In a blog post on The Huffington Post on Monday, President Barack Obama laid out his highly anticipated plan to extend overtime pay to more American workers. His proposal, which does not require approval from Congress, constitutes arguably his most sweeping economic reform through executive action since taking office. Under the plan, the administration says, an estimated 5 million more workers would be eligible for time-and-a-half pay when they work more than 40 hours a week. Given that overtime pay has become a foreign concept for many U.S. workers, some explanation is in order.
Who gets overtime pay right now?
Overtime pay in the U.S. mostly goes to hourly employees -- that is, the folks who clock in and out of work each day, often doing jobs we'd call blue-collar. The wage laws our lawmakers wrote during the Great Depression were designed to protect workers like that, as opposed to well-paid managers and executives. Salaried workers may be eligible for overtime as well, depending on their pay and job duties, but in reality very few are these days. The share of salaried employees getting time-and-a-half has plummeted in recent decades, from 65 percent in 1975 to 11 percent in 2013, according to the Economic Policy Institute, a left-leaning think tank that has been one of the leading voices on the issue.
How would Obama's proposal change that?
Primarily by raising what's known as the overtime salary threshold. Salaried workers who earn less than a certain amount are automatically eligible for time-and-a-half pay, regardless of what their job duties are or what their employer calls them. The current threshold, set by the administration of George W. Bush, is quite low: $23,660. Obama wants to more than double the threshold, to $50,440. According to the administration's estimates, the changes would extend overtime eligibility to 5 million more workers, though their impact could be even greater than that. EPI says they would affect 15 million more workers.
So does this mean I'll be getting overtime pay?
That all depends. If you're a worker earning a salary below $50,440 and you don't already get overtime pay thanks to a union contract or a cool boss, then there's a good chance you'll be among those who will be newly eligible. If you make more than $50,440, you may still be entitled to overtime pay, but it gets a lot trickier. It depends what your job responsibilities are. Under the so-called duties test, a whole number of criteria can be used to exclude you from overtime pay -- like how many workers you may supervise, whether or not you have hiring and firing abilities, whether your work is primarily intellectual, etc. The Labor Department says it will be re-examining those duties, but there's no saying whether they will change them to encompass more employees.
Say I do become eligible. How might this shake out for me?
Your employer would have some decisions to make. Let's say you typically work 50 hours a week. That's 10 more hours than what we consider a standard week here in the U.S. Your employer could keep you working 50 hours and pony up time-and-a-half on those 10 additional hours, bringing you a bigger paycheck. Or he could get you down to 40 hours, passing those 10 hours onto another worker and giving you more time to spend with your kids. If he does the latter, he would at least be paying that other employee what we call "straight time," rather than the time-and-a-half premium he'd be paying you. In that way, our overtime law encourages employers to spread the work around, which makes sense considering the law was established during miserably high unemployment. And if you make a salary in, say, the high $40,000s, there's a chance your employer will simply raise your pay to $50,440 just so he doesn't have to deal with tracking your hours and paying you overtime.
Sounds like everyone wins! Well, except my employer. Isn't there some way my boss will try to work around this?
Of course. There's a reason business lobbies have fought this reform fiercely -- it's going to raise their labor costs. Just like with minimum wage raises passed by cities and states, employers are insisting they are going to cut jobs because of the overtime reforms, but we won't know how true that is until the reforms go into effect. Even if job losses don't come to pass, there may be other ways they will try to adjust for the costs. That could mean starting workers at slightly lower salaries, or being less generous with raises, to compensate for the additional overtime pay. And, again, as with the minimum wage raises, they may search for other ways to offset the new costs. For, say, a retailer, that could mean raising prices a bit on consumers.
So who was pushing to see this reform done?
A lot of progressive economists who say it will raise wages and/or restore leisure time to the middle class. When our wage laws were written, it was pretty clear who was a manager and who was a rank-and-file worker on the factory floor. Our economy is much different now. Just consider someone who manages a Dollar General store. She may be a manager in name -- and therefore ineligible for overtime pay -- but she spends much of her day unloading trucks and stocking the shelves, just like her hourly employees. We think of managers as being in the middle class, but, as HuffPost has reported before, many of them work 60, 70 or even 80 hours a week for salaries in the $30,000s. In making his case for reform, the president has cited just these types of workers.
OK, so I'm pretty sure I'll become eligible for overtime pay. Can I go put money down on a new boat?
The reforms are not a done deal. They must still undergo a public-comment period, and business groups are expected to continue pushing back hard against the proposal. The plan could also get tied up in court or run into problems in Congress, either through a budget rider or a stand-alone bill from Republicans looking to block it. That said, the White House appears committed to moving ahead with the reforms, and the president said they hope to institute the changes sometime in 2016.