Expanding Overtime Pay to Combat Income Inequality
The economy is growing at its fastest rate in a decade and more than 10 million private sector jobs have been created in the last six years. Unfortunately, all Americans have not shared this recovery equally. Corporations and CEOs have seen the biggest rebound, while wages remain stagnant for working families and income inequality continues to grow. Today, CEOs make 296 times the amount a typical worker earns. As policymakers strive to tackle these issues, we have a powerful tool at our disposal, the Fair Labor Standards Act and its overtime protection for salaried workers.
The FLSA is a product of the New Deal, and one of our nation’s bedrock labor laws. It established a minimum wage, protections for child labor, and overtime pay. While most hourly workers are eligible for overtime, the law set requirements for salaried workers who may qualify. The idea was that salaried workers with significant clout didn’t need overtime protections, but that those with lesser bargaining power and the ability to control their schedule did.
A salaried worker’s eligibility for overtime depends on their income and the nature of their duties. Salaried workers earning below a certain income threshold are guaranteed overtime pay, those earning above the threshold and spending a significant amount of time completing executive, administrative, or professional duties, known as the “white-collar exemption”, are exempt from overtime protections. In 1975, 65 percent of salaried workers fell below the threshold and were eligible for overtime pay.
As time has passed federal regulations have not kept pace with inflation or our changing economy. The current salary threshold is $23,660, and applies to only 11 percent of the nation’s salaried workers. This threshold is below the federal poverty level for a family of four. This means that workers earning just above the threshold can work 60-70 hours a week without any additional compensation. These workers are lower level managers, associates, clerks at businesses across the country. They may spend a small fraction of their time working on executive, administrative, or professional tasks, and the majority of it stocking shelves, ringing up customers, or doing maintenance. They have little choice but to accept the extra hours their supervisors give them.
It’s clear that the intent of the law, to protect those without bargaining power from being forced to work beyond the 40-hour work week without compensation, has dramatically eroded in recent decades. At the President’s request, the Department of Labor is reviewing the income threshold and duties test for overtime protections, and the impact could be huge. Raising the threshold could help increase wages of millions of workers. To get back to the days when 65 percent of salaried workers were eligible for overtime, the threshold would need to be raised to $69,000. This bold action would make as many as ten million salaried workers newly eligible for overtime pay.
Not only will a higher income threshold ensure that workers are compensated for the time they work, it will stimulate hiring and give employers a financial incentive to spread the work out among additional employees. Rather than pay employees time and a half to work over 40 hours, employers may be encouraged to hire additional employees and give everyone a more manageable workload. It’s a win-win for employees. They get properly compensated for their time, and they face less pressure to work beyond 40 hours, allowing them essential leisure time to spend with family and friends, take classes, or any myriad of activities that are important to them.
We need aggressive measures to jumpstart our nation’s stagnant wages and fight income inequality. The Fair Labor Standards Act gives us that opportunity. It’s time for President Obama and the Department of Labor to make a bold choice to help millions of workers and raise the income threshold for the overtime exemption to $69,000.