Why the DOL's New Overtime Rule is Such a Big Deal

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This summer, the Department of Labor announced sweeping changes to federal overtime rules that would dramatically impact the lives of working Americans. The new rules raise the income level at which workers can automatically qualify for overtime eligibility for the first time in decades, effectively giving around five million workers a raise while strengthening overtime protection for another ten million, according to the White House. This week, the Department of Labor ends its public comment period on the proposed changes, with enforcement set to begin early next year.

Currently, the only workers who automatically qualify for overtime pay are those earning $23,660 or less. For those earning more, the story is a little more complicated. Salaried workers who fall above that limit can only receive overtime pay if they are not classified as administrators, executives, or professionals (called the EAP exemption). The exemption has caused millions of workers to be misclassified as managers or administrators, even if the majority of work they perform doesn’t reflect their title.

The new rule mandates that all salaried workers, regardless of title or duties, are eligible for overtime if they earn $50,440 or less—effectively raising the previous limit to keep up with inflation. And although the new limit includes a large majority of all salaried workers, the change will disproportionately benefit women, minorities, and workers who are less educated, all of whom have historically had much less bargaining power to change their working conditions.

The current salary threshold for overtime is badly out of date, says Ross Eisenbrey, vice president of the Economic Policy Institute. The last time the overtime threshold was significantly raised, in 1975, $23,660 covered a full 61 percent of salaried employees.

Since then, two big things have changed. For one, inflation has risen while the threshold has not. Today $23,660 is below the poverty line for a family of four. Only 8 percent of salaried workers qualify for overtime with the level set so low. An employee earning $24,000 a year who works more than 64 hours a week stands to earn less than minimum wage under the current overtime rules. “Clearly, the salary threshold no longer does a satisfactory job of covering those vulnerable to unscrupulous employers,” says Eisenbrey.

Another significant change has been in productivity. Between 1979 and 2013, productivity has increased by 64 percent while average wages have grown by just 6 percent. A big reason for that divergence has been the growing number of employees working more hours and not being compensated for them. The new overtime rule helps reverse this trend by giving workers more power over their labor and fairer compensation for their increased productivity. 

One of the workers who stands to benefit directly from the new overtime rule is Sarah Vanderlipp. In 2007, Vanderlipp started work as a night-shift supervisor at a CVS store in Maryland. Within three months she was promoted to assistant store manager and transferred to a nearby location, in Elkridge. With the promotion came higher pay—$34,000 a year—but also a workweek averaging upwards of 60 hours. “I felt like a mule,” she says.

CVS did not allow overtime for the hourly employees in her store, Vanderlipp says, which meant managers like her had to pick up the slack if someone called in sick or couldn’t work a shift. When she started her new position, it quickly became apparent that she would be the one to fill in for all the empty hours, not the store manager.

“I chose to stay, initially,” she says. “But then it became a habit for him just to rely on me whenever someone would call out or whatever. I would get stuck working that shift.”

A single mother with two daughters under the age of 10, Vanderlipp struggled to keep up with the demanding workload and erratic sleep schedule. At the same time, she says, she was earning barely enough to “pay rent and put a little food on the table.”

When she contacted corporate human resources about the need for more employee hours, she says she received an angry response from the district manager, who oversaw multiple stores in the region.

“The district managers tell you that the company doesn’t want to hear your little complaints about having to work overtime. But the truth is that half the time, the company doesn’t even know what’s happening,” Vanderlipp says, adding that she felt her job was threatened.

Like millions of other workers, Vanderlipp’s position fell under the EAP exemption because her work included managerial tasks. When the exemption was first created, it was designed to exclude workers who, unlike Vanderlipp, had enough control over their work that they didn’t need overtime protection. But in 2004, the Bush administration drastically changed what qualified someone as an “executive” employee. Under the new definition, no longer would someone have to spend the majority of their time on managerial tasks—as little as 20 percent of their time would be enough to exempt them from overtime protection.

And even if managerial tasks don’t add up to a full 20 percent of an employee’s time, they still could be denied overtime. “Millions of workers who earn more than the current threshold are legally entitled to overtime pay,” says Eisenbrey. “But the nature of defining EAP roles makes it difficult for workers to understand and petition for their rights.”

Vanderlipp is one of those workers, but she’s far from the only one. In 2011, two Dunkin’ Donuts store managers in Boston sued Cadete Enterprises, a company that runs about 50 Dunkin’ Donuts locations in Massachusetts. The managers, Gassan Marzuq and Lisa Chantre, claimed that they regularly worked in excess of 40 hours a week without overtime pay and that this violated the Fair Labor Standards Act.

As Marzuq told PBS’s Making Sen$e this past June, he earned a salary of $42,000 but worked an average of 75 hours each week, often covering shifts for employees who were sick or didn’t show up. “Because they gave you the title, you are a manager. You are on salary, you have to cover all of those shifts and the holes that go through the day,” Marquz said. “If I worked 40 hours, or if I worked 100 hours, it’s the same pay,” he said, adding that because of his workload, he often earned less per hour than the employees he was supervising.

Marzuq and Chantre’s case hinges on whether they can legally be called managers. They argue that because they have no power to hire and fire employees, and spend as much as 90 percent of their time on non-managerial tasks, they should not be classified as managers and exempted from overtime protection.

Whether or not Marzuq and Chantre are successful (the case is currently pending in the First Circuit Court of Appeals), it’s exactly this type of question the new overtime rule is designed to supersede. Raising the threshold for automatic coverage means that earning overtime is no longer contingent on what kind of work you do or what your boss calls you. Regardless of title or duties, all workers earning a salary of $50,440 or less would be entitled to overtime pay. The change has the potential to dramatically cut down on worker misclassification, says Eisenbrey.

Fast-food and retail workers are far from the only ones set to benefit from the new rule. Also frequently exempted from overtime protection under current rules are white-collar workers. The idea that working hours and conditions should be less of an issue for white-collar, salaried employees has a long history. As Eisenbrey said in testimony before Congress in July, business groups have been calling for all white-collar workers to be exempted from the Fair Labor Standards Act since it was first enacted in 1938. In a 1940 report, the Department of Labor noted that these complaints were based on an “inarticulate major premise … that all salaried white collar workers enjoy satisfactory working conditions.” The report countered that before overtime protections were passed, “a workweek of 48 or 54 hours or even longer was common” among salaried employees.

More recently, The New York Times’s exposé of working conditions at Amazon serves as a glaring reminder of just how vulnerable white-collar workers can be to overwork and abuse. And while Amazon may be an extreme case, the DOL’s 75-year-old documentation of 48 to 54–hour workweeks hardly seems out of place for salaried professionals today. A 2006 study by the National Bureau of Economic Research found that salaried employees were more than three times as likely to work more than 50 hours a week than workers paid by the hour.

These are exactly the kinds of issues overtime law was long intended to address. But bolstering overtime protection is not just about giving workers a raise. It’s also a means of empowering workers with more control over their work hours and personal lives. “These protections were meant to ensure the right to a limited workweek,” says Eisenbrey, “especially for workers who lack control over their time and tasks and who do not receive high pay, i.e. those with less bargaining power vis-à-vis their employers.”

This empowerment can be especially important for single parents like Vanderlipp, who says that her excessive time away from home put strain on her children, who early on experienced with behavioral problems. “They’ve since recovered from all that, because I’ve been home a lot,” laughs Vanderlipp, a veteran, who is now disabled and unable to work because of nearly a decade of untreated Lyme disease and other conditions.

For Vanderlipp, the extra money she would have received for her overtime work under the new salary threshold was less important than extra time and alleviated stress that better hours would have provided. The company wouldn’t have forced her to work overtime if she’d had that protection, Vanderlipp says. “So I would have been home with my kids.”

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