DOL) proposed to raise the salary threshold from $23,660 to $50,440, which would extend overtime protections to 5 million workers across the U.S. The salary threshold was last revised in 2004, but the 2004 threshold of $455 per week ($23,660 annually) did not account for inflation since the previous threshold set in 1975 at $250 per week. The DOL’s proposal would return to the 1975 threshold adjusted for inflation through 2012, bringing it up to $970 per week ($50,440 annually). According to the Labor Department, “Failure to update the overtime regulations has left an exception to overtime eligibility originally meant for high compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year.”

It’s no big surprise that the proposal immediately sparked political debate, with liberals supporting the adjustment and conservatives opposing it. And on July 23, arguments against the proposal were the subject of a hearing before by the Republican-controlled House Education and Workforce Committee’s Subcommittee on Workforce Protections. At the hearing, opponents to the rule put forward two major arguments against raising the salary threshold: (1) it would be costly for small businesses and nonprofits; and (2) salaried employees would be demoted to hourly workers with lower pay and stricter schedules. 

However, these arguments are severely flawed. The proposed update to the salary threshold would not cost employers one cent unless they pay workers a salary of less than $50,440/year and those employees work more than 40 hours in a workweek. Right now, these workers don’t get paid a penny for working overtime. This isn’t only unfair to workers, but employment policies that keep employees’ wages low and deny them overtime pay has hindered economic growth by stifling consumer demand.

For employers who have workers that currently make just under $50,440, the new rule would likely lead to raises for those employees, putting them just above the new threshold. In other cases where salaried employees would still be working overtime, those making less than $50,440 would earn time and a half for any overtime hours. With more disposable income, consumers would have more capacity to shop, raising consumer demand and boosting businesses bottom lines.

Other employers would potentially hire hourly and part-time workers to cover some of the work and no longer require salaried employees making less than the threshold to work extra hours for free. In fact, according to testimony by Ross Eisenbrey, Vice President of the Economic Policy Institute, and co-author of a 2014 report calling for an update to the salary threshold, the threshold would create over 120,000 jobs.

Of course, those opposing the rule are correct insofar as some employers may choose to reclassify their salaried workers making less than $50,440 as hourly employees and prohibit them from working overtime. Perhaps they are also right that some of these employees would feel that this would be akin to a demotion. But what is important to note here is that nothing in the proposal to adjust the salary threshold for overtime pay would require this action. An employer could just as easily choose to continue paying the worker a salary and raise their wage above the minimum threshold, or alternatively, institute a policy requiring any overtime hours to be pre-approved.

Moreover, salaried employees making just over the current threshold may prefer a so-called “demotion” rather than being cheated out of thousands of dollars every year. Just take a quick look at the math. If an employee is making an annual salary of $23,661 (one dollar more than the current overtime threshold at $23,660) and works just 10 overtime hours per week, the employer is pocketing $8,872.88 earned by having the exempt employee to do the work free of charge. 

And claims that the rule will deny employees bonus incentives, flexible scheduling, and training and opportunities for advancement are simply unsubstantiated. Paying employees who earn low salaries and work excessive hours overtime does not conflict with a company’s ability to pay bonuses, promote staff, or offer training and opportunities for advancement. Programs designed to benefit and incentivize workers are not contingent on whether they qualify for overtime pay or not. 

In reality, businesses aren’t doing employees any favor by paying them low salaries and requiring them to work excessive hours. As Rep. Marcia Fudge (D-OH) put it during the hearing, “You are making it seem to me that you are doing them a favor by hiring them and then making them work a lot of hours and not paying them. That’s not how this business works. It’s supply and demand. That’s just basic simple economics.”

In the words of Rep. Frederica Wilson (D-FL), the ranking democratic member of the subcommittee, “The failure to update the overtime salary threshold to reflect the economic realities of today has seriously eroded FLSA’s protection against excessive hours and its implicit promise of a fair days pay for a fair days work.” In a blunt statement during the hearing, Wilson reminded her colleagues, “We are the workforce protection subcommittee. Our job is to protect the workers who are the workforce.”

To continue to deliver on the FLSA’s promise of a “fair day’s pay for a fair day’s work,” the Labor Department should move forward without delay on its proposed update to the overtime salary threshold.

© 2016 The Center for Progressive Reform