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Bernstein: New Overtime Rule a “Great Advance for Working People”

May 18, 2016 at 4:30 PM
BY
CBPP

The Administration’s new rule making millions of workers eligible for overtime pay is the President’s “most significant action on behalf of middle-class paychecks,” CBPP Senior Fellow Jared Bernstein argues in the Washington Post’s “PostEverything” blog.  The rule boosts the threshold salary level under which salaried employees must be paid overtime from $23,660 a year to $47,476.  Here’s an excerpt from Bernstein’s blog:

The new rule will directly affect 4.2 million workers.  According to the Department of Labor, that’s the number of salaried workers newly eligible for overtime pay.  That is, their salary stands between the current and the new threshold, between $455 and $913 [per week].  Of course, not everyone in that range will end up working overtime — though about 20 percent regularly do so — but if they do, they’ll now be eligible for the OT premium.

The Department of Labor believes the new rule will also indirectly affect 8.9 million workers.  These are also workers who earn between the old and the new thresholds but the difference between them and the directly affected group is that these workers should already be getting overtime pay, but aren’t.  The rules state that when someone’s duties at work are such that they’re not bona fide exempt workers, they should be covered by OT.  These workers tend to not really manage or supervise other workers — they’re not recognizable as executives, professionals, or administrators — and thus should be non-exempt.  Now, because their pay is under the new threshold, there should be no more ambiguity about their coverage status.

That’s about 8.5 percent of employment, affected directly or indirectly.

— The new threshold will be adjusted every three years to the 40th percentile, full-time salary of the lowest paid region.

So how will this all play out in the real world?  Some people who should have been getting overtime pay but weren’t, either because the threshold was allowed to stagnate or because their employers failed to correctly apply the “duties test” (admittedly ambiguous in some cases), will now get it.  Others may work fewer overtime hours, but remember, they weren’t getting paid at all for those extra hours before, so they’re unquestionably better off (their weekly earnings would be unchanged but they’d be working fewer weekly hours).

The Department of Labor estimates that the new rule will cost employers $1.5 billion a year: $1.2 billion in new OT pay and $300 million in administrative expenses to implement the change.  In a nation with an annual aggregate wage bill of over $8 trillion, that’s about 0.03% of total pay.

In other words, what we have here is a progressive change that was a long-time coming, one that will deliver a boost in pay to some workers and relief from unpaid overwork for others.  It will transfer a relatively small amount of the nation’s wage bill from employers to workers, and in doing so, restore the purpose of a labor standard that is as important now as it was when it was first introduced in the 1930s.

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