Overtime pay has long been a hot-button topic for employers and employees alike. Whether for or against overtime pay, both sides can agree that the income limits that qualify employees for overtime pay haven’t kept up with inflation over the years. The last income maximum threshold was set more than 10 years ago in 2004.
On Tuesday, the Labor Department passed new regulation that increased the cutoff for overtime pay from $23,660 to $47,476, making 4.2 million more salaried workers eligible for this pay that requires 1.5 times a worker’s wage on hours that exceed 40 hours a week.
Here are 10 things you must know about overtime pay and the new overtime rule.
Overtime regulations started in 1938 which passed along with a federal minimum wage. During the Great Depression, American workers were being paid too little for too long hours of work. The cutoff has been raised several times over the years since then. However…
The rules have not kept up with inflation: Last updated in 2004, the threshold now covers just 7 percent of full-time salaried workers, administrative officials said — down from 62 percent in 1975. The higher threshold will lift that ratio back to 35 percent.
In the retail industry today it’s common for workers to clock 60-80 hours but only earn $30,000 per year because they are considered “managers” and therefore ineligible for overtime at their income level.
Workers making more than $47,500 may still be eligible for overtime pay if they are in non-“white collar” roles.
The Obama administration, struggling to raise minimum wage, has turned to increasing overtime wages as one more aggressive way to raise wages for so-called “blue collar” workers in the private sector. It does not require congressional approval to pass this regulation.
The National Retail Federation is very opposed to this regulation. The NRF says the rules will hurt, not help, workers. By requiring overtime pay for more workers, many employers will reduce their total number of hours — limiting their flexibility and also total pay. Others may receive overtime pay but have their base wages reduced so the overall income would remain stagnant.
The new rules are not as aggressive as they were originally planned to be. The White House first signaled it would raise the threshold to $50,440. The final number is $3,000 less than that.
The $47,476 ceiling for overtime was set because it represents the earnings of the 40th percentile of salaried workers in the South, the lowest-income region.
The EPI (Economic Policy Institute) estimates that the effects could be greater than the White House anticipates. The group projects that 12.5 million workers will “directly benefit” from the new rules — slightly more than half of them women, and a disproportionate share of them African-American and Hispanic.
The new rules are slated to go into effect on December 1, 2016.