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By Sunny Frothingham
May 18, 2016
Caption : The U.S. Department of Labor’s overtime rule is poised to strengthen the middle class, drive economic growth, and provide fairer pay for 12.5 million workers, including 4.5 million Millennials.      

This column, originally published in August 2015, has been updated to reflect the final annual salary threshold announced on May 18 by the Department of Labor.

The U.S. Department of Labor has announced a new rule that will give 12.5 million workers, including 4.5 million Millennials, a raise. The new rule, which determines who is covered by the Fair Labor Standards Act, more than doubles the annual salary threshold for guaranteed overtime pay from $23,660 to $47,476. This change would guarantee that workers with salaries below this level earn overtime pay—the equivalent of 1.5 times their hourly wage—whenever they work more than 40 hours per week.

The act was originally designed to ensure that white-collar employees who do not have high salaries or control over their work schedules receive fair pay when they work more than 40 hours per week. Overtime rights are crucial to the strength of the middle class. In 1975, the overtime provision covered 62 percent of salaried workers. But under the current salary threshold of $23,660, the law covered only 8 percent of salaried employees as of 2014. Today, if a worker earns anything above $23,660, which is less than the federal poverty level for a family of four, their employer can classify them as exempt from overtime as a “professional,” ”executive,” or “managerial” employee—even if they spend most of their day stocking shelves. Increasing the salary threshold for overtime to $47,476 makes overtime rights available to the middle class once again.

Workers younger than age 35 will see the greatest effect

The salary threshold increase is a significant gain for millions of Americans of all ages, but it will especially affect salaried workers under age 35 because they are more likely to have salaries that fall below the new threshold. A vast majority of 16- to 24-year-olds and a substantial proportion of 25- to 34-year-olds would qualify for overtime pay based on their salaries. Almost 70 percent of 16- to 24-year-olds and 40 percent of 25- to 34-year-olds with full-time salaries in exempt roles earned less than the threshold of $47,476 in 2013.

The strength of the U.S. economy depends on providing Millennials with opportunities to join and build up America’s middle class. But without guaranteed overtime rights, too many people have to work long hours without ever getting ahead. With this new rule, Millennials working more than 40 hours per week will be better able to attain financial stability.

Overtime rights will drive economic growth and give workers more power

In addition to providing fairer pay to the many Millennials who are already employed, increasing the overtime salary threshold provides a powerful incentive to businesses to hire more workers. While the national unemployment rate has recovered significantly since the start of the Great Recession in 2007, Millennials—particularly young Millennials of color—attempting to enter the workforce today still face extremely high unemployment rates.

Worker hours have recovered since the recession, even though unemployment has remained above prerecession levels. This implies that, instead of hiring new workers, firms have simply increased the hours of their current workers. Because the new rule will require a larger range of salaried workers to be paid time and a half when they work more than 40 hours per week, employers have an incentive to hire more workers instead of pushing their current employees to work longer hours.

In addition to incentivizing job creation, reforming overtime rules will boost consumer demand. By increasing the paychecks of workers who become eligible for overtime pay, the rule will enable middle-class workers to spend more money, which in turn means sustainable economic growth from the middle out.

The rule is a win for Millennials’ week-to-week income, but it is also a powerful action by the Obama administration to put more power back into the hands of the American middle class—power that many Millennials have never had. Young workers today started looking for jobs at a low point for pay standards and workforce conditions, and they have never had the same overtime protections as their parents. Saddled by staggering amounts of student debt in a still-recovering economy, Millennials have lacked the bargaining power to push back against jobs that pay unfairly or demand chaotic, unreasonable scheduling. Expanding overtime rights would put more power back into the hands of workers to demand fair pay and reasonable hours.

Conclusion

American workers are more productive than ever, but without overtime protections, too many of them work long hours without getting ahead. Expanding overtime protections to cover workers with annual salaries less than $47,476 reinstates the rights of Americans to fair pay for their work, while also driving economic growth. If the new rule is implemented, it will be especially beneficial for Millennials reaching for the middle class.

Will you benefit from the new overtime rule? Share your story here.

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