This is an update to a report that was originally published on March 22, 2019. This updated version includes data on wages lost under the 2019 Trump administration overtime proposal that would have been received under the 2016 rule.

On March 22, 2019, the Department of Labor published a proposal to set the salary threshold under which almost all workers are entitled to overtime pay to $679 per week, or $35,308 for a full-year worker, in 2020.1 The adoption of this proposal would leave behind millions of workers who would have gotten new or strengthened overtime protections under regulations finalized in 2016.2 This analysis compares the economic impact of the Trump administration proposal to the 2016 rule. Key findings include:

• An estimated 8.2 million workers would be left behind by the Trump proposal.
• The 8.2 million workers left behind by the Trump proposal include 3.1 million workers who would have gotten new overtime protections under the 2016 rule and 5.1 million workers who would have gotten strengthened protections under the 2016 rule.
• The 8.2 million workers who would be left behind include 4.2 million women, 3.0 million people of color, 4.7 million workers without a college degree, and 2.7 million parents of children under the age of 18.
• Because the Trump proposal does not automatically index the threshold going forward, the number of workers left behind grows from 8.2 million in 2020 to an estimated 11.5 million over the first 10 years of implementation.
• The annual wage gains from workers who get new protections are $1.2 billion dollars less under the Trump proposal than under the 2016 rule. These annual earnings losses will grow from $1.2 billion to $1.6 billion (in inflation-adjusted terms) over the first 10 years of implementation due to the fact that the Trump administration proposal does not include automatic indexing.

The 2016 rule, which was held up in court3 following a challenge by business trade associations and Republican-led states, would have increased the overtime salary threshold to $913 per week, or $47,476 for a full-year worker, from its current level of $455 per week, or $23,660 for a full-year worker. It would also have indexed the threshold to wage growth on a triennial basis; under the 2016 rule, the threshold would have increased to roughly $51,000 on January 1, 2020.

In publishing the new proposal with a lower threshold, the Department of Labor under the Trump administration is alleging that the 2016 rule set the threshold too high and needs to be corrected. This is not supported by the data. The 2016 rule was well within historical norms; in fact, it would have covered far fewer workers than the threshold had covered in the past. In 1975, more than 60 percent of full-time salaried workers earned below the threshold.4 By 2016, the share of full-time salaried workers covered by the threshold had dropped to less than 7 percent. The 2016 rule would have just partially restored this coverage, to roughly 33 percent. The Trump proposal would cover less than half of the workers covered by the 2016 rule, just 15 percent.5

The 2016 rule did require a large increase in the threshold, but only because the rule had not been appropriately updated since 1975. If the 1975 rule had simply been updated for inflation, it would be roughly $58,000 in 2020—well above the projected 2020 threshold of the 2016 rule, $51,000. The new proposed rule, at $35,308 in 2020, is around $23,000 less than the inflation-adjusted 1975 level.

If the department finalizes its new proposal, millions of workers who should get overtime protections will fall through the cracks. In their proposal, the department provides estimates showing that 2.8 million fewer workers will be affected under their proposal than under the 2016 rule, but this is a vast underestimate, for two reasons. First, they use pooled 2015–2017 data, benchmarked to 2017 wage and employment levels, and state that these figures “are the Department’s best approximation for impacts starting in 2020.” This leads to an underestimate because it doesn’t account for employment growth and other changes in the three years between 2017 and 2020. I correct for this issue to the extent possible by using more updated data—pooled 2016–2018 data, benchmarked to 2018 wage and employment levels—and inflating employment and wage levels based on Congressional Budget Office economic projections for 2018–2020.

Second, the department’s estimate of those left behind leaves out an entire group of workers who would be affected by the rule—those who will no longer get strengthened protections. To understand what a large omission this is, it is useful to keep in mind that there are two groups of workers who would be affected by any update to the overtime threshold. One group consists of those workers who get new protections under a new threshold—namely salaried workers who are bona fide managers, supervisors, or learned professionals who earn above the old threshold but below the new threshold. These workers are not legally entitled to overtime protections under the old threshold but would be overtime-eligible under the new threshold. But there is another large group of workers who are affected by any increase in the threshold—workers who get strengthened protections. Workers who get strengthened protections are salaried workers who earn above the old threshold and below the new threshold but who are not bona fide managers, supervisors, or learned professionals. These workers should have overtime protections under the old threshold—but because they earn a salary and earn above the threshold, they are vulnerable to being misclassified by their employer as overtime-exempt. However, once the threshold rises above their earnings level, their status as overtime-eligible becomes very clear. In their estimate of how many workers get left behind by their proposal, the department ignores the millions of workers who will not get strengthened protections under their proposal but who would have gotten strengthened protections under the 2016 threshold.

Table 1 shows how many workers will be left behind by the Trump proposal, broken down by by demographic and by whether these workers would have gotten new or strengthened protections under the 2016 rule. For reference, the table also provides the underlying numbers of workers who would have gotten new or strengthened protections under the 2016 rule compared with the numbers who would get new or strengthened protections under the 2019 proposal. The table shows that the 8.2 million workers who would be left behind include 4.2 million women, 3.0 million people of color, 4.7 million workers without a college degree, and 2.7 million parents of children under the age of 18. The appendix tables provide further breakdowns by major industry and occupation (Appendix Table A1) and by state (Appendix Table A2).

The number of workers left behind by the Trump proposal grows over time because the proposal does not include automatic updating, whereas the 2016 rule would have automatically updated the threshold every three years. Table 2 shows the increase in the number of workers that would be left behind during the first 10 years of implementation of the Trump proposal. While the department does not assume the threshold will be updated in future years in its own economic impact projections, it is worth noting that the department claims that it is “committing to evaluate” the threshold “more frequently” going forward, in particular mentioning a flexible commitment to notice and comment rule-making to increase the threshold every four years. Given that notice and comment rule-making is extremely time- and resource-intensive—the 2016 rule-making took more than two years—this is an enormously inefficient way for the government to operate (and is why huge stretches of time go by between rule-makings). It makes little sense to go through notice and comment rule-making just to maintain a standard—that process should be reserved for when policymakers want to change the substance of a rule, while automatic updating should be used to ensure that the standard does not erode in the meantime. Further, automatic updating provides crucial predictability for employers. With automatic updating, as opposed to a vague claim that updating will be considered every four years, employers know exactly what to expect and when to expect it.

The lower salary threshold of the Trump proposal will translate into lower earnings for workers. Table 3 shows that the annual wage gains from workers who get new protections are $1.2 billion dollars less under the Trump proposal than under the 2016 rule. This calculation includes both wages lost by workers who would have gotten new protections under the 2016 rule but would not get new protections under the Trump proposal, and wages lost by workers who would get new protections under either the Trump proposal or the 2016 rule but who would have gotten a larger raise under the 2016 threshold than under the 2019 proposal. The calculation does not include earnings losses by those who would have gotten strengthened protections under the 2016 rule but would not get them under the Trump proposal. Table 3 also shows that the annual earnings losses grow from $1.2 billion to $1.6 billion (in inflation-adjusted terms) over the first 10 years of implementation due to the fact that the Trump administration proposal does not include automatic indexing. Appendix Table A3 in the appendix provides wage loss breakdowns by state.

Given the large number of workers who will be left behind under this proposal who would have been covered by the painstakingly justified 2016 rule, we encourage the department to drop this rule-making and instead defend the 2016 rule. Further, defending and then implementing the 2016 threshold would lead to better use of one of the most precious resources of working families in this country—their time—by providing an incentive for employers to balance the additional hours they ask of their workers with the costs of either overtime pay or of raising salaries to the new salary threshold. That incentive is consistent with a fundamental principle embodied in the Fair Labor Standards Act—that workers should receive a fair day’s pay for a long day’s work. The department’s new proposed rule—which is based on the notion that someone struggling by on $35,000 a year is a highly paid executive who doesn’t need or deserve overtime protections—flies in the face of those principles and should be abandoned.

Appendix tables

Endnotes

1.  Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees [proposed rule], 84 Fed. Reg. 10900–10969 (March 22, 2019).

2. Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees [final rule], 81 Fed. Reg. 32391–32552 (May 23, 2016).

3. See Celine McNicholas, Overtime Ruling Rests on Flawed Logic and Undermines the Rights of Working People to Get Paid for Their Time on the Job, Economic Policy Institute statement, August 31, 2017.

4. See Celine McNicholas, Samantha Sanders, and Heidi Shierholz, What’s at Stake in the States if the 2016 Federal Raise to the Overtime Pay Threshold Is Not Preserved—and What States Can Do about It: State Action to Modernize Overtime Rules (Research Report), Economic Policy Institute, November 2017.

5. EPI analysis of pooled Current Population Survey Outgoing Rotation Group microdata, 2016–2018, following the methodology used in the U.S. Department of Labor’s 2019 proposed rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees [proposed rule], 84 Fed. Reg. 10900–10969 (March 22, 2019).