The U.S. Department of Labor has proposed a new law changing the salary threshold for overtime pay. Is it time for an update, or are they trying to fix something that isn’t broken?
Think back twelve years ago to 2004. Odds are, you were making less money then you are today. But what about the amount of time you were working to be paid that money? Back then if you worked more than 40 hours a week, you may have been paid overtime. But, as people do, they move up in their companies or leave their organizations to get better jobs elsewhere. When this upward mobility happens, you might start to make too much money to qualify for overtime pay any longer. I bring up the year 2004 because that was the last time the overtime salary threshold was changed to its current level of $23,660. Before then, it hadn’t been changed since 1975.
The United States Department of Labor (DOL) has proposed to change the overtime threshold to $50,440 this July. Let’s say you’re an employee making $50,000 a year. You currently do not qualify to be paid overtime if you work more than 40 hours a week. However, if the DOL does change the threshold this summer, then you would be eligible to receive overtime pay if you work more than 40 hours a week. Great news, right? Maybe. Or maybe not. It’s a very dicey issue depending on your perspective.
The great overtime debate
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Before we get into the two sides of the story, let’s look at the numbers behind the proposed change. $23,660 ($455 a week), which is the current overtime threshold, is also below the poverty threshold for a family of four, and only eight percent of full-time salaried workers fall below it. So how was $50,440 ($970 a week) picked as the new threshold? According to a White House report entitled “FACT SHEET: Middle Class Economics Rewarding Hard Work by Restoring Overtime Pay,” $50,440 is equal to the 40th percentile of annual pay for full-time salaried workers. If the change happens, more than 4 million employees that are currently exempt from overtime pay would become eligible for it. In the great state of Texas, the proposed overtime threshold change would affect approximately 400,000 workers. The final two important numbers here are 56 percent and 53 percent — 56 percent of workers that may be affected by the proposed overtime change are women, 53 percent are college grads.
The DOL not only argues that the proposed overtime change would ensure those employees are receiving a fair wage for their amount of work, but it would also entice businesses to hire more part-time workers. Instead of having to pay overtime to their full-time workers that would now qualify for it, businesses would hire part-time workers to take up the slack, thus creating hundreds of thousands of new jobs.
So, the proposed overtime overhaul seems fair and justified, right? It makes sense to raise it out of the poverty level, right? And when is it ever bad to create new jobs, especially hundreds of thousands of new jobs? From the labor side, it looks like a win-win. But how do things look on the other side of the accounting spreadsheet?
Obviously, changes to the overtime threshold would affect the cost of labor, which could impact businesses, especially small and mid-sized businesses, as they attempt to absorb these new costs. However, one of the more obfuscated hazards that could come with the proposed overtime threshold change comes from the worlds of non-profits and state and local governments. Consider this statement from a recent US Chamber of Commerce article: “What makes these employers so vulnerable to disastrous consequences is that they are incapable of increasing their revenues. Nonprofits are dependent on philanthropy, and in some cases public tax contributions to maintain operations. State and local governments are, of course, entirely dependent on tax revenues. Employees in these groups routinely work long and odd hours to serve their clients whose needs do not fall neatly into the typical eight hour workday, or 40 hour work week. If these employees do end up earning overtime, this will substantially increase the labor costs of these nonprofit employers and state and local governments. To avoid this significant budget hit, many charitable groups will be forced to reduce their operations and services such as providing support, free medical care and other welfare services for people and families in need, and many local governments also provide such services. Cut backs in these offerings would mean fewer people who have come to rely on these providers would be served.”
So what’s the right answer? What is a fair and balanced solution? I think we can all agree that the overtime threshold needs to be raised, but not at the cost of the financial health of our businesses or if it impedes charities and local governments in their missions to provide critical services. Whatever perspective you have of the issue, perhaps the most important piece is that the DOL, which will make the final decision on what happens with the proposed overtime change, was charged with hosting an open comment period for several months last year and received close to 300,000 comments. They must review all of those comments before making their ruling a reality.