The federal cap on how much salaried workers can earn before being ineligible for overtime will rise next week for the first time since 2004, a change that will put more money in workers’ pockets but may prompt employers to restrict their hours.
In shops and restaurants and offices around the country, salaried employees typically don’t make time-and-a-half when they put in more than 40 hours a week. That’s because most salaried workers, including low-level managers and shift supervisors earning as little as $23,660 a year, are exempt from earning overtime.
On Jan. 1, the federal threshold at which salaried workers are no longer eligible to earn extra pay will rise to $35,568, or $684 a week, qualifying an estimated 1.3 million more Americans for overtime unless their employers raise their salaries above that limit. That is millions fewer than would have benefited from a higher level proposed by the Obama administration, but in Massachusetts, legislators are looking to raise the limit even higher, to $64,000 by 2024.
A manager who claimed to be routinely “used and abused” working 60-80 hours a week without added compensation testified in support of raising the state’s cap that hourly employees eligible for overtime sometimes made more than their managers.
A working mother in Worcester said that despite working more than 40 hours a week she was having a hard time covering rent, bills, and necessities for her children.
“As an assistant manager, I shouldn’t have to struggle to feed my family,” she said.
The Massachusetts AFL-CIO has been advocating for an increase in the federal overtime threshold since President Obama’s attempts to raise it to $47,476. When a court struck down the increase a few weeks before it was set to go into effect in late 2016, and the Trump administration decided to reexamine the cap, the local arm of the union federation started concentrating on a state increase.
“We see this as a big piece of the wage inequality puzzle,” said John Drinkwater, legislative director of the Massachusetts AFL-CIO. “We see workers working over 40 hours essentially for free as a big, big part of that puzzle.”
Businesses, on the other hand — especially nonprofits and small companies with lower profit margins — would take a hit, especially if Massachusetts enacts a threshold above the federal level. Employers could reclassify salaried workers as hourly in order to better track their time, which means they could lose their flexible schedules and comp time, according to Christopher Carlozzi, Massachusetts state director for the National Federation of Independent Business. This reclassification could also lead to positions being cut and fewer workers to share the load.
At All Hands and Hearts, a Mattapoisett-based disaster-recovery nonprofit, even the bump above $35,000 is having a big impact. When disaster strikes, employees need to put in extra hours, said chief executive Erik Dyson: They can’t just say, “Oh, it’s 5 o’clock on Friday, I’m clocking out.” And the nonprofit can’t afford to pay them extra for the thousands of hours of overtime that can build up during a busy quarter — and gets balanced out during slower times when employees can work shorter days, Dyson said.
So in anticipation of the federal hike, the nonprofit took money from its generous health care plan and used it to give raises to about 25 employees — social media managers, volunteer coordinators, and other junior managers, many of them in their 20s — to put them above the threshold at which overtime pay is required. Now the nonprofit’s health plan, which had subsidized about 90 percent of costs, covers 65 percent instead. The nonprofit also eliminated some open positions and laid off several employees.
This means demanding more from fewer people, said Dyson, who is also anticipating an economic downturn that could cause even more headaches.
And if the state overtime cap goes to $64,000? “We would be forced to move jobs outside Massachusetts for sure,” he said.
Even with the increase on Jan. 1, just 15 percent of salaried workers nationwide will be eligible for overtime pay, down from 63 percent in 1975, according to the Economic Policy Institute, a Washington, D.C., think tank that advocates for low-income workers. The bump grants new or strengthened overtime protections to 120,000 workers in Massachusetts, according to the institute. And the proposal to raise the cap to $64,000 in Massachusetts by 2024 — a pair of bills are under consideration by the Ways and Means committees in the House and Senate — would benefit an additional 300,000-plus salaried workers, according to strategic researcher Jeremy Thompson, a former senior policy analyst at the Massachusetts Budget and Policy Center.
Advocates are now considering pushing for an even higher cap, of $78,000, by 2026.
Several states have already approved elevated thresholds, including California, which is going to $62,400 by 2022, and New York, which is phasing in a $58,500 cap over the next few years. Other states are also considering higher caps, including Washington, which is planning to set the cap above $83,000 by 2028.
Jon Hurst, president of the Retailers Association of Massachusetts, supports raising the cap to roughly $35,000. But local employers would be “off the charts concerned” about limits of $64,000 or $78,000, he said. Business owners are already dealing with the minimum wage rising to $15 by 2023 — a 90 percent increase over a nine-year period, Hurst pointed out — as well as paid family and medical leave. Some small businesses are already closing their doors, he said, and there aren’t enough entrepreneurs filling the void.
“It’s not something we should be doing on our own,” he said of the higher overtime threshold. “Let’s let the federal standard work for a while and see how it goes.”
But advocates don’t want to wait. Increasing the number of workers eligible to earn overtime has two beneficial outcomes, said Drinkwater of the Massachusetts AFL-CIO. It allows workers putting in more than 40 hours a week to be properly compensated, while compelling employers to cut back on people working extra hours.
“Right now, there’s no economic incentive for employers to allow their [salaried] workers to go home and spend time with their families after 40 hours a week,” he said.