California Looks to Expand Overtime Pay
Two weeks after the November presidential election, a Texas judge put a hold on a sweeping reform of federal overtime standards that would have raised the wages of 4.2 million Americans.
President Barack Obama’s administration appealed the ruling. But after Donald Trump took office in January, the appeal was delayed.
Now California and a handful of other states are moving to enact the Obama proposal. Their reasoning: workers have seen their pay erode over decades as the cap on overtime wages has failed to keep up with inflation.
In California, an Assembly-passed bill, AB 1565, would require employers to pay overtime to salaried workers earning less than $47,476 beginning Jan. 1, 2018 — the same level as the Obama rule.
The bill will be taken up by the state Senate this month.
The pushback on worker wages opens a new front in the battle against the initiatives of the Republican-controlled administration and Congress by Democratic-controlled state legislatures.
California has already passed laws designed to counter the Trump administration’s agenda on immigration, healthcare and climate change.
The Assembly’s overtime bill “is a huge victory for working people,” said Art Pulaski, executive secretary-treasurer of the California Labor Federation, which sponsored the legislation.
“Millions of low- and moderate-income workers have been putting in long hours on the job without fair compensation.”
The California Chamber of Commerce opposed the bill on behalf of 45 industry groups, including the Orange County Business Council, which represents the county’s largest companies.
The opposition covers a broad swath of employers: restaurants, construction firms, insurance companies, banks, health services providers, agribusiness, hotels and landscapers, among others.
“This top-down approach to how employees are compensated is a direct assault on small business in California,” said Bryan Starr, president and CEO of the Greater Irvine Chamber of Commerce.
“We’ve had minimum wage increases year after year. Larger corporations may have the ability to absorb this, but employers of 25 people or less may have to downsize or shut their doors entirely.”
Under California’s current overtime threshold, the highest in the nation, workers must be paid more than twice the minimum wage before employers can deny them time-and-a-half pay for working more than eight hours a day.
So under current law, with the minimum wage scheduled to rise to $11 an hour for employers with 26 or more workers in 2018, the overtime threshold would be $45,760.
Workers at smaller businesses, where the minimum wage will be $10.50 next year, would benefit the most from the California bill. Under current law, overtime will be due to anyone earning under $43,680 at a business with 25 or fewer workers.
According to the U.S. Bureau of Labor Statistics, California workers’ median wage last month — with half of workers earning more and half earning less — was $40,920.
Had the Obama administration’s rule passed, most states would have seen a far greater impact.
California, New York and several other states have state thresholds above the current federal level, but many states adhere to the current federal overtime cap, unchanged since 2004.
Under that standard, which remains in effect under President Trump, salaried workers earning over $23,660 or $455 per week – which is below the poverty line for a family of four – are exempt from overtime.
Hourly workers normally get overtime, regardless of their hourly pay.
Obama’s overtime rule was prompted in part by what labor officials say is a widespread practice by employers to re-classify hourly workers, who must always be paid overtime, as salaried “managers” to avoid paying more for extra hours worked.
In many cases, such as fast-food franchises or small retail stores, these so-called managers may be performing the same work as the three or four employees they also partly oversee.
“It doesn’t matter if what you do is mostly physical work like stocking shelves,” Obama said at the time. “It doesn’t matter if you’re working 50 or 60 or 70 hours a week – your employer doesn’t have to pay you a single extra dime.”
According to the Economic Policy Institute, a Washington, D.C.-based think tank, an estimated 62 percent of salaried workers were eligible for overtime in 1975 under the federal Fair Labor Standards Act.
By 2015, as inflation progressed, only 8 percent were covered, with nearly every salaried worker with managerial duties ineligible for time-and-a-half pay.
Had the federal salary threshold been indexed in 1975, it would stand at $58,000 in current dollars, according to the institute.
In California, the proposed bill grants overtime exemptions for executive, administrative, or professional employees “if the employee earns a monthly salary equivalent to either $3,956 or an amount no less than twice the state minimum wage for full-time employment…whichever amount is higher.”
The retention of the language tying the state’s overtime to the minimum wage means that Golden State businesses will only feel the impact for two years until a rising minimum wage lifts the cap beyond $47,476 a year.
California overtime law is also stricter than the federal standard in that it requires time-and-a-half after an eight hour day, not just a 40-hour week, as federal law holds.
AB 1565’s proposed two-year overtime boost “is more symbolic than anything,” said James McDonald Jr., a corporate employment lawyer with Fisher Phillips in Irvine. “California’s legislature is so opposed to the current administration in Washington that it will likely try to put back for employees whatever the federal government takes away.”
If some see the bill as a political gesture to confront the Trump administration, however, Caitlin Vega, legislative director for the California Labor Federation, said the two years could be significant for many families.
“This will allow more workers to gain overtime pay, or to earn a slightly higher salary, or to just be allowed to go home to their family after a hard day’s work,” she said.
The bill, Vega suggested, might also spur more job creation. “If you can make your workers work unlimited hours without extra pay, then you have less incentive to hire additional workers,” she said.
Nonetheless, she added, “AB 1565 does not require any employer to pay any worker more. The employer controls the hours worked and has the absolute power to decide whether to send a worker home after eight hours or pay them time-and-a-half for additional hours.
“Or they can raise their salary so they are exempt from overtime pay.”
Starr, at the Irvine chamber, said he expects the bill will pass the California Senate “which has been more progressive than the Assembly.”
But he noted it could still be vetoed by Gov. Jerry Brown. “The governor has been the voice of reason on a lot of things,” he added.
“Paying people more has got to be based on merit, not on legislators imposing mandates from on high.”