President Obama Is About to Quietly Give Millions of Americans a Raise

AP

Debates about how to provide lower-income Americans with greater economic security often center around increasing wages. But millions of workers may be on the brink of receiving a significant boost in their income thanks to a change in a policy that is rarely mentioned: overtime pay.

According to Politico, as early as this week the Department of Labor could propose a rule that would dramatically increase the percentage of the workforce eligible for overtime, a regulation that has been updated only once in the past 40 years.

Currently, if you make more than $23,660 a year, your employer is under no obligation to pay you the standardized overtime rate of 1.5 times regular pay for working more than 40 hours a week. But now the Labor Department is contemplating more than doubling that threshold to $52,000, according to Politico's report. That increase would have an enormous impact on the economy, raising pay for millions of overworked Americans and causing businesses nationwide to re-evaluate how many hours they expect their employees to work. 

U.S. Secretary of Labor Tom Perez participates in a discussion on paid leave at PennGlobe in North Branford, CT. Source: U.S. Department of Labor/Flickr
U.S. Secretary of Labor Tom Perez participates in a discussion on paid leave at PennGlobe in North Branford, CT.  U.S. Department of Labor/Flickr

How big is this? Unlike raising the minimum wage, increasing the overtime pay threshold can be done unilaterally by the Obama administration. The Department of Labor needs no outside approval in order to update the rule.

"This is probably the most significant step they can take to raise wages for millions of workers," Bill Samuel, legislative affairs director at the AFL-CIO, told Politico.

But the ease with which this can be achieved — a unusual scenario in deadlocked Washington — shouldn't suggest that determining the exact threshold is a simple decision.

The Economic Policy Institute put together some data in 2014 to capture the possible impact that raising the threshold to different levels would have. At the time, $42,000 was the main number being floated by the Department of Labor, which would increase the share of salaried workers covered from 11% under current policy to 35%. If the threshold is increased to $52,000 — Politico reports that the range being debated is between $45,000 and $52,000 — that would cover nearly half the salaried workers in the workforce:

Source: Economic Policy Institute
Source: Economic Policy Institute

The loophole of white-collar exemptions: The other critical feature of an update to the overtime pay rule would include narrowing of the exemptions for white-collar workers, who aren't entitled to overtime. Currently, "white collar" is defined broadly enough to include someone classified as any kind of supervisor or manager, which can lead to some blatantly exploitative scenarios. As EPI explains, the current definition can result in "white-collar" workers actually making less than minimum wage:

[A]n assistant manager at a fast-food restaurant with a salary of $24,000 and who spends 95% of his (or her) time cooking fries, running a cash register and sweeping floors can be required to work 60 or 70 hours a week and yet be denied any overtime pay, simply because he's classified as a manager. On the weeks he works more than 64 hours, his effective hourly wage is below the federal minimum wage of $7.25; workers who are exempt from overtime regulations are also exempt from minimum-wage regulations.

Past exemptions for white-collar workers earlier were predicated on the idea that many of them naturally have stronger bargaining power and flexibility in how many hours they work. While that made some degree of sense in an earlier era, today's economy includes many low-paid knowledge workers and service workers whose responsibilities can have managerial or administrative aspects but which by no means guarantee them autonomy in their workplace.

Today the salary threshold is shockingly low by historical standards, once something that covered huge swathes of the workforce but now only covers a level of pay that puts a worker below the poverty threshold for a family of four. Hopefully the Department of Labor will be bold in restoring that regulation to fulfill its original purpose.