How overtime pay went from a labor right to a rarity

By Marcus Baram

May 10, 2022

How overtime pay went from a labor right to a rarity

This article is from Capital & Main, an award-winning publication that reports from California on economic, political, and social issues.


After decades of decline in overtime pay, the Biden administration is considering action to sharply expand access in a time of high inflation. This is the first article of a four-part series examining the 40-year effort by big business and elected officials to deny Americans extra pay for extra work.

While in the White House, Barack Obama had ambitious plans to expand overtime pay to millions of American workers who didn’t receive it, seeking to revive the New Deal promise of a fair wage for a fair day’s work. He was partly inspired by a single mom working at a sandwich shop in Tucson, Arizona.

Elizabeth Paredes was 23 and raising a 3-year-old boy in 2015 when she concluded it was unfair that she didn’t get paid time and a half for the extra hours she put in as an assistant manager at Baggin’s Gourmet Sandwiches. She was working at least 50 hours a week at the deli chain but still wasn’t earning a higher wage for those overtime hours, leaving her struggling to pay her rent, buy groceries, and afford childcare. Paredes went to her manager to complain, but she says he replied with the words: “That’ll never happen.”

She didn’t qualify for an overtime wage, a store supervisor explained, because she was a salaried employee and her $24,000 salary put her above the threshold to qualify for overtime pay. That didn’t seem fair, so she decided to contact a person with the power to change the situation for people like her. “Somebody’s got to say something, or nothing is going to happen,” she says.

She penned a letter to President Obama that summer to ask the former community organizer to expand the number of Americans who qualify for overtime. “It’s not easy work and requires a lot of time away from my son,” Paredes wrote to Obama. “At times,” she added, “I find [it’s] not worth it.”

Decades earlier, most people in Paredes’ situation did earn overtime. In 1975, more than 60% of salaried workers qualified for time and a half pay. (So did most hourly workers.) By 2016, that share had shrunk to less than 7%, according to the Economic Analysis and Research Network, before rebounding slightly in the years that followed.

Paredes didn’t think much about her missive to the president. But a few months later, she received a certified letter from Obama in which he’d written that he was “struck by how hard you are working to build a bright future for your son. I want you to know that I hear you.”

Secretary of Labor Tom Perez later called to invite Paredes to a White House event, at which Obama announced a proposal in preparation for two years to expand overtime protections for workers like her.

She couldn’t make the trip due to her work schedule, but she was on the administration’s radar. In a weekly address on May 21, 2016, Obama kicked off his remarks by describing the letter from Paredes, and then announced plans to overhaul overtime rules that would make millions of additional workers eligible. “[Elizabeth] earns about $2,000 a month, and she routinely works some 50 hours a week, sometimes even more. But because of outdated overtime regulations, she doesn’t have to be paid a dime of overtime.”

Then, as now, the vast majority of people who work more than 40 hours are excluded from overtime for earning too much, but the income threshold for exclusion has long been notably low. In 2016, people earning more than $23,000 in salary—equivalent to about $11 an hour on a full-time schedule—were ineligible. That overtime pay eligibility threshold, which topped out at much less than the median salary in the country, hadn’t changed in over a decade. Nor had it kept pace with inflation since Gerald Ford was president, meaning that millions of workers saw their overtime eligibility slide away as their income increased, in some cases very moderately.

Obama proposed to more than double the maximum income limit to $47,000, which would have extended overtime protections to an additional 4.2 million workers. The change would, according to his administration, increase wages for such workers by $12 billion over the next decade.

 

“This is the single biggest step I can take through executive action to raise wages for the American people,” said Obama in his 2016 address. “It means that millions of hard-working Americans like Elizabeth will either get paid for working more than 40 hours, or they’ll get more time with their families. Either way, they win, the middle class wins, and America wins.”

Days after Obama’s speech, when Paredes walked into work, she recalls, she was mocked by her supervisors for being a “rock star” whose name was on the president’s lips.

But that didn’t translate into more income. Several months later, Paredes says she was transferred to another store and told to work the grill. She perceived the change as a step down from her previous job—and she never did earn any overtime. She didn’t even receive the annual pay raise she was accustomed to. “I got nothing more than snide remarks,” she says.

“That was the last straw, and I quit.”

The chain’s management did not respond to multiple requests for comment by phone and email.

Paredes ended up moving to Pennsylvania where she works part time at her fiance’s family’s restaurant while also raising her son.

It turns out that the Obama administration’s overtime effort wouldn’t have helped Paredes, even if she had stayed in her old job. Six months after the presidential speech—and before the plan was implemented—dozens of industry groups and states sued the administration to block the proposed changes. A federal judge concluded, based on the plaintiffs’ arguments, that it was a case of government overreach. Obama’s modernized vision of overtime was dead.

Trump’s Halfway Overtime Win

Things ultimately changed for some workers, but only after Obama had been replaced in the White House. The Trump administration was much less ambitious, implementing a split-the-difference overtime expansion that was more amenable to industry; it raised the overtime income threshold to $35,000 in 2019 and broadened overtime eligibility to an estimated 1.3 million additional workers. That was half of the increase that Obama attempted, but it left nearly 3 million additional workers who stood to benefit from Obama’s proposal out of luck. Most significantly, though, Trump’s overtime expansion passed legal muster.

Some economists noted that Trump’s overtime expansion wasn’t nearly large enough to make up for decades of lost wages. And it didn’t help the typical worker at all. The overtime threshold of $35,000 remains far below the typical salary for a full-time worker. In 2021, that was $51,480, far below the upper limit that President Obama sought.

The Trump administration also neglected to automatically index their overtime salary limit to inflation, meaning that in times of declining buying power for many, overtime eligibility has slipped away from more workers, sometimes as they received very small wage increases.

Meanwhile, many people have lost economic ground, in some cases a great deal, over the years due to rising prices. When adjusted for general inflation, the typical worker’s wage increased just 8.8% between 1979 and 2019, even as real housing prices jumped 50% and healthcare costs soared.

No Overtime Pay in Classrooms or on the Farm

There are other reasons that tens of millions of Americans who work more than 40 hours weekly don’t qualify for overtime. Some don’t receive it because they work in one of the numerous occupations—such as farm work and teaching—that have long been exempt due to industry lobbying and political compromise.

In 1938, the Roosevelt administration accepted the exclusion of farmworkers from overtime protections to win the votes for the Federal Labor Standards Act of Southern Democrats whose rural constituents relied largely on poorly paid Black labor. Eighty-four years later, that exclusion remains.

Other workers miss out on overtime because they have minor management responsibilities. Even fast-food managers who work the grill and sweep bathrooms are exempt if at least half of their time is spent “managing” two or more employees.

If excluded workers did earn overtime, the additional money they made would be substantial. Nationwide, about 18 million people say they work more than 50 hours a week. This suggests that the vast majority of them are not receiving time and a half for at least 10 hours of work.

The Biden administration has promised to remedy this, at least for some workers, likely by sharply increasing the maximum income eligible for overtime pay and by more narrowly defining managerial duties that exclude many workers from overtime.

Congresswoman Pramila Jayapal, of Washington State, told Capital & Main that dozens of progressive lawmakers stressed the importance of raising the overtime-income threshold to President Biden in meetings at the White House in late March. She declined to characterize the president’s response, but the Department of Labor is reportedly set to unveil a formal proposal on overtime in the coming months.

There’s little doubt that the administration’s effort will face opposition from much of the business lobby and some fiscally conservative lawmakers, who have already written to Labor Department Secretary Marty Walsh to argue that expanded overtime protections will weaken American businesses.

They have made similar arguments against increases in the minimum wage for generations. Advocates for overtime reform counter by highlighting the link between such wage issues and the widening gap between the rich and low-income workers in the country. The Economic Policy Institute cites weakened labor standards, including “eroded overtime protections,” as a factor in the worsening wage inequality over the last four decades. While worker productivity has sharply increased during that time, most of the rewards have gone to executives and corporate shareholders, even as median wages stagnated.

The decline of overtime “parallels the entire history of the drop in median wage relative to productivity,” says Marilyn Watkins, a professor at the University of Washington School of Public Health.

Watkins, who has studied labor and employment issues, adds that “there was a cascading set of policies through the 1980s, 1990s, and 2000s that just enabled, in all sorts of ways, the income and wealth gap to grow.”

When it comes to overtime, there are ever more categories of employees who are exempt from overtime pay, including computer programmers, insurance claims adjusters, news editors, most delivery workers, and movie theater staff.

Sociologist Kim Bobo, author of the book, Wage Theft in America: Why Millions of Americans are Not Getting Paid—and What We Can Do About It, provides a simple overarching explanation.

“Many of these job categories are only ‘exempt’ because employers groups have lobbied hard to have made them ‘exempt,’ rather than because there is some intrinsic reason why the workers shouldn’t be provided overtime pay,” she says.

The Overtime Maze

The list of exemptions and the rules around overtime qualification are so complicated that the Labor Department’s own officials have admitted, during congressional hearings on the subject, that they have trouble understanding them.

The overtime rules governing journalists are notably confusing. Reporters who write up stories by gathering facts on “routine community events” can qualify for overtime because they’re not considered “creative professionals.”

But if a journalist’s primary duty is to perform on-air, to conduct investigative interviews, “to analyze or interpret public events; to write editorial, opinion columns or other commentary; or to act as a narrator or commentator,” they don’t qualify for overtime.

Labor Department guidelines put it this way: “The less creativity and originality involved in their efforts, and the more control exercised by the employer, the less likely journalists are to be considered exempt.”

Some occupations that clearly involve long hours—such as teaching—have always been exempt. Annalisa Capotorto, 37, has been an instructor for 12 years but has always, like many of her colleagues, worked extra hours during school days and on weekends. She also uses her own money to buy supplies like books and crayons for her classroom when the school does not provide them.

Capotorto, who has a child, loves her profession, but she’s considering taking another job that pays more because she’s tired of getting down to just $150 between paychecks.

“I have nothing in savings, I don’t have money if my car breaks down,” she says, adding that she and her husband can’t afford to have a second child because the day care costs are too high. “I just want to have a life where I am not worrying about paycheck to paycheck.”

Often, workers are unaware that they’re entitled to overtime and thus fail to demand the pay they’re due. Sage Bird, a single mother in Santa Fe, worked as a health enrollment counselor at BeWellNM, the state’s health insurance exchange, from 2016 until 2019. She says that during the busy three months of the year when one can enroll in a health insurance plan for the next calendar year, she was paid overtime, but for the rest of the year she wasn’t, even though she was regularly working three to five extra hours per week.

Bird says she didn’t know she was supposed to receive overtime whenever she worked the extra hours. “I wish I had known,” she adds, “so I could’ve taken care of my grandma, who died while I was at that job.”

In response to a query from Capital & Main, BeWellNM says that Bird was never its employee during her time there but was employed by New Mexico Primary Care Association (NMPCA). Delia Eileen Goode, the CEO of NMPCA said, “I am not aware of any time that an employee was not paid for working overtime.”

Other employees may suspect they are entitled to overtime but don’t raise the issue unless coworkers do for fear of angering bosses or losing their jobs.

It can be a vicious cycle in which a hard-earned labor right has withered, depriving tens of millions of workers of income even as many companies and institutions have thrived, partly thanks to money they’ve saved through overtime wages they don’t pay. Given that overtime has become increasingly rare over a period of two generations, many workers have no idea that it was, until fairly recently, a widespread and well-established labor right.

“People have been made docile because they have become generationally inured to being on the short end of the stick,” says Michael McGrorty, a former Labor Department investigator.

Paredes, the deli worker who wrote the letter to Obama, is convinced she deserved overtime pay for the work she put in. “Where’s the fairness?” she asks. “If you work so many hours, you deserve to get paid more for going above and beyond what is required. You’re working extra—and not getting extra pay.”


Frances Madeson contributed to this story.

Copyright 2022 Capital & Main.

This series on overtime was produced by Capital & Main in partnership with the McGraw Center for Business Journalism at CUNY’s Newmark Graduate School of Journalism and Type Investigations, with support from the Puffin Foundation.

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