News that Urban Outfitters asked salaried employees to volunteer for weekend work performing warehouse tasks highlights one of the more insidious consequences of today’s overtime pay rules. Because the earnings floor for exempting salaried employees from minimum wage and overtime pay is a poverty-level $23,600, companies can and do expect these employees to spend evening and weekend hours doing the work of hourly employees — and they pay them nothing at all for it.
It’s a big bonus for big businesses like Urban Outfitters, which reported “record sales” (that’s a direct quote from their press release) in the second quarter of 2015 and whose CEO’s net worth exceeds $1 billion, according to the Forbes billionaires list. But for modestly-paid salaried employees and low-wage hourly workers, the losses of time and income are significant and substantial.
Some of Urban Outfitters’ salaried employees report average annual pay less than $35,000, translating into less than $17 an hour if you’re assuming a 40-hour workweek. The last thing employees like these need is additional unpaid hours, eating into time with their families or on their own, including for some, school or second jobs. Meanwhile, warehouse workers typically get less than $15 an hour for the kind of work Urban Outfitters wants its salaried employees to do for free. These workers want and need more income, which they can achieve only through higher wages or more hours. But as is true for millions of other low-wage workers across America, real hourly wages for line workers in warehouses are falling rather than rising. And their work week averages less than 40 hours, the tipping point at which time-and-a-half premium pay kicks in.
Across the country, salaried workers already report long work hours, with half saying they routinely work more than 50 hours per week. Meanwhile, hourly workers, especially those with low wages and limited hours, are falling behind. Any corporate scheme that shifts duties from overtime-eligible workers onto overtime-exempt salaried employees is a pay cut for both groups, denying each what they most need — more money or more time. Robbing Peter and Paul to boost corporate profits may enrich executives and shareholders, but it denies working people crucial time and resources to invest in their families and communities, deepens income inequality and America’s wage crisis, and threatens our economy overall.
Fortunately, the Labor Department has a timely and effective solution to this dilemma. In rules proposed in July 2015 to update the “white-collar exemption” under the Fair Labor Standards Act, the Department determined that the cut-off for eliminating overtime protections for affected salaried employees should be set at $50,440 in 2016 and rise annually thereafter. The new rule will benefit as many as 13.5 million salaried employees.
Raising the threshold substantially and indexing it to increase annually addresses a problem that has long plagued effective application of the white-collar exemption and undermined the intended broad reach of the FLSA’s overtime protections. The department has updated the white-collar rules infrequently, and only once, in 2004, over the last 40 years. Failure to regularly update the salary floors as wages and the labor market changed meant that each year, fewer and fewer workers received guaranteed overtime pay protections. Between 1975 and 2013, the share of salaried employees automatically covered under overtime rules fell dramatically, from 65 percent to only 13 percent.
Moreover, in setting the threshold at $50,440 in 2016, the department recognizes that the level set in 2004 was far too low, and that catch-up is long-overdue. The new threshold aligns the cutoff more closely with (though still below) the 1975 level, and consistent with the FLSA’s goals, helps to ensure that a substantial share of the white-collar workforce will automatically receive overtime pay protection.
The new threshold will also significantly reduce gaming of the current overtime rules reflected in employers’ practice of shifting unpaid non-exempt work onto low- and mid-wage white-collar employees, while denying overtime hours and pay to non-exempt employees. And, even the business community estimates that the new rule will create more jobs, as employers shift overtime hours from newly covered white collar employees in order to avoid overtime pay.
A Labor Department overtime rule that delivers on what the law intends and leads to less unpaid overtime for salaried employees, more time and greater earnings for hourly workers, and new jobs to handle overflow hours, is sound public policy that’s good for the workers affected and good for us all. Though Urban Outfitters described its unpaid weekend work as a “team-building” activity, fair rules that ensure adequate wages and reasonable hours for the whole team boost morale across-the-board. That’s what the Labor Department rules achieve, and that’s the kind of team we all want to play for.
Read the original op-ed at CNBC.