Explaining the differences between EPI and DOL estimates of workers affected by the new overtime salary threshold

In our report on the new overtime rule, EPI estimates that it will directly benefit 12.5 million workers. At first blush, our evaluation of the impact of the rule differs significantly from the widely circulated Department of Labor (DOL) assessment that 4.2 million workers will directly benefit from raising the salary threshold—meaning they are currently legitimately exempt because of their duties, but will be covered by the new threshold. DOL also notes that 8.9 million workers, meanwhile, will have their rights strengthened by the higher salary threshold, for a total of 13.1 million directly affected by the rule (600,000 more than our estimate). Additionally, of the 8.9 million salaried workers whose overtime rights would be strengthened, DOL notes that about 732,000 regularly work more than 40 hours a week, but are currently incorrectly classified as ineligible for overtime—bringing the total number of workers DOL estimates will be newly eligible for overtime pay up to 5 million.

We believe that many more workers will be newly eligible for overtime pay. Our assessment differs from DOL’s because the department assumes, incorrectly in our view, that overtime eligibility was not eroded by changes to the OT rules implemented by the Bush administration in 2004. We provided detailed evidence last year showing that overtime eligibility has been severely eroded since the late 1990s, when DOL computed the exemption probability estimates by occupation that it still relies on today. We concluded that:

…reliance on judgments made in 1998 provides an unreasonably sunny view of today’s workplaces that ignores changes in the law implemented in 2004, various court decisions, and the corresponding behavior of employers to limit the ability of workers to obtain overtime pay.

The 4.2 million employees DOL estimates will be newly entitled to overtime pay are limited to those who both meet duties tests establishing that their primary duty is executive, administrative or professional, and earn a salary higher than the old exemption threshold ($23,660 a year) but less than $47,476. For example, an accountant earning $40,000 or a bank branch manager earning $45,000 are legitimately exempt under the current rules but will be entitled to overtime pay because their salary is below the new threshold.

By contrast, EPI counts everyone who is covered by the FLSA and earning a salary between the old threshold and the new one as benefitting from the new rule. This is because they will know—most of them for the first time—that they are entitled to overtime pay. Until now, many of those 12.5 million employees were denied overtime pay based on the duties tests and treated as exempt, even though they were not clearly or legitimately exempt. At the very least, all of these workers have now had their rights strengthened and clarified.

We have no doubt that DOL’s headline estimate substantially undercounts the number whose rights will be changed. DOL does its calculations of how many employees are currently legitimately exempt based on pre-2004 estimates (done in 1998) of what percent in each occupation would pass the duties tests. So, for example, DOL counts 90 percent of bookkeepers as currently non-exempt (entitled to overtime pay) and says their rights won’t change because of the new rule. In fact, employers largely treat all bookkeepers as exempt now, and it isn’t clear how a court would rule on their exemption. So almost all of them will benefit from the rule.

DOL admits that it has relied on the pre-2004 estimates but defends them even though they fail to account for the significant changes made to the duties tests for exemption in 2004. We addressed this issue in last year’s report, which provided “detailed evidence below showing that OT eligibility has been severely eroded since the late 1990s, when DOL computed the exemption probability estimates that it still relies on today.” The impact of that reliance on outdated estimates can be clearly seen by comparing DOL’s exemption estimates with those of the National Retail Federation (NRF) in the 15 occupations that the NRF says will be most affected by the rule.

In its report, Rethinking Overtime Pay, the NRF asserts that hundreds of thousands of employees (whom DOL would have determined to be eligible for overtime in 1998) are “currently exempt” but will gain eligibility when the salary threshold is raised. (The details are provided in Appendix C of the report.) NRF estimates, for example, that 89,000 shipping, receiving, and traffic clerks are exempt but will gain eligibility, whereas DOL’s estimated probability of exemption, based on the 1998 GAO analysis, would yield only about 4,500 exempt clerks. Similarly, the NRF says 146,000 of the industry’s bookkeeping, accounting, and auditing clerks are exempt, whereas DOL’s probability estimate is a little more than 7,000. Relative to DOL’s estimates, the NRF estimates that 114,000 more general office clerks, 281,000 more first-line supervisors of food preparation workers, and 52,000 more secretaries are ineligible for overtime.

In all, there is a 1.14 million difference between DOL’s estimates and the number of workers that the NRF estimates are ineligible now but could be newly eligible if the threshold were raised. Put another way, the NRF’s analysis confirms a de facto erosion in overtime pay eligibility by finding that 1.14 million fewer employees in the top 15 salaried occupations in the retail and restaurant sector have overtime eligibility compared with the number who would have had eligibility under the pre-2004 rules.