Fair Overtime Pay for Salaried Workers

Under the nation’s overtime law (the Fair Labor Standards Act), salaried employees in many cases (if they meet the definition for being professional, executive, or “administrative”) do not receive overtime pay. Regulations also established, however, that lower-paid salaried workers – as many as 60% of salaried workers in the 1970s – would in most cases be eligible for overtime pay. Since 1975, however, the federal threshold below which salaried workers receive overtime pay has been changed only once and it is now $23,660 ($455 weekly). Fewer than one in 10 salaried workers are now automatically eligible for overtime. Just as the failure to raise the minimum wage has hurt lower-wage workers, the failure to raise the overtime threshold has hurt many middle-wage salaried workers. Shift managers in fast food, department managers in discount stores, and office managers in small businesses may work 50 or 60 hours per week while earning $30,000 – an effective hourly wage of $12 per hour or less.

In 2016, the Obama Administration sought to raise to $47,476 the threshold below which all salaried workers earn overtime pay. This change would have directly benefitted an estimated 459,000 Pennsylvanians, nearly a quarter (22.6%) of the commonwealth’s 2 million salaried workers. In November 2016, however, a Texas Court blocked the new rule. The Trump Administration appealed the decision to defend its right to set an overtime threshold through regulation but has made clear it will not defend a threshold near Obama’s. For the time being, the federal threshold remains at $23,660.

Everyday, hardworking Pennsylvanians lose $144,825 because of the federal government’s failure to defend the overtime rule. That’s  $53 million a year that should be going into the pockets of our neighbors and friends. 

See EPI's pay cut calculator below:


Just as states have the right to establish a minimum wage higher than the federal minimum wage, they also have the right to set a higher overtime threshold. New York and California already set thresholds near or above the Obama $47,476 level. Governor Wolf in January announced that he will use his regulatory authority to phase in a Pennsylvania overtime threshold at roughly the Obama level. The governor’s proposal will now be subject to legislative and public input – an opportunity for citizens and advocates to weigh in. If pursued to the end, the governor’s proposal is expected to stand because his authority to make this change is rooted in state law and likely to be supported by the State Supreme Court. Governor Wolf’s proposed increase in the overtime threshold would benefit a broad cross-section of Pennsylvania middle-wage workers just as would have the Obama proposal.

While New York and California already have overtime thresholds that will increase above the Obama threshold, Pennsylvania is the first state to take action to give salaried workers a long-overdue raise since the Texas Court and President Trump failed to do so. We share the hope of our national partners at the Economic Policy Institute and the National Employment Law Project that Gov. Wolf’s leadership emboldens other governors and legislatures beyond CA and New York.


Methodology

The $1.2 billion annual increase in wages resulting from the 2016 overtime pay rule was estimated by the Department of Labor in the economic impact study that accompanied the rule. The estimate is from a model based on empirical research on how businesses respond to overtime pay regulations. A summary of the economic impact study can be found here.

The state breakdown of that national figure is based on an EPI analysis of the weekly earnings and overtime hours of workers directly affected by the overtime rule in each state and the District of Columbia using Current Population Source (CPS) Outgoing Rotation Group data for 2015 and 2016. As with the federal government's analysis of the overtime rule, this analysis does not take into account higher overtime thresholds at the state level.