The state of Michigan plans to expand by a significant margin the number of workers who are eligible for overtime pay, following through on a landmark reform by former President Barack Obama that was stymied by Republicans and the courts.
Gov. Gretchen Whitmer (D) announced Thursday that she is directing the state’s labor department to develop a new rule raising the overtime “threshold” for salaried employees ― the salary below which pretty much all workers are entitled to extra pay when they work long hours.
“This is certainly something that’s going to help people in the middle class,” Whitmer told HuffPost in an interview. “It’s something that will help more people get into the middle class. It’s an acknowledgment that these are hardworking people who are working more than 40 hours a week. It’s the right thing to do.”
Under the current rules, salaried workers earning less than $23,660 have a clear right to time-and-a-half pay for hours worked beyond 40 in a week. Obama tried to roughly double that threshold to include millions more workers, but was blocked by a federal judge. The Trump administration is moving forward with a watered-down version of the Obama rule, raising the level to $35,568 in January.
But worker advocates say that new threshold is too low by historic norms, allowing employers to work employees into the ground without an overtime premium.
Whitmer has not proposed a number yet, but under her direction the Michigan labor department would now begin figuring one out. Obama put forth a threshold that today would be roughly $51,000, a figure that will serve as a starting point for Michigan. Were Obama’s proposal law instead of Trump’s, Whitmer’s office estimates that an additional 200,000 Michigan workers would be eligible for overtime pay. Whitmer said Trump’s proposal “isn’t good enough.”
“We need to show leadership as governors and move forward,” she said.
What’s happening in Michigan is another example of Democratic-led states making worker-friendly reforms and pushing back against the Trump agenda. Several other states with Democratic governors have made a similar push on overtime, with California, Massachusetts, New York, Pennsylvania and Washington all developing more generous salary thresholds. The federal rules would prevail in any state without their own.
Qualifying more workers for overtime pay was one of the most ambitious economic efforts of the Obama era. Over the course of several decades, the share of salaried workers automatically eligible for time-and-a-half pay has fallen steadily, from around 60% in 1975 to just 7% in 2016, according to the Economic Policy Institute, a left-leaning think tank. That drop is due to the rules not being updated to cover more workers.
“Were Obama's proposal law instead of Trump’s, an additional 200,000 Michigan workers would be eligible for overtime pay.”
David Cooper, an economic analyst at EPI, called it “a political no-brainer” for states like Michigan to pursue their own thresholds. The benefits of such a reform, Cooper said, tend to hit middle-class workers ― specifically, folks earning salaries in the low-to-mid five figures. He said states like Michigan that have higher costs of living relative to the South should try to hike their thresholds higher than Obama wanted to.
“I think every state that’s willing to do something is going to help a lot of workers in those states,” Cooper said. “Workers are desperate for higher pay. This is an easy way for governments to raise pay for a substantial portion of the workforce.”
Michigan’s labor department will develop a draft proposal for the rule and hold hearings with workers and employers to find a number “that’s right for Michigan,” Whitmer said. She acknowledged that the final number could end up higher than what Obama proposed. Once a proposal has been developed, it could take up to a year before it goes into effect.
Whitmer, now in her first term, defeated Republican Bill Schuette in the 2018 gubernatorial election. Republicans still control both chambers of the Michigan statehouse, but because the overtime reforms are done through the executive branch, Whitmer can pursue them without Republican support.
The retail industry provides a stark example of what’s at stake. Store managers who earn above the salary threshold can be required to work unlimited hours for just their base pay. Not having to pay overtime gives employers an incentive to pile work on managers, as opposed to hourly employees, who are eligible for time-and-a-half pay. As HuffPost has reported, many managers at dollar stores end up working 60- or 70-hour weeks for what ultimately equates to the minimum wage.
Expanding the overtime rules leaves employers with a choice to make regarding newly covered workers: either keep their hours in check, or be ready to pay a premium when they go beyond 40.
Republicans and employer lobbies have strongly opposed efforts to significantly expand overtime coverage. Business groups joined 21 states in suing to block the Obama reforms from going into effect. A federal judge in Texas ruled in 2016 that the Labor Department didn’t have the authority to pursue the reforms, blocking them from going into effect.
The Obama proposal ultimately died when a newly elected Trump declined to defend it in court. Trump’s Labor Department still felt compelled to put forth some kind of overtime plan, probably because polling shows voters love the idea. In fact, nearly 4 in 10 respondents in a 2016 Morning Consult poll said Obama’s plan should have been even more aggressive.