Wolf Proposal Would Restore 40-Hour Work Week and Fair Overtime Pay for 465,000 PA Salaried Workers

Authors: 
Stephen Herzenberg
Publication Date: 
August 20, 2018

Read the full briefing paper here.

In June, Governor Tom Wolf issued a notice of his intention to restore guaranteed overtime pay for Pennsylvania salaried employees earning between about $24,000 and $48,000 when they work more than 40 hours in a week. This change would benefit an estimated 465,000 Pennsylvania salaried employees statewide, including up to 20% of workers in some lower-wage rural counties with shortages of family-supporting jobs.

Governor Wolf’s proposed change would also boost job creation in Pennsylvania because some existing salaried employees would receive higher pay and other businesses would hire new employees to work the hours salaried employees previously worked for free. Existing and new employees with bigger paychecks would spend more at local businesses, further driving job creation.

This brief explains Governor Wolf’s proposed expansion of overtime pay for salaried employees and presents estimates of the number and share of workers who would benefit by county. It also details how Pennsylvanians can provide formal comments on the proposed rule (before the deadline of August 22, next Wednesday) as part of the formal regulatory review process required before Governor Wolf’s proposal can go into effect.

Most U.S. Salaried Workers Used to Receive Overtime Pay

In 1975, nearly two-thirds of U.S. salaried workers were guaranteed overtime pay if they worked over 40 hours per week just like workers paid by the hour.[1] Since then, as with many other public policies—such as the minimum wage—our overtime rules have tilted against workers. At this point, only about one in 14 U.S. salaried employees automatically receives overtime pay. This shift took place because of the failure of policymakers to adjust the first of two ways U.S. and Pennsylvania law determine that salaried workers may receive overtime pay.

The first way specifies that salaried workers below specific salary levels (with a few exceptions) are automatically eligible for overtime.

The second way specifies that salaried employees, primarily in the executive, administrative, and professional (EAP) categories, must have certain responsibilities (“duties”) to be considered exempt from overtime. If they fail a duties test—in layperson’s terms, if their jobs are not that different than hourly workers’ jobs—these employees should receive overtime pay even if their salary exceeds the relevant threshold below which all salaried workers in that category receive overtime.

Up until the mid-1970s, these two approaches to determining salaried worker eligibility for overtime pay worked in tandem. Periodic increase of the salary thresholds below which salaried workers received overtime pay helped ensure that only relatively highly paid salaried employees were denied overtime pay. The salary thresholds also aligned with duties tests because most people below the salary thresholds would have failed such tests. The thresholds—and their periodic increases to keep pace with general increases in salaries due to inflation and rising real incomes—represented a form of regulatory simplification and facilitated enforcement. Even though most people below the thresholds would fail duties tests, this didn’t have to be proved on a case-by-case basis by going go through a duties test for every worker; employers could just look at worker’s salary and see that it was low enough for automatic eligibility. Businesses and workers could rely primarily on the salary thresholds to know who should get overtime and who would not (except that some workers above the thresholds, if they failed a duties test, would still be eligible for overtime pay).

Now Fewer Than One in 14 Salaried Workers Automatically Receives Overtime Pay

After the mid-1970s, regular increases in U.S. and Pennsylvania overtime pay salary thresholds stopped, leading to the current reality of fewer than 7% of workers being below the U.S. threshold of $23,660.[2] This has led to a situation in which large shares of salaried workers above the low threshold of $23,660 fail duties tests—they should be getting overtime pay if they work over 40 hours, but in many cases are not. As a result, hundreds of thousands of Pennsylvania salaried employees get denied overtime pay even though their duties are little different from hourly workers. These include shift supervisors in fast food who lock the door at closing time but mostly staff a cash register like hourly employees; assistant department managers in department and discount stores; assistant branch managers; para-professionals in law, accounting, and business service firms; and office managers in small for-profit and non-profit businesses. The situation has become so bad that some employers, such as higher education institutions, think they’ve turned the clock back 100 years—to before we had a 40-hour work week—simply by labelling employees salaried and giving them a fixed weekly paycheck.

Salaried employees denied overtime often work 45-55 hours per week for effective wages of as little as $10 per hour (as the examples in the box on the next page illustrate). Virtually all Pennsylvanians get served by these hard-working, moderate-wage salaried employees every day. These employees are our neighbors and our friends. They are some of the hardest working, unsung heroes of Pennsylvania businesses, small and large, for-profit and non-profit. These employees deserve to be paid overtime if they work more than 40 hours in a week—or to get back time with their family if their employer cuts them back to 40 hours rather than pay overtime.

Governor Wolf’s Proposed Increase in the Overtime Threshold: A Modest Proposal

Recognizing the failure to increase salaried thresholds as another reason the Pennsylvania economy has become rigged against working Pennsylvanians, in June Governor Wolf submitted the paperwork required for him to initiate an increase of the Pennsylvania overtime pay salary threshold to the 30th percentile (salary higher than 30% of salaried employees and less than 70% of salaried employees) of the Northeast U.S. salaried employee distribution—$47,892 in 2016. Since Pennsylvania is a relatively low-wage state within the Northeast region, this would mean that a bit more than a third of Pennsylvania salaried employees would automatically be eligible for overtime pay based on their salaries. This is a modest proposal to inject a bit more fairness into the Pennsylvania economy; it would ensure automatic eligibility for overtime pay for only about half the share of U.S. salaried employees automatically eligible for overtime pay in the mid-1970s. Moreover, full phase in to a new, higher salary threshold will take until the full phasing-in process isn’t until January 1, 2023, four years from now, giving businesses ample time to adjust.[3]

Read the full briefing paper here.

 




 1. Celine McNicholas, Samantha Sanders, and Heidi Shierholz, “What’s at stake in the states if the 2016 federal raise to the overtime pay threshold is not preserved—and what states can do about it,” November 15, 2017, Figure A, https://www.epi.org/publication/whats-at-stake-in-the-states-if-the-2016-federal-raise-to-the-overtime-pay-threshold-is-not-preserved/. 

 2. The Pennsylvania threshold for EAP workers is even lower. In practice, therefore, the U.S. threshold of $23,660 currently applies to most salaried workers in Pennsylvania.

 3. The proposed rule would increase the salary threshold for automatic eligibility for overtime pay to the 2016 30th percentile of the Northeast (NE) region (of the U.S.) salaried employee salary distribution in three steps from January 1, 2020 to January 1, 2022. It would then increase the threshold to the 30th percentile of the NE salaried employee distribution in 2021 on January 1, 2023.

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KRC-NELP Overtime Brief PA Final.pdf786.39 KB