The Obama Administration today announced its final rule extending overtime protections to millions of workers. The rule, which will take effect on December 1, raises the salary threshold for overtime pay from $23,660 to $47,476 per year, making nearly 4.2 million additional workers—more than half of whom are women— eligible to receive overtime protections.
The new rulemaking under the Fair Labor Standards Act (FLSA) means that millions of workers will now be eligible to receive time-and-a-half pay for each hour they work over a 40-hour work week. The Administration estimates that the new rule will raise wages by nearly $12 billion over the next decade.
Currently only 7% of workers qualify for overtime protections, a sharp decline from the 62% of workers who qualified for overtime pay in 1975, when the threshold was last expanded. The new rule will raise the percentage of workers who qualify for overtime pay to about 33%, according to the Economic Policy Institute. The new rule will also ensure that the threshold for overtime pay is automatically updated every three years to prevent stagnating wage protections.
Extending overtime pay protections will help curb worker exploitation by setting clear guidelines meant to ensure that employees are compensated for the extra time they work. Increasing the salary threshold creates a bright line rule that protects workers who may have been misclassified as not eligible for overtime pay. Certain companies were flouting overtime compensation laws by giving otherwise eligible employees managerial titles, which allowed them to deny overtime pay.
“The new salary threshold will provide millions of workers with higher wages or more time with their families. It will also give hourly and part-time workers the opportunity to pick up work that might have otherwise been done during overtime by their full-time, salaried colleagues,” said Ross Eisenbrey, Vice President of the Economic Policy Institute (EPI). “It’s exciting to see government working for working people and their families. Congratulations to President Obama, Secretary Perez, and the Department of Labor and its own hard-working employees, for a job well done.”
An analysis by EPI finds that the new rulemaking could directly benefit nearly 12.5 million workers, including 6.4 million women workers. This analysis combines those who become eligible under the new rule and those who might have already been eligible but had been misclassified. According to EPI, the rule will particularly benefit people of color—including 1.5 million Black workers and 2.5 million Hispanic workers— and workers under the age of 35. In addition, 7.3 million children will benefit from their parents’ overtime coverage under the new rule.
The rule only lifts the salary threshold for overtime pay. It leaves in place pre-existing exemptions from overtime for certain employees, such as doctors and lawyers, as well as the “duties” test for employees who earn more than the threshold salary, now at $47,476. Employers can also count bonuses and incentive payments toward 10 percent of the new salary threshold.
President Obama announced the proposed rulemaking in July 2015, stating that “As president, my top priority is to strengthen the middle class, expand opportunity and grow the economy.” He asked, “Will we accept an economy where only a few of us do exceptionally well? Or will we push for an economy where every American who works hard can contribute to and benefit from our success?”
The President initially intended to raise the salary threshold to $50,440—slightly lower than what the threshold would be if it had been adjusted for inflation since the last major update in 1975. After a public comment period, the Department of Labor lowered the amount to $47,476, which represents the 40th percentile of full-time salaried workers in the lowest income Census region.