State by State: New Proposed Overtime Rules

JULY 2015

The Council of State Governments

CAPITOL RESEARCHFISCAL & ECONOMIC DEVELOPMENT POLICY

THE COUNCIL OF STATE GOVERNMENTS

The U.S. Department of Labor has published a notice in the Federal Register proposing a new rule that could extend overtime protections to almost 5 million additional workers as early as 2016.1

Current law requires employers pay overtime for non-salaried workers. Salaried employees are defined by a set of criteria, including job duties and a salary threshold. The proposed new rule would more than double the salary threshold and tie it to inflation, which means more workers would qualify for overtime protections. The Fair Labor Standards Act requires most

employers to pay employees at a rate of time-and-a-half for any hours worked over 40 per week.

The law exempts a group of executive, admin-istrative and professional employees from this rulegenerally referred to as white collar work-erswho satisfy certain job duties and receive a minimum weekly salary or salary level threshold.

While originally designed to exempt well-compen-sated professionals, the salary level threshold has been updated only once since the 1970sin 2004and has eroded over time due to inflation.

The salary threshold currently stands at $23,660 per year, which is below the poverty threshold for a family of four, according to the White House. Only 8 percent of full-time salaried workers earn below this level.

The proposed new rule would raise that threshold to the 40th percentile of earnings for full-time salaried workersor around $50,440and the threshold would automatically update every year by some measure of inflation.

The new rule doesnt include any specific regula-tory changes to the duties test that is used to determine whether a salaried worker earning more than the threshold is entitled to an exemption from overtime rules.

The number of workers that would be affected by the changes varies by age, education level and state; middle-aged, educated workers would see the biggest impact. Workers ages 35-54 would be the largest group

affected by the change: more than 2 million work-ers representing 44 percent of all those affected. In addition, more than half of those affected by the new rule have a bachelors or advanced degree.

The most populated states would be most affected by the new rules. California, for example, will have about 420,000 workers affected by the change.

Workers in the top five most populous statesCalifornia, Florida, Illinois, New York and Texasmake up more than one-third of the total number of affected workers nationwide.

2 THE COUNCIL OF STATE GOVERNMENTS

States with smaller populationssuch as Alaska, North Dakota, South Dakota, Vermont and Wyo-mingwould each see 10,000 or fewer workers affected by the change.

Nationally, about 3.3 percentor 4.68 million of those employedwould be affected by the rule change. However, that percentagethe percentage of affected workers as a share of total employment within a particular statevaries across the country.

For example, 4.4 percent of those employed in Oklahoma would be affectedthe highest percentage of any statefollowed by Florida at 4.2 percent and Tennessee at 4.1 percent.

New Mexico would have the smallest percentage affected2.2 percent of those employedfollowed by Michigan with 2.3 percent and Montana with 2.4 percent.

Jennifer Burnett, Director, Fiscal & Economic Development Policy, jburnett@csg.org

REFERENCES

1 The White House, Office of the Press Secretary. FACT SHEET: Middle Class Economics Rewarding Hard Work by Restoring Overtime Pay. June 30, 2015. https://www.whitehouse.gov/the-press-office/2015/06/30/fact-sheet-middle-class-economics-rewarding-hard-work-restoring-overtime

3THE COUNCIL OF STATE GOVERNMENTS

State Number of affected workers in 2016Percentage of affected

workers nationally

Affected workers as a share of total

employedUnited States 4,680,000 100% 3.3%

Alabama 70,000 1.4% 3.2%Alaska 10,000 0.2% 2.5%Arizona 100,000 2.2% 3.7%Arkansas 50,000 1.0% 4.0%California 420,000 8.9% 2.5%Colorado 80,000 1.7% 3.2%Connecticut 40,000 0.9% 2.5%Delaware 20,000 0.3% 3.6%District of Columbia 10,000 0.3% 3.7%Florida 370,000 8.0% 4.2%Georgia 160,000 3.4% 3.7%Hawaii 20,000 0.3% 2.5%Idaho 20,000 0.4% 2.8%Illinois 200,000 4.4% 3.4%Indiana 100,000 2.2% 3.4%Iowa 50,000 1.1% 3.3%Kansas 40,000 0.9% 2.9%Kentucky 70,000 1.4% 3.4%Louisiana 70,000 1.5% 3.5%Maine 20,000 0.4% 3.1%Maryland 100,000 2.0% 3.3%Massachusetts 110,000 2.3% 3.3%Michigan 100,000 2.1% 2.3%Minnesota 90,000 2.0% 3.2%Mississippi 40,000 0.9% 3.7%Missouri 110,000 2.3% 3.8%Montana 10,000 0.3% 2.4%Nebraska 30,000 0.7% 3.4%Nevada 40,000 0.8% 2.9%New Hampshire 20,000 0.5% 3.5%New Jersey 130,000 2.9% 3.2%New Mexico 20,000 0.4% 2.2%New York 290,000 6.2% 3.3%North Carolina 160,000 3.5% 3.8%North Dakota 10,000 0.3% 3.5%

Ohio 160,000 3.3% 2.9%

Oklahoma 70,000 1.6% 4.4%Oregon 50,000 1.2% 3.1%Pennsylvania 200,000 4.2% 3.3%Rhode Island 10,000 0.3% 2.9%South Carolina 70,000 1.6% 3.7%South Dakota 10,000 0.2% 2.7%Tennessee 120,000 2.5% 4.1%Texas 400,000 8.5% 3.3%Utah 40,000 0.9% 3.1%Vermont 10,000 0.2% 3.2%Virginia 140,000 3.0% 3.5%Washington 90,000 1.9% 2.8%West Virginia 20,000 0.4% 2.7%Wisconsin 80,000 1.6% 2.7%Wyoming 10,000 0.2% 2.5%

Source: The White House, Office of the Press Secretary. FACT SHEET: Middle Class Economics Rewarding Hard Work by Restoring Overtime Pay. June 30, 2015. https://www.whitehouse.gov/the-press-office/2015/06/30/fact-sheet-middle-class-economics-rewarding-hard-work-restoring-overtime

WORKERS AFFECTED BY PROPOSED OVERTIME RULE CHANGES