- Steven Rowe B.A. Mathematics & Economics
The Obama administration announced a rule change that will give new overtime protections to millions of workers, set to take effect on December 1, 2016. Most workers are currently required to be paid one-and-a-half times their normal hourly wage for every hour worked beyond 40 per week as mandated by the Fair Labor Standards Act (FLSA). Moreover, almost all hourly and blue-collar workers are required to be paid overtime. However, most salaried executives, administrators, and professionals are only eligible for overtime if they earn below $455 per week ($23,660 per year), which applies to relatively few in this category. In December, that salary threshold will be raised for the first time since 2004 so that almost all workers earning below $913 per week ($47,476 per year) will be eligible. This alone should extend overtime protections to over 4.8 million workers in the United States with an estimated 394,200 of those workers in Florida[1].
Background Information
However, the new rule and the protections that it gives are much more important than the increase in the threshold alone because, unlike previous revisions, the protections will not be left to shrink in value in future years due to inflation. Inflation, defined as the decline of the purchasing power of money over time, explains why a gallon of milk could be bought for only 50 cents in 1963. In 1963, the minimum wage was just $1.25 an hour, and the salary threshold was $150 per week [2]. However when we adjust for today's higher prices the 1963 minimum wage in 2015 dollars would be $9.68, and the salary threshold for overtime $1161.85 per week, even higher than the threshold of $913 per week coming in December.
The story of inflation puts this new rule into context. First, it restores overtime protections to a whole class of workers who had lost it to inflation in the years since 1975, and second it prevents the unintentional erosion of millions of Americans' right to overtime pay in the decades to come. Figure 1 shows how that erosion of overtime protections took place.
Prior to 2004, there were multiple thresholds for different types of workers. Different conditions or "Tests" determined which threshold was applied. The complexity in this determination was one reason the system was simplified in 2004 by replacing the "Short Test" and "Long Test" with a single "Standard Test."[3] The important takeaway from Figure 1 is that in the years from 1950 to 1975, the salary thresholds were periodically updated to ensure overtime protections for all workers earning below $750-1,000 per week (in 2015 dollars). These updates are seen in Figure 1 as the spikes in the graph, while decline due to inflation are downward sloping sections. Inflation reduced the real salary thresholds from $748-1,099 in 1975 to just $221-325 in 2003, and the last update to the threshold in 2004 to $571 in 2015 dollars did not come close to restoring overtime protections to those who had lost it in the three prior decades. The real value of the salary threshold today is just 80 percent of what it was set at in 2004.[4]
Who will be affected
Most salaried workers who perform executive, administrative, or professional (EAP) [5] duties and earn between $455 and $913 per week ($23,600 to $47,476 per year) will gain overtime protections from the increased salary threshold. These are often the low-level supervisors, grocery store managers, entry-level professionals, or registered nurses. The salary threshold was not originally put into place to exclude these groups of workers. According to the Department of Labor, one original purpose for the threshold was to exclude highly paid "white-collar" workers who had the benefits, job security, and opportunities that lower-paid workers did not enjoy.
Another part of defining who will be affected by the new rule is showing who will not be. There are several groups of workers who are never afforded overtime protections, the largest among them are self-employed, in agriculture, transportation, or most federal work. Another group are workers who are in certain "named occupations" which are denied overtime if they perform EAP duties regardless of their salary. Named occupations include teachers, professors, academic administrators, medical and legal professionals, and door-to-door salesmen. Each state, county, and even industry will be affected differently because of the variance in the percentage of their employees who are in any of these groups, or earn too much or too little to be affected by the new rule.
The maps below are shaded so that the darker areas indicate a higher percentage of employed people who gain overtime protection from the increase in the salary threshold, and the bar charts to the right of the maps display the wage distribution of all employed people in the area, with the white section between the dotted lines being the wage brackets affected by the overtime rule. Below the maps are the percentage of the employed people who are paid hourly, are self-employed, who perform non-EAP duties at work, and the percentage of people who are paid too little or too much to be affected by the change. A lower rank, or lower percentage, in any of these factors indicates that area may be more affected by the new rule.
Those states which have a lower rank in the factors listed below the map tend to be more likely to be affected by the new rule because workers who are paid by the hour, do not perform EAP duties, or earn below $455 per week (low-earning) are already covered by overtime protections, while those who are self-employed, or earn greater than $913 per week (high-earning) will not qualify even after the new threshold takes effect. States with low proportions of hourly workers and non-EAP workers will tend to be more affected than others.
How Florida Will Be Affected
Florida is estimated to be the second most affected state with 4.4% of employed people, or 394,200 workers gaining overtime protection from the increase in the salary threshold. Florida is so heavily affected due to having a large proportion of salaried EAP workers with relatively low wages. This is shown on Map 1 by Florida having one of the lowest percentages of hourly workers, ranking 44th in the nation, the 29th lowest percentage of Non-EAP workers, and like other Southern states, a higher portion of their workers earning between $455 and $913 per week. By contrast, California is one of the least affected states despite having a relatively similar proportion of salaried, non-EAP workers. The difference is that more of California's EAP workers, from their customer service representatives to their software engineers, are already paid above $913 per week.
Many of the occupations which are most heavily affected by the new salary threshold are more present in Florida than other states, including first-line supervisors of all types, registered nurses, real estate brokers and agents, food service, and marketing managers earning between $23,660 and $47,476 per year ($455-913 per week). Additionally, Florida has a lower percentage of occupations which are often paid too highly to be affected by the salary threshold such as executives, managers, and computer/technology workers.
Within Florida, Tallahassee is estimated to be the most heavily affected by the new rule. The Tallahassee Core Based Statistical Area (CBSA) has the highest percentage of salaried, EAP workers who are not self-employed of all CBSA's within the state. The wage distribution of Tallahassee is somewhat unique as well, with a relatively large number of people self-reporting earning around $600 and $700 per week. Affected workers in Tallahassee were more often secretaries, administrative assistants, and sales representatives than average.
The most populated areas of Miami, Tampa, Orlando, and Jacksonville are more affected than the state average due to a higher percentage of salaried EAP workers such as customer service representatives, bookkeepers, and legal representatives. Areas outside of the available CBSA’s were merged into Non-Metro Florida. These areas tend to have lower urban populations and are less affected due to higher percentages of hourly, self-employed, non-EAP, and low-earning workers.
The salary distributions in Figures 2 and 3 are more centered around $455 per week because they include hourly and non-EAP workers who tend to earn far less than the workers who will be affected by the new overtime rule. Figure 4 depicts the wage distribution of only the salaried executives, administrators, and professionals who are subject to the salary threshold.
Only the workers earning below $455 per week are currently receiving overtime protections by earning below the salary threshold, while the workers depicted in Figure 4 as the bars between the dotted lines earn between $455 and $913 per week will be granted overtime protection from the new rule. The workers earning above $913 per week will not be affected by the salary threshold change. The fact that Florida is more heavily affected by this new rule is shown by the higher proportion of workers between the dotted lines in Figure 4. The wage distribution of Florida is centered within the newly covered wages, while the United States has a higher portion of workers earning more than the new salary threshold.
Florida is the second most affected state with 4.4% of its employed people gaining overtime protection. This state is so heavily affected because such a high proportion of its workers are salaried, perform EAP duties, and are paid less than in other states. Of all workers in the United States gaining overtime protection as a result of this rule, 8 percent of them live in Florida.
Appendix
- The data source used in this analysis comes from the Current Population Survey Merged Outgoing Rotation Groups for the years 2013-2015. The earnings for the years 2013 and 2014 were adjusted to 2015 dollars using the CPI-U-RS from the Bureau of Labor Statistics. The methodology to estimate the percentage of workers affected by the increase in the salary threshold, and the line chart of historical thresholds come largely from the Department of Labor Notice of Public Rulemaking.
- While the short test salary threshold in 1963 was $150 per week, the long test salary threshold for professionals was only $115 per week. The short test salary threshold was used for comparison because the job duties which qualified a worker for the short test are most similar to those under the new test.
- Until its replacement in 2004, the long test had separate thresholds for executives, administrators, and professionals. Under the long test workers would only be denied overtime if they earned above their long test salary threshold and spent over a set percentage of their time on EAP duties. It was often difficult for employers to know or prove this percentage, so in 1949 the Department of Labor introduced the "short test." The short test included a single higher threshold instead of the three individual thresholds in the long test, but it also applied to all workers so long as they performed any EAP work. The purpose of this test was to simplify overtime exemption rules for highly paid workers by using their high wage as evidence for their performing significant amounts of EAP work.
- Although the long test threshold for professionals is often the highest of the three long test thresholds, Figure 1 uses the long test salary threshold for professionals largely because that is what was used in the 2015 Notice of Public Rulemaking on overtime protections in their Figure 1 on page 109.
- Paraphrasing descriptions provided by the Department of Labor, executives are defined as managing a part or all of an enterprise, regularly directing the work of at least two employees, and have at least some weight in the hiring, firing, or the status of employees.
Administrators are workers who perform office or non-manual work which requires discretion and independent judgment relating to the general operations of a business.
Professionals are defined as having at least one of four primary duties. They must either do work requiring advanced and specialized knowledge of a field of learning, creative artistic work, teach in a educational institution, or highly skilled work in a computer related field.
- Acknowledgement: Photo modified from original by Alan Cleaver via Creative Commons 2.0