Overtime Pay at Last, But Judge Yanks It Away

President Obama had announced his plan almost three years ago, as we recounted then. He would update a long-neglected labor law to equitably improve the lives of an estimated 4 million American workers. It almost happened.

The 1938 Fair Labor Standards Act sets a wage threshold under which employees are paid an hourly rate and are owed extra pay for overtime work. Above that threshold, they are considered administrative or managers to be paid a fixed salary no matter their hours. Clearly, the intent of the law is to prevent exploitation of low-paid workers.

Trouble is, no adjustment whatever has been made to that threshold since 1975. So the threshold below which overtime pay is due has been stuck at a meager $455 a week — $23,660 a year. Everyone earning more than that is a "manager". Employers are free to extract extra hours from them without paying a nickel. Refuse and they may find themselves on an unemployment line.

In the 1970s, some 65% of workers were entitled to overtime. With the manager threshold driven downward by inflation, only an estimated 7% are paid so low that they qualify for overtime pay. It should be clear that the other 93% are not members of management.

So Obama decreed that the threshold should become $913 a week — $47,476 a year — and the Labor Department's inflation calculator says that the level should be higher still. Everyone under that must be paid for overtime work.

The change was to have taken place December 1, but a Texas judge stepped in only 10 days before, calling a halt in answer to a consolidated lawsuit from the attorneys general of 21 Republican-led states, business groups, and the business lobby the U.S. Chamber of Commerce. The judge ruled that the Obama administration had overstepped its authority, that overtime eligibility cannot be decided by the wage level alone. The law does not agree. The wage level unequivocally controls whether overtime is due, says this source.

The injunction is temporary as the court reviews the case further, and the Labor Department would certainly appeal, but with the Trump presidency taking over, and a new labor secretary who is against raising even the minimum wage, Obama's initiative is as good as dead. An intriguing question is how this will be met by those who voted for Donald Trump on the promise of his improving their livelihoods.

Obama's regulation may have done a small amount of good even though it never took effect. Expecting the law change December 1, employers had gone ahead to instituted changes. They have been inclined to elevate to $47,476 the paychecks of employees already paid anywhere near that so as not to have to pay them overtime. Walmart did so, for example.

Almost all other workers remain stranded earning a fixed salary. It will still even be possible for an employer to force enough unpaid overtime that a "manager" is paid less than the minimum wage when that salary is divided by hours worked. Incoming Labor Secretary Andrew Puzder, whose annual compensation as CEO of a restaurant chain is thought to have been around $4 million, thinks workers prefer the low overtime cutoff; it's worth giving up the extra money, he says, for the prestige of being viewed as a manager.