The U.S. Department of Labor’s (DOL) Wage & Hour Division recently proposed regulations that will sharply reduce the number of workers who can be legally deprived of overtime pay. If finalized, DOL estimates the regulations would protect roughly 3.6 million workers from being classified as “exempt,” and therefore excluded, from the Fair Labor Standards Act’s (FLSA) mandate that workers receive a 50% pay premium (i.e., “time and a half”) for every hour worked over 40 hours in one week. For these workers, and millions more at risk of being misclassified as exempt, these regulations could result in a meaningful improvement in their lives. But does the regulation increase workers’ power? The answer is, it depends on whether those workers have a union.
Let’s start with an admittedly overly simplistic description of the regulations’ mechanics. The FLSA exempts executive, administrative, and professional employees from its minimum wage and overtime protections; however, Congress did not define “executive,” “administrative,” or “professional” in the FLSA. It delegated the task to the Secretary of Labor. Regulations have defined those terms for decades. This new proposal would change the definitions in a limited way: increasing the salary employees must earn before they can be classified as executive, administrative, or professional.
Under existing rules, the salary threshold is $684 per week, or $35,568 annually for a full-year, full-time worker. Let’s pause on that shockingly low number for a moment. Do you know any honest-to-goodness executives who earn $35,568 per year? Have you even heard of an executive who earns that little? Indeed puts the average annual salary for an executive at almost $100,000. ZipRecruiter calculates the average at around $86,000 per year. For goodness sake, the real median U.S. family income in 2022 was $74,580. The weighted average poverty income threshold for a family of four in 2022 was $29,678. Do real-life executives earn half the national median income and only a few thousand dollars above a poverty income?! Do most professional employees, like doctors, lawyers, and accountants?! Plainly, an “executive” or a “professional” for overtime exemption purposes is not the typical American executive or professional.
Rant finished. Back to our analysis.
The new proposed regulation would boost the salary threshold to a level of at least $1,059 per week or $55,068 annually (the proposed level is complicated, see the proposed regulation's footnote 3). So, if the regulation is finalized and survives the inevitable business lobbyists’ lawsuit, what will it mean for workers and worker power? In particular, what will it mean for workers who earn between the old threshold and the new threshold --- that is, workers “in the sweep” of salaries between $35,568 and $55,068.
Workers in the sweep are currently exempt from overtime protections, but the new proposed regulation would nominally make them non-exempt and, therefore, legally entitled to overtime pay. Why nominally? Because they may or may not end up receiving overtime pay. During my time in the Obama-Biden and Biden-Harris Administrations, I participated in dozens of conversations with very smart lawyers and economists in which we tried to game out what would likely happen to workers if we raised the salary threshold. These four options broadly capture where those discussions landed.
Option #1: Some workers in the sweep will not get a raise and they will not get their overtime pay, even though the new regulation says they should. Some employers will misclassify workers as exempt who are not, or otherwise violate the FLSA by failing to pay these workers an overtime premium. Overtime violations are common. For some workers cheated out of overtime, there are legal remedies. In Fiscal Year 2022, the Wage & Hour Division found violations in almost 6,000 cases affecting more than 110,000 employees who had been deprived of a whopping $134.6 million in back wages. Workers also file thousands of overtime lawsuits each year under the FLSA’s provision authorizing private rights of action. Sadly, an unknown, but certainly large, percentage of employer overtime violations --- and employment law violations generally --- are never prosecuted because workers are afraid or unable to complain. Nonetheless, some portion of the group of workers in the sweep will successfully call on government’s power to force their employers to pay them the overtime wages they are owed. The new regulation will increase the number of workers who can seek that help. That’s undeniably a good thing for the affected workers.
Option #2: Some workers in the sweep will get a raise so their pay is above the new salary threshold and they remain exempt. Some people who read press coverage of the Labor Department’s new proposed overtime regulation probably expect this outcome. And some workers actually will get a raise, which is a very good outcome for them. A pay increase is likeliest for workers earning salaries within a few thousand dollars (or maybe more) of the new proposed threshold. In these cases, employers will have concluded that reasonable salary increases are cheaper and less risky than overtime liability. For many workers in the sweep, especially lower salaried workers, that calculus will not cause their employers to give them a raise.
Presumably, there is some level of salary increases that would cause employers to lay off executive, administrative, and professional employees. Yet, employers have legal options that allow them to avoid raising their costs entirely or in part (see below). So, layoffs in response to this new proposed regulation are unlikely. The bottom line is that some unknown number of workers will get higher pay these workers do not have sufficient individual bargaining power to secure on their own. A good thing.
Option #3: Some workers in the sweep will not get a raise to their base salaries, but their employers will comply with the new regulation and pay them a premium when they work overtime hours. Employers’ calculus in these cases would be that paying an overtime premium on occasion is less costly than raising base salaries permanently, in part because employees’ working hours are manageable. Under the FLSA, employers can mandate overtime, prohibit it, or set it at their preferred level. Again, like those workers in the sweep receiving a salary increase that lifts them out of the sweep, the new overtime regulation will mean higher incomes for workers who are newly paid an overtime premium, although their employers will decide how much and when.
Option #4: Some workers in the sweep will not get a raise to their base salaries, and their employers will not allow them to work any overtime. These workers will work only 40 hours per week or less, even if they are currently working longer hours. Some employees will work fewer hours because of the new proposed regulation. These workers will have more time for themselves, but they will not earn additional money. Employers will make up for their reduced work hours either by hiring workers at the same rate of pay or less to perform the requisite work, spreading the work among current employees who are working fewer than 40 hours per week, or requiring lower paid workers to perform the overtime work at lower cost to the employer. All these options illustrate the “work spreading” effect that was the original motivation during the New Deal justifying the FLSA’s overtime protections. If forcing employees to work overtime is more costly for employers because of the overtime premium, employers are incentivized to spread the work among more workers who are not paid that premium.
What does all this mean for worker power? Not much for individual workers. With the exception of Option #1, individual workers will have no say in which option their employers choose if the new regulation takes effect. Only those workers in the sweep illegally deprived of overtime pay who either sue or complain to the Wage & Hour Division will have more power. Of course, that power will be government power, not worker power. The power and its effects will be strictly limited and not within workers’ control. More important, apart from Option #1, employers will respond to any new regulation by reconfiguring their relationships with individual workers in the sweep to best serve the employer’s interests, not a worker’s interests.
The story is different for unionized workers, but not many. Two things must be true for unions to be involved. First, the union’s collective bargaining agreement with an employer must not already guarantee overtime pay to workers earning within the sweep. Collective bargaining agreements are not required to track federal overtime regulations. A labor-management contract can require that any worker receive overtime premium pay regardless of salary level or job responsibilities. In fact, union contracts can (and some do) mandate overtime after fewer than 40 hours. The Wage & Hour Division’s regulations set a floor below which employers cannot go. Unions can and do bargain for more. Second, unions must represent administrative employees or professional employees in the sweep. Are there such unions? Probably. Many unions represent clerical workers, doctors, researchers, accountants, and lawyers, for example. It’s possible that some of these workers perform the duties required to meet the overtime rule's definitions and earn within the sweep, especially in lower cost-of-living jurisdictions.
The proposed regulation would make these unions more powerful. They will not have to “spend” their bargaining power in future negotiations to raise their contractual salary threshold to $55,068. They will be able to invest that power in other economic demands, like higher wages or better retirement or health plans. The same cannot be said of private-sector professional employees. Most private-sector employees exempt from overtime protections because they are “professionals” probably are not union members. That’s because the Labor Department’s definition of “executive” employees and the National Labor Relations Act’s definition of “supervisor” overlap. "Supervisors" cannot organize or join a union (note: some state collective bargain laws allow supervisors to organize). An employee is a “supervisor” under the NLRA if they use “independent judgment” to “responsibly … direct” other employees. Employees are exempt "professionals" under the FLSA, in part, if they customarily and regularly direct the work of at least two or more other full-time employees or their equivalent. It's difficult to imagine how workers satisfy the FLSA definition without also satisfying the NLRA definition. Thus, FLSA “professionals” are likely NLRA “supervisors” and, therefore, not in a union.
In sum, the Labor Department’s proposed overtime regulation will produce some good outcomes for some individual employees. Some will get higher salaries, overtime pay, or more time for themselves. Some more employees who have been cheated out of overtime pay will be able to call on government to protect them. All those things are good for those workers. Nonetheless, employers will choose which outcome individual workers get. These workers will not have any additional power to make their own decisions or influence others' decisions. Unionized workers in some administrative and professional occupations, on the other hand, will gain increased bargaining power; power they can wield to effect the results they and their co-workers want in their work lives. In fairness, these outcomes are not special to this proposed overtime regulation. But they are worth considering when weighing the value of laws versus the value of unions.
