Overtime Rules: Can We At Least Agree on Inflation Adjustments???

The House Education and Workforce Committee is holding a hearing today to discuss overtime rules.  This should be interesting…

The consensus expectation seems to be that the Department of Labor will propose increasing the salary threshold for nonexempt workers to $970 a week from the existing threshold of $455 a week.  That means that folks making $50,440 and more a year will fall under the overtime rules instead $23,660 a year.  A change that could impact millions of working Americans.

The reason why I expect the hearing to be interesting is that some on the right are already screaming bloody murder, that it will kill jobs, that it will hurt companies… you know the standard boilerplate attack.  What these same folks will fail to mention is that the proposal would merely follow the recommendations from work done by the Economic Policy Institute, a nonpartisan think tank that works to address the needs of low and middle-income workers.

What these folks will also fail to mention, and most importantly, is that the recommendation from EPI, and the expected Department of Labor proposal, will be to simply adjust the existing rules to account for inflation – that is they just want to get back to the spirit of the original law and adjust the salary threshold to account for inflation.  This is what the recommendation specifically says:

“The salary threshold has been changed only eight times in 75 years and only once since 1975. Simply adjusting the threshold for inflation since 1975—one of our key recommendations—would raise it to $970 per week, equivalent to an annual salary of about $50,440 today”

I hate to see this become another partisan debate, it should not be.  This is a question of decency, of respect for balance, and protections for those in the labor market least capable of defending themselves against predatory and opportunistic practices.  It is unfortunate that even the idea of adjusting the rules to account for inflation can become something that is even debatable.

The EPI paper touches on two issues that I think are clear in terms of their importance on workers but in particular to the middle class and the family unit – work/life balance are important factors for a healthy family and society and workplace protections are proven features of a safe and fair work environment.  I could easily provide research that demonstrates these two issues, but the reality is that it is not necessary.  Most folks can recognize it because either they are experiencing it or know someone who is.

With the majority of American families having both parents in the workplace, there is not a lot of time left for all-important family time.  The problem only becomes worse when one or both parents are forced to work overtime instead of being home to make dinner, help kids with homework, exercise, or just unwind from a long day at work.  The EPI paper mentions this early on, saying that,

“The right to a limited workweek provides time for leisure, civic participation, commuting, self-improvement, and tending to family and friends.”

As you can see, the paper goes as far as calling it a right.  Which I tend to agree with.  American workers deserve protections for a modicum of balance in their lives.  We are, after all, not robots.  We all have lives outside of work that include responsibilities, hobbies, friends and family.  These are all aspects of our lives that only make the social fabric stronger.

The U.S. economy has enjoyed tremendous increases in productivity over the last several decades, but, as we all well know, most of those productivity gains have only benefited the top.  So while Americans continue to get squeezed for more time at work, the benefits of their increased efforts never get back to them, which leads the second issue – fairness.

Again, from the EPI paper,

“The fundamental idea behind overtime coverage, and the minimum wage, is to maintain a basic norm within our labor market. Under certain market conditions, for example when unemployment is high or workers hold especially low levels of bargaining power, employers might be able to require employees to labor long hours without receiving additional compensation.”

The overtime rules help provide fairness by accomplishing two things – by creating a disincentive for companies to force overtime and by ensuring that workers who do work overtime are compensated appropriately.

The main objective of the overtime rules is to give companies the freedom to force overtime, but only after incurring additional costs.  The idea being that it would force companies to consider adding additional “straight time” staff to make up for the needed work.  Unfortunately, if the rules allow companies to use questionable determinations of who should be exempt or salary thresholds that are just above the poverty line, then the rule has effectively been vitiated.  The overtime rules should be clear in terms of who should be considered exempt by either simple task determinations or, preferably, by the salary threshold.  The salary threshold has always been a better determinant because as long as it keeps pace with inflation and matches the median income, it will closely reflect the actual responsibility and role of the worker.

The current overtime rules allow companies to force overtime and then claim that the worker is exempt.  Because the salary threshold is so low, $23,660 a year, many low income workers fall under the exemption.  Furthermore, changes to the overtime rules in 2004 during the Bush administration included terms like “team leader” as definitions for exempt.  Thus, even a minimum wage worker at, say Walmart or The Gap or McDonalds that is called a “team leader” could be forced to work overtime with no addition overtime pay.

The aspect of this overtime issue that I find the most egregious is for salaried workers making at or below the median income.  Because they are salaried and considered exempt, companies can effectively dilute their workers’ pay by forcing them to work in excess of 40 hours a week with no additional pay!  This is fantastic for companies. They can increase their output and make more money from all of those extra hours and it cost them nothing!  Meanwhile, these overworked folks are spending longer hours and getting nothing back.  Nothing for the sacrificed time from home and family, nothing for the additional value that it brings to the company, nothing… Just more overtime.

Overtime rules should not be a partisan issue, and at a MINIMUM, a proposal to adjust the salary threshold for inflation should be welcomed by any politician that claims to back working families.

About Jose Velez

I received my degree in economics and finance from the University of Texas at Dallas School of Economic, Political and Policy Sciences in 2006. Since then I have worked within the energy industry focusing on regulatory and environmental issues.
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