Paying more workers overtime could rebuild America’s middle class by Christine Owens @FortuneMagazine June 30, 2015, 1:21 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons For decades, America’s workers have been putting in more hours for less money, but now the U.S. Department of Labor is taking an important step to fix that by proposing a regulation that could ensure overtime protection for at least 11 million more workers. On Tuesday, the Obama administration proposed new rules governing overtime pay that would boost paychecks for millions of deserving workers. The measure would more than double the threshold at which employers can avoid paying overtime, to $970 a week, by next year. That would mean salaried employees earning less than $50,440 a year would be assured overtime if they work more than 40 hours per week. The move has been years in the making. When the Fair Labor Standards Act (FLSA) was enacted in 1938, one of its most important provisions was “time-and-a-half pay” for workers who put in more than 40 hours per week. This rule provided a financial incentive for employers not to overwork their employees, encouraged employers to hire more people, and rewarded workers with higher pay when they clocked extra time. These protections are as necessary today as they were 77 years ago. But, decades of regulatory neglect slowly pulled the teeth from these important protections. Currently, only 8% of salaried workers can count on overtime protection. That’s a huge decline from 1975, when more than 60% of the salaried workforce got overtime pay, according to the Economic Policy Institute. The problem has to do with the so-called “white collar” exemptions, which exclude certain “executive,” “administrative,” and “professional” workers from FLSA protections. These exemptions were supposed to capture the realities of high-level executive, professional, and administrative positions: In exchange for higher pay, more flexibility in how they spend their work hours, and greater autonomy in performing their jobs, white-collar employees are expected to spend the time required to get the work done, without overtime pay. But the Labor Department’s failure to regularly review and update the tests governing the exemption, and employers’ exploitation of regulatory loopholes, have led to more workers being called “managers” and denied overtime pay, even when they spend the majority of their time performing work routinely done by hourly workers. A gateway problem with the current rule is its outdated salary threshold. In order to be overtime-exempt, an employee must be paid a salary of at least $455 a week, or $23,660 a year. If that sounds low, it is: Full-time, full-year earnings of only $455 per week fall below the poverty line for a family of four. The salary threshold has not been adjusted for more than a decade, and it was set far too low even then. Now the labor department is acting to remedy the erosion of overtime pay by proposing a much more realistic weekly salary threshold of $970, or $50,440 annually for a full-time worker. According to the Economic Policy Institute, this threshold will ensure that at least 44% of all workers are automatically covered by the FLSA’s overtime protections, a share much more representative of the percentage of workers who likely do not enjoy the power required to ensure that their hours are not abusively high or their compensation shamefully low. Application of the current white collar rule is also complicated—and subject to abuse—by the vague descriptions of job responsibilities considered adequate to justify exempting a worker from coverage. The so-called “duties test” does not specify how long a worker must spend doing higher-level work in order to be exempt, making it easy for employers to give employees “manager” or “supervisor” titles without actually elevating their duties. After these “promotions,” employees not only lose overtime pay but often find that their hours have increased dramatically. Wanda Womack from Alabama is a case in point – one of many workers in the U.S. profiled in the National Employment Law Project report, “The Case for Reforming Federal Overtime Rules: Stories from America’s Middle Class.” She worked as a store manager at Dollar General for 11 years but spent the majority of her workdays ringing up sales, checking inventory, and unloading freight. She regularly worked 50 to 70 hours per week for only $37,000 a year, which resulted in an hourly wage that ended up averaging less than that of her employees. In proposing a new salary threshold that will be indexed to wage growth, the Labor Department has taken the first step to strengthen middle class wages and give overtime regulations their intended scope. Workers in sectors as diverse as retail, food service, accounting, mortgage and finance, banking, and oil and gas inspection, will all benefit from the updated rule. The labor department has taken a temporary pass on addressing the duties test, inviting further comments instead. Given the easy misclassification the current test allows, we hope the department will act quickly to issue clearer and more appropriate standards in this area too. Americans understand why we need updated overtime protections. In fact, 79% of respondents in a recent Public Policy Polling survey support raising the overtime salary threshold, and 65% supported a threshold as high as $75,000 per year. How employers adapt to the new regulations will vary — but the fact is these reforms will boost incomes for working people and create jobs. Some employers will pay overtime wages to workers who must be reclassified. Others will spread hours out among existing employees, including part-timers, giving them more hours. And some will hire new employees, giving the unemployed the opportunity to get back to work. Even the National Retail Federation, one of the chief opponents of updating the outdated overtime rules, has admitted that these new regulations will not result in any job loss, but indeed, will create tens of thousands of new jobs in the retail sector alone. After two decades of employers shortchanging workers for their long hours, the labor department is taking an important step to restore wages and protections to where they should be for America’s workforce. Christine Owens is executive director, and Judy Conti is federal advocacy coordinator, with the National Employment Law Project.