New Labor Dept. Rule Will Help Workers Earn $1.5 Billion More in Overtime

The Labor Department has unveiled a change to federally mandated overtime policy that promises to enact sweeping pay reform for salaried workers across domestic industries. With this newly announced increase, as of July 1, employers will be obligated to pay overtime to workers on salary who make under $43,888. Eventually, in a second phase in 2025, the minimum will increase so that the overtime mandate applies to workers making as much as $1,128 per week, or $58,656 per year.

Because the July 1 increase is a marked leap up from the 2020 cap of $35,568 — kept egregiously low by the Labor Department under former President Donald Trump — it encompasses a significant subset of the United States workforce; by one estimate from the Economic Policy Institute (EPI), 4.3 million salaried employees are now poised to receive pay for exceeding normal work times — long hours during which they previously would have labored, effectively, for free.

Long Overdue

U.S. employers have long utilized a simple sleight of hand in order to extract further surplus value from their workforces. “White-collar” exemptions have meant that certain employees, placed on salary instead of wages, can be worked a lot harder for a lot less.

Waged workers have, since the 1938 Fair Labor Standards Act (FLSA), been entitled to overtime pay of at least time and a half, or 150 percent of their usual wage, for putting in working time exceeding 40 hours a week. (Whether they actually receive it is often another matter entirely. Unpaid overtime makes up part of the mountainous sum of large-scale theft committed by employer against employee in the U.S., to the tune of $50 billion per year. This form of normalized mass exploitation, in dollar value, far outweighs an entire year’s worth of better known types of larceny; in fact, wage theft exceeds the toll of robbery, burglary and motor vehicle theft combined.)

Some of the nation’s most critical existing labor protections originate in the FLSA. In addition to mandatory overtime (gradually expanded, over the decades, to include many more employment categories), the FLSA established the minimum wage, dictated rules about payroll recordkeeping and tipped work and, notably, disbarred child labor. Of course, like so many other fundamental pieces of labor and civil rights legislation, the overtime protections of the FLSA have become a target of sabotage for corporate interests and their right-wing collaborators.

A key loophole for exploitation has remained open because the FLSA has always contained exceptions — and, in principle, not unreasonably so. Present-day FLSA overtime exemptions are now, in the parlance of wage-and-hour law, known as “executive, administrative, and professional” (EAP) exemptions, also called “white collar exemptions.” In essence, the overtime mandate only applies to those making below a salary cap. If a worker is paid a certain amount, the implicit reasoning goes, they can be asked to put in more than 40 hours a week without being afforded federally mandated time and a half. Their existing pay is presumed to be at a level sufficient to compensate for the additional time expenditure on their part. As employees move up in pay grade, the problem of insufficient compensation for working hours is increasingly mooted.

The problem is that the pay grade salary cap is arbitrarily defined and artificially low — in part because it’s been punted back and forth in partisan squabbling since the Obama administration. Since the last 2019 update to the rule by the Trump-era Labor Department, which took effect on January 1, 2020, overtime protection has been afforded only to salaried workers making less than $35,568 a year. Before that, the cap was set at an absurd $23,660 per year, or $455 a week, by the first George W. Bush administration, all the way back in in 2004.

In other words, because the historical policy and the 2020 increase were both set at such an insufficient level, workers with roles and remuneration corresponding to the “duties tests” that shunted them into the EAP exemption categories could therefore be paid under $40,000 a year — while being made to work hours that would have earned them far more, had they been waged employees. (There are other duties tests and categories as well, for “outside sales” or “computer employee” exemptions. In addition, some types of employees are exempt from the exemptions, as it were: police, firefighters, paramedics, prison guards, park rangers, and other first-responder and related jobs receive overtime protections despite often much higher salary pay rates.)

By paying even a little over the cap, employers could place a worker on salary and, as long as the latter still qualified under the duties tests, demand overtime work up to 60 or 70 hours a week, for no extra pay. With the prospect of free labor dangling in front of them, plenty of employers were all too happy to oblige.

Fortunately, state policy does go a certain way toward ameliorating the historical inadequacies of the FLSA, with state labor departments able to ensure protections beyond the abysmal federal minimum. The Labor Department lists state minimum wage and overtime policies that afford overtime coverage beyond the federal minimum. Local overtime thresholds in some states already meet or exceed even the most recent major federal rule update; California’s salary threshold is set at $1,280 a week, equivalent to $66,560 yearly. In part, this is the case simply because wage policy is scaled relative with that state’s higher cost of living. But regardless, in less wealthy and populous states, workers do not enjoy anywhere near that level of protection.

Truthout spoke with AJ, a one-time corporate employee who gained firsthand experience with the liberties that employers can sometimes feel entitled to take when their workers are unshielded by overtime protections. (The source, who still works in the industry, requested a pseudonym to avoid damaging his job prospects.)

Wage theft exceeds the toll of robbery, burglary and motor vehicle theft combined.

As AJ described his role at his employer to Truthout, “I was a contractor who opened coffee shops in corporate — mostly tech — offices across the country. I was a part of the equipment purchasing, buildouts, hiring, firing, managing, and so on.”

Though the role was construction-related, AJ’s white-collar duties qualified him for an overtime exception. Because he “was paid about $38,000 a year without vacation or benefits or anything like that,” his salary, despite garnering him only around $730 a week, put him above the threshold for overtime. (This would have been the case for AJ even after the Trump Labor Department’s cursory update to $35,568, but at the time of his employment there, in 2017, his salary far outstripped the existing minimum of $23,660.)

For that unglamorous compensation, he “had a minimum work week of 50 hours.” What’s more, he explained to Truthout, the job demanded he maintain a dramatically lopsided schedule and “round-the-clock” availability.

As he continued: “I would regularly take 10-day trips to get these shops, up and running, but also might fly out at night to cover a shift in the morning if the client was particularly demanding and we couldn’t find coverage elsewhere.” This was despite the on-paper parameters and hiring promises of the job. “Though I ostensibly had a Monday through Friday workweek, I had to be available 24/7 to resolve problems, staffing, contractual or otherwise.”

It seems evident that his employer took full advantage of AJ’s overtime exemption during his tenure. His responsibilities ballooned to those of an administrative employee overseeing operations across multiple franchises that elsewhere could easily have brought in twice what he was making. “When I took the job, I was brought on to manage one café, and by the end of my time I was managing eight, across the country. Meaning I could get calls from New York at 2 am, and would regularly still be getting calls from San Francisco at 8 pm. I made the same amount of money throughout my time working there.”

The Rule

The fact that such an egregious situation could persist has meant that the Labor Department’s overtime salary cap increase is long awaited, and long overdue. Fortunately, the latest policy shift promises to significantly overhaul the defunct regulation. The final rule, issued on April 26 under the title, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” will go into effect on July 1 of this year. On that date, the salary cap will be raised to those making $844 a week, or $43,888 per year. If bosses want to order their employees to work beyond 40 hours a week, one way or another — in a better salary or in time and a half — they’ll have to pay for it.

Moreover, the rule goes further still, unrolling an expanded pay cap over a short period of time, and ensuring that in the future, protections do not lag so severely behind conditions. On the first day of 2025, January 1, the minimum salary for overtime exemption will leap up to $1,128 per week, or $58,656 per year. It’s this second bump that will make this a truly transformative shift, as this new, expanded range encompasses the greatest swath of U.S. workers. The change also increases the highly compensated employee (HCE) threshold. HCE employees have a separate overtime exemption test that is less stringent. This rule will up their exemption caps to $132,964 effective July 1, 2024, and up to $151,164 as of January 1, 2025. After that, every three years, the same methodology used to determine the rate in this iteration will be reapplied, ensuring that the rule remains updated and constant.

The considerable magnitude of this shift is the doing of the Biden administration Department of Labor; in large part, it is intended as an answer to the Trump Labor Department’s inclinations to the opposite. Given the context, it would not be unreasonable to interpret the extent of the upward trend as something of a statement, in addition to a long-due policy overhaul. As mentioned, the overtime cap has been subject to more than a little political back-and-forth. Unfortunately, that may well continue to be the case.

As EPI documented, a Texas court struck down a 2016 attempt by the Obama Labor Department to raise the overtime threshold to an annual $47,476. The Department of Labor under the Trump administration then appealed the ruling. However, it appears that its doing so may have been less about ensuring workforce well-being and more about defending its right to set the cap and avoiding a precedent of court intervention.

The Labor Department, wrote Celine McNicholas, Samantha Sanders and Heidi Shierholz for the EPI, had already, “Even before the district court ruling … announced that it was reevaluating the overtime rule in light of stakeholder concerns that the threshold in the 2016 rule was ‘too high.’” Who those “stakeholders” were, exactly, is not immediately apparent — but whoever they were, they probably were not making under $40,000 a year.

The present rule change will positively impact a startling 4.3 million workers.

It was in 2019 that the Trump Labor Department defined the rule at its present cap — i.e. at the patently insufficient $35,568 limit. As Naomi Walker and Paul Sonn reported for Truthout at the time, the department attempted to spin it as a win for workers, trading on the misleading fact that it was an increase from the previous cap, no matter that it was a woefully insufficient one. This gambit was poorly received; polling from the time indicated its marked unpopularity, compared to the Obama Department’s much stronger proposed 2016 increase to $47,476 — the one that was shot down. Thanks to the Trump Labor Department, no comparable increase would be seen until this year.

Overtime Arrives at Long Last — If It Lasts

Now that the overtime policy update has come to fruition, it should come as little surprise that business interests are aghast at the prospect. The U.S. Chamber of Commerce (which, it bears repeating, is not a government agency, despite its misleading name; it is a business lobbying and corporate advocacy group) put out an article by Marc Freedman, its vice president of employment policy, calling the move “problematic,” among other things. The article’s subheader fretted that it will “harm small businesses and charitable nonprofits.” Disingenuous hand-wringing about small businesses is probably the most predictable corporate rhetorical move. Perhaps it would also be wise to consider possible benefits to the proverbial little guy, with whose well-being the Chamber of Commerce is evidently so concerned.

The EPI estimates that the present rule change will positively impact a startling 4.3 million workers. Of these, 2.4 million are women, and 1 million are workers of color. As the EPI report projects, “The largest numbers of impacted workers are in professional and business services, health care and social services, and financial activities.” The change will also result in “a transfer of $1.5 billion annually from employers to workers in increased pay.”

Many workers, AJ among them, would agree that it is long past time for some value to be expropriated in the other direction for a change. He spoke to Truthout on the salutary effects such a rule likely would have had on his work, and by extension, his life, had it gone through at the time: “If overtime had been mandated, I would certainly have had my hours capped at 40 a week, making it a sustainable job. Instead, I completely burnt myself out and, at the end of my time, was left with nothing to speak of in my bank account. I was just run ragged for a few years, with a hope that one day I’d be making an appropriate amount of money for the work I was doing, instead of chasing the carrot ad infinitum.”

Exploitation of salaried workers generates all varieties of everyday discontent and worse, reproducing unenviable conditions for innumerable people across the nation. While waged workers are paid at a pitifully inadequate minimum that is nowhere near an effective living wage, it’s all too apparent that salary workers on the low end of income tiers can find themselves forced to subsist on rates that are almost as infeasible. As AJ concluded, “This job kind of broke me. I was working an absurd number of hours for a terrible take-home pay, while also being pulled away from my family to go live in ‘the cheapest hotel in the proximity of the client.’ It was a miserable, unsustainable expectation.”

Workers, AJ among them, may hope that some of the damages to their psyches and relationships wrought by unbearable hours and conditions may be stemmed by the Labor Department’s action, which makes a decent standard of living just slightly more viable for U.S. workers. Better yet, the self-perpetuating nature of the policy, with its three-year reassessment program, could very well help raise overtime protections over the long term, bringing the U.S. marginally closer to the standards already enjoyed elsewhere in the developed world.

That said, with the years to come portending a bitter, vastly consequential presidential election and continued neoliberal profiteering at the bipartisan hands of the ruling class, the future trajectory of overtime, and a vast array of other civil and labor rights of all kinds, is far from a foregone conclusion.