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How weak overtime protections contribute to inequality

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The Fair Labor Standards Act requires employers to pay employees who work more than 40 hours a week overtime pay, generally 1.5 times their regular pay rate, for those extra hours.

But one of the biggest exceptions to that rule is for salaried employees whose income is above a certain threshold, with the logic that highly paid white-collar workers have enough power in their workplace that they don’t need overtime protections.

That threshold, below which salaried workers would earn overtime, was regularly updated with inflation for years until 1975, when it was set at what would be around $57,000 in 2020 dollars. But today the threshold is just $35,568 — set by the Trump administration in 2019 and following a federal judge blocking the Obama administration’s 2016 attempt to raise the threshold to $47,476 and adopt a provision to automatically update it with inflation.

The result is millions of workers left out of overtime compensation for the extra hours they work.

Experts point to the erosion of overtime protections as a key contributing factor to the rising inequality we’re seeing in our economy.

“It is one of the things — worker protections, labor market institutions — that have eroded and contributed to rising inequality; to stagnant wages for middle-class workers,” said Heidi Shierholz, the director of policy at the Economic Policy Institute and former chief economist to the secretary of labor from 2014 to 2017 in the Obama administration.

Marketplace’s David Brancaccio spoke to Shierholz about how we got here and how likely the incoming Biden administration is to prioritize updating the overtime threshold. The following is an edited transcript of their conversation.

David Brancaccio:  What is it a misconception? That if you’re on salary, too bad, you don’t get overtime. What’s the reality?

Heidi Shierholz:  There is this misunderstanding by, I think, both workers and employers that if you pay somebody a salary, you never have to give them overtime pay, and that is just absolutely not true. If you’re paid a salary, you are still eligible for overtime, if you earn less than the overtime salary threshold. And so that’s the thing that’s been really at issue — what level the salary should be at.

Brancaccio:  And now the overtime threshold stands somewhere in the mid-30,000s?

Shierholz:  Yes, right now it’s $35,568 for somebody who works all year. Essentially what that says is that if you make more than $35,000, we believe that you have so much economic leverage at your firm that you do not need overtime protections. That, in many cases, is just a ridiculous assumption. And just to put some backdrop to it, if the 1975 threshold had simply been adjusted for inflation, it would be on the order of $57,000 per year right now. So more than $20,000 higher than where the Trump administration rule is.

Brancaccio:  Here’s a question of scale. I spoke to a former hedge fund guy who now campaigns for reducing inequality. And he suggested that changing who is eligible for overtime and under what circumstances could make a significant dent in the problem of inequality. I mean, would it?

Shierholz:  It would. It’s not going to solve everything. But it is one of the things — worker protections, labor market institutions — that have eroded and contributed to rising inequality, to stagnant wages for middle-class workers.

Brancaccio:  Do you think this issue of where overtime kicks in for salaried workers is on the radar at all for the incoming Biden administration?

Shierholz:  It’s definitely on their radar. I think it’s going to be a big emphasis for the Biden administration to undo all of the anti-worker things that Trump did, and perhaps do more. You know, not necessarily just reset things to where they were January 2017, but to actually take things further. The social and political context is different now. The economic context is different now. So that puts overtime protections, even if it’s not the very first thing, I think, will be very close to the top of the list.

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