Tuesday, May 31, 2016
Last week there was a lot of news about the Department of Labor raising the salary threshold. Here’s a brief history of overtime pay.
Overtime or time and a half began with the Fair Labor and Standards Act of 1938. The FLSA established the eight hour a day/forty hours a week work standard, a national minimum wage, restricted employment of minors, and guaranteed time and a half pay for work over forty hours. Overtime pay was initially looked upon as a fine for employers and not a bonus for workers.
Salaried or white collar workers (executive, administrative, professional) have been neglected overtime more so than hourly workers as employers can designate who is exempt from overtime by assigning “managerial” titles or paying a salary slightly above the established threshold. Since 1940, the Department of Labor regulations have required three tests to establish exemption from overtime under the FLSA- (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the work performed (2) the salary paid must meet a minimum specified amount (3) the employee’s job duties must primarily involve executive, administrative, or professional duties. Any employee below the salary threshold and not meeting the test requirements is eligible to be paid overtime.
The current standard for eligibility dates to the 1950’s. If an employee’s job duties or salary fell below the standard then they were eligible for overtime. The Department of Labor has the power to define who is eligible through the FLSA. Since the passing of the FLSA, the Department of Labor has changed the definition six times. The minimum salary threshold for overtime by salaried workers was last changed by the Department of Labor in 2004 when it was raised to $23,660 annually. The previous adjustment was 1975.
On May 18, 2016, the Department of Labor announced new overtime rules and threshold that will take effect December 1, 2016. The new rule focuses on updating salary compensation for employees designated executive, administrative and professional. The threshold for overtime pay was raised to $47,476 annually or $913 per week.