In the December 2015 issue, The Good Economist first reported on the U.S. Department of Labor proposed regulations to extend overtime protections to nearly 4 million workers. Finalized on May 18th, the new overtime regulations have set the salary threshold for overtime pay exemption at the 40th percentile of full-time salaried workers, estimated to be about $47,476 annually. Beginning in December, salaried workers earning less than $913 would be guaranteed overtime pay for working more than 40 hours per a week. This new salary threshold is more than double the present level of $455 per week - roughly $23,660 a year.
The Final Rule also guards against erosion of overtime pay in the future. It establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South.
Signed into law by President Franklin Roosevelt in 1938, the Fair Labor Standards Act mandates time and a half overtime pay for time worked beyond the 40-hour work week standard. However several decades have passed since overtime regulations were updated, and, as a result, the number of workers eligible for overtime pay has decreased dramatically. In 1975, 62 percent of full-time salaried employees were eligible for overtime pay. In 2015, only 8 percent of full-time salaried workers fall below the salary threshold and are assured eligibility for overtime pay.
Strengthening overtime pay rules is expected to grow middle-class wages, boosting income by $12 billion over the next 10 years. In a message to petition signers to announce the finalized rule, President Obama wrote, “ For generations, overtime protections have meant that an honest day's work should get a fair day's pay, and that's helped American workers climb the ladder of success. That's what middle-class economics are all about."
For small businesses, where employees often work long hours to ensure a project’s success, the proposed rule could be significant. If multiple employees are are routinely working beyond normal work hours, overtime pay could reasonably increase personnel expenses.
Stopping this wheel from spinning, however, will require tackling a multitude of issues, ranging from improving access to financing to easing the procurement process.
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The U.S. Department of Labor Expands Overtime Protections