September 03, 2015
The Labor Department’s decision to raise the threshold under which salaried workers are automatically eligible for overtime is long overdue. The failure to have this threshold at least keep pace with inflation has both led to many workers being wrongly denied protection under the Fair Labor Standards Act (FLSA) and created an invitation for employers to game the law.
First, it should be understood that the proposed $50,440 threshold is just keeping in line with inflation since 1975. Arguably the threshold should have risen in step with productivity growth, since average wages have risen mostly in step with productivity over the last four decades. (Median wages have not kept pace with productivity, which is a problem this rule change may help to correct.) If the overtime threshold had been adjusted in step with productivity growth over this period it would be almost $100,000 in 2016. There is no reason to believe that the 1975 threshold was seriously impeding business decisions at the time. Given the doubling of productivity over the last four decades, there would be even less reason to believe the $50,440 threshold would impede businesses operating in 2016.
The second point is that the failure to adjust the threshold leaves workers open to employers that decide to effectively flout the law. The FLSA was put in place to ensure workers would receive minimally fair treatment in both the wages they are paid and the hours they have to work. The minimum wage sets a pay floor below which workers should not have to work. The hours standard imposes a penalty on employers for requiring workers to put in unusually long hours, and compensates workers for this imposition.
With the current threshold of less than $24,000, employers are able to classify even very low-paid salary workers as supervisory and then require them to work 60, 70, or even 80 hours per week. In such cases, salaried workers may not only be deprived of the overtime premium to which they should be entitled, but they also are not getting paid at all for their additional hours of work. In extreme cases this could result in workers earning less than the minimum wage. For example, a worker earning a salary of $24,000 a year would be earning just $6.85 an hour if their employer typically demanded they work 70 hours a week.
Allowing for this evasion of the minimum wage is clearly inconsistent with the intent of the FLSA. It makes no sense to impose a minimum wage standard, but then allow a substantial segment of the workforce to be effectively excluded from its protection because they are salaried employees. This is the situation that exists with the current outdated threshold.
The current low threshold also encourages the sort of gaming by employers that economists all recognize as wasteful. It effectively tells employers that they can avoid paying overtime premiums to workers, and possibly even paying the minimum wage, if they pay their workers weekly salaries and classify them as supervisory employees. Laws should never be written so that those who which to avoid them need only find a simple legal subterfuge. The distinction between hourly and salaried employees should be made based on the nature of the work involved, not the fact that the latter payment structure makes it possible for employers to avoid the requirements of the FLSA.
This raises a final point. Clearly enforcement is a major problem with the hours standard, since the assumption in raising the threshold is that workers earning less than $4,000 a month are not in a meaningful sense supervisory. The employers who do not currently pay overtime to salaried workers in the band between the old and the new threshold ($23,660 to $50,440) are all claiming that these workers have major supervisory responsibilities. In principle this can be evaluated on an individual basis with the Labor Department making a determination as to whether this claim is warranted. As a practical matter, this imposes an enormous enforcement problem which would require inspectors to visit millions of workplaces and make detailed assessments of the job responsibilities of individual workers. This would require several orders of magnitude more inspectors than the Wage and Hours Division currently has at its disposal.
Changing this rule makes the enforcement issue much easier. The question is simply whether a worker earning less than the new threshold was paid an overtime premium whenever they worked more than 40 hours a week. At this level of simplicity the FSLA overtime rules becomes far more enforceable.
For these reasons the Labor Department should undertake this long overdue modernization. It would clearly keep with the intent of the law and make a big difference in the lives of tens of millions of working people and their families.
