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May 18, 2016

A Fair Day’s Work Demands a Fair Day’s Pay

The 40-hour workweek and time-and-a-half for overtime work are cornerstones of a strong and fair economy. Unfortunately, overtime protections have been allowed to become badly out-of-date. On Wednesday, the Obama administration announced an update to the rule that will give millions more Americans overtime protections and clarify protections for millions more.

The sweeping rule change will benefit 119,000 Virginians according to an estimate by the Department of Labor. The Economic Policy Institute estimates that it will directly benefit even more–333,000–by strengthening overtime protections for workers currently eligible due to their duties but whose employers may be classifying them incorrectly.

Here’s how it works.

Employers are generally required to pay employees at least 1.5 times their regular rate for each hour of work beyond the 40-hour work week. But under the current rule, salaried employees earning more than $455 per week ($23,660 annually) can be excluded if their work is deemed executive, administrative, or professional. For some executives and managers this exemption makes sense. C-suite executives likes CEOs and COOs are expected work long hours, and they’re compensated exceptionally well for their efforts.

But changes to “duties tests” in 2004 made it easier to exempt employees earning above the $455 per week threshold, but far less than the high-income employees who congress meant to exempt. Today a salaried assistant manager at a convenience store making $23,700 per year and spending most of the 50 or 60-hour workweek running the cash register and sweeping floors like other employees isn’t given overtime pay and won’t see an extra penny. For too many, failure to pay overtime means their annual salaries fall well below what’s livable and sometimes even below the hourly minimum wage.

The Department of Labor’s new rule that takes effect on December 1, 2016 will more than double the threshold to $913 per week ($47,476), and will update every three years based on wage growth.

Employees could benefit in several different ways. Some will get paid time-and-a-half for every hour they work in excess of 40 hours per week. Some will see their salaries increase to at least $47,476 so employers still have maximum flexibility to ask for more than 40 hours per week. Others will receive the same salary for working 40 hours per week instead of 50 or 60 hours per week. Finally, some employers and employees may use some combination of the three.

Overtime pay dates back to the Fair Labor Standards Act of 1938, the same law that established the federal minimum wage. But like the minimum wage, overtime protections have failed for decades to keep pace with inflation and rising worker productivity. That’s a problem for our economy because a strong overtime system raises incomes for those who are being asked to work longer hours and spreads extra work to others, while a poorly structured one allows employers to overwork unprotected employees without paying them extra and avoid hiring more workers.

Overtime work is a sign of a strengthening economy, and it’s a good sign when companies ask employees to put in extra time. But a fair day’s work demands a fair day’s pay. That was true in 1938, and should still be true today.

Economic Opportunity

Aaron Williams

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