New USDOL rules raises overtime threshold from $23,660 to $47,476, covers 425,000 workers
RALEIGH (May 18, 2016) — The U.S. Department of Labor released long-awaited rules today that will allow 425,000 salaried workers in North Carolina to qualify for overtime pay. The new rule will raise wages for 156,000 workers and play an important role in helping build an economy that works for all.
In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to reflect the original intent of the Fair Labor Standards Act, and to simplify and modernize the rules so they’re easier for workers and businesses to understand and apply. The department has issued a final rule that will put more money in the pockets of middle class workers – or give them more free time.
Specifically, the final rule will:
- Raise the salary threshold for overtime eligibility from $23,660 to $47,476 per year. This will extend overtime protections to 156,000 new salaried workers, bringing the total number of covered workers to 425,000 salaried workers in North Carolina, or about 26 percent of the state’s total salaried workforce.
- Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability and giving businesses time to adjust their payrolls.
- Provide greater clarity for workers and employers.
- The final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees.
“At just $455 per week or $23,660 per year, it was easy for employers to avoid paying overtime by classifying employees as managers and having them do the same work as hourly employees plus a few more managerial tasks,” said Clermont Ripley, an attorney with the Workers’ Rights Project at the NC Justice Center. “I have had clients who were classified as managers and paid a salary who were required to work 12 or 13 hour days doing a lot of the same work as the hourly employees they were supervising but for a lower hourly rate – often less than minimum wage. “
Allowing more salaried workers to receive overtime will boost the state’s economy and provide a critical antidote to ongoing middle class wage stagnation. Here are some of the economic benefits for the new rule:
- Creates more economy boosting jobs. More than half of the jobs created since the recession don’t pay enough to make ends meet, so access to overtime pay allows more workers—especially those at the bottom of the salary scale—to afford the basics, like buying groceries, paying rent, putting gas in the car, and children in day care. Because lower-wage workers are more likely to spend their new earnings than save them, this will give an immediate boost to business sales, profits, and ultimately job creation.
- Rewards workers for improving productivity. Business productivity has almost doubled in North Carolina since 1978, while wages have grown by just 22 percent. The Brookings Institute reports that the overwhelming majority of these productivity gains have gone to executive compensation, investor income, and stock buy-backs designed to artificially boost a company’s stock price, rather than to workers’ wages. The new rule allows salaried workers to benefit from the hours they work beyond a normal 40-hour week.
“At a time when the middle class is seeing long-term wage stagnation, giving more workers access to overtime pay is a good move for ensuring strong economic growth and broadly-shared prosperity,” said Allan Freyer, Director of the Workers’ Rights Project. “A big factor in the recent boom in business productivity has involved employers asking their salaried employees to work more hours without compensation. Given how little of these productivity gains have been reinvested in economically useful business activities, it makes economic sense for more of those gains to go to wages that can be spent, rather than frittered away in stock buy-backs.”
Businesses will have several ways to respond to the new rule: Pay time-and-a-half for salaried overtime work; raise salaried workers’ salaries above the threshold; limit salaried workers’ hours to 40 per week and hire new employees; or some combination thereof.
But even if businesses choose solely to limit hours to 40 per week, the extra work these salaried employees would otherwise have completed still needs to be done. Over the long run, this could open up new opportunities for hiring and job creation, as higher wages across the economy increase business revenues, creating new capacity. And by creating a three-year phase-in for future increases, it gives businesses time to adapt their labor cost structure as the economy changes.
“This change restores the spirit of the overtime requirement in the first place,” Ripley said. “It means that thousands of workers in North Carolina will either be getting a very meaningful raise or they will get some time back in their week to do basic things like put their kids to bed and run errands.”