As many as half a million Georgia workers stand to gain from a long-overdue update to the nation’s system for overtime pay announced by the U.S. Department of Labor this week. The new benchmark nearly doubles the annual pay salaried workers can earn and still be eligible for overtime pay, extending new protections to millions of workers nationwide. Some workers will see increased paychecks as a result, while others will likely get the same salary in exchange for more reasonable work hours. Despite the handwringing by some in the business community, the new rules constitute a major win for Georgians. They’ll soon provide a needed boost to Georgia’s struggling middle class and, especially over the long-run, strengthen the state’s underlying foundation for economic success.
Overtime Used to be a Foundation for the Middle Class
The right of workers to receive overtime pay, sometimes known as time-and-a-half, was once an acknowledged bedrock of America’s broad middle class. But the value of that system eroded over the years because of falling labor standards. In 1975, more than 60 percent of salaried workers enjoyed guaranteed overtime pay. Today, only about 8 percent do.
One big reason for overtime’s decline is the threshold for salaried workers to become eligible for the benefit didn’t keep up with the economy. Since federal policymakers didn’t update it for many years, inflation ate into its value. Today, salaried workers don’t earn overtime unless they make less than $23,660, a paltry standard that falls below the federal poverty line for a family of four. The new rules announced this week increase that benchmark to $47,476 a year, putting the system back in line with its historical value. Had the benchmark kept pace with its 1975 value, overtime would kick in around $52,000 today, or about equal to the U.S. median household income.
493,000 Georgians Stand to Benefit
An estimated 4.2 million Americans are expected to benefit from this change, including 158,000 Georgians, according to the U.S. Department of Labor. But the true reach of the new rules is likely to be much larger. As many as 12.5 million Americans, including 493,000 Georgians, stand to gain from the revisions according to the nonpartisan Economic Policy Institute. The larger estimates are due to the inclusion of a significant number of workers who already should be eligible for overtime but are likely misclassified by their employer.
Under the old system, employers could exempt some high-level salaried employees based on a complex set of rules – known as the “duty test” – that considered the types of tasks those workers performed. Many employers took this opening to change job descriptions to make it seem as if employees performing lesser-skilled tasks were actually working as professionals, administrators or executives, and therefore exempt from overtime rules. Imagine a Walmart employee with a supervisor title whose main job is stocking shelves, or a McDonald’s shift manager who mainly works the cash register. The new rules eliminate this loophole by setting the bar at about $47,500 annually, regardless of title or specific work duties.
Employers Have Flexibility
Some corners of the corporate community are raising concerns about the new rules, but the bulk of their claims are off base. Employers can take several more months to comply and can adjust in several ways. They can raise these workers’ salaries to make them exempt from the overtime threshold, pay the mandated time-and-a-half overtime for those who do work more or simply make sure employees aren’t working overtime. Different companies will choose whichever option is the best fit.
New Rules Will Create Jobs
An even more specious claim is restoring overtime will cost jobs and hurt the broader economy, when in fact the opposite is likely true. Even opponents of the new rules acknowledge the move will create jobs because employers will no longer be able to require workers put in extra hours free-of-charge. With that free labor no longer available, some owners will choose to adjust by hiring more people to get the work done. An analysis by Goldman Sachs suggests the new rules could create 120,000 jobs across the economy, while the National Retail Federation estimates the system will lead to 117,100 jobs in the retail and restaurant industries alone.
These additional workers will pump most of their newly acquired income back into the economy by shopping at local stores and restaurants, creating a positive cycle of economic activity long-term. Existing workers capped at 40 hours due to the rule don’t lose any money either, since they aren’t paid for working more than 40 hours as it is. Instead, the more humane hours give workers more hours to spend with their families and better balance work-life responsibilities.
The restoration of overtime’s value brings to a close a somewhat contentious debate on the state and national level, as labor market policies often do. But political jockeying aside, the changes are a major victory for Georgia’s middle class. Regular workers, families and their children still face a steep climb up the economic ladder. Fair access to time-and-a-half pay provides a powerful tool to help them make the ascent.