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The History of Overtime Pay

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overtime clockWith all the buzz surrounding the new overtime rule and its upcoming December 1st deadline, we thought we’d look back at the history of overtime pay in the U.S.

During the Great Depression, working conditions for the average American were brutal. Many workers, especially blue-collar ones, put in 10-16 hours a day and earned a meager 10 to 15 cents an hour. (That equates to about $1.40-$2.15 today.) Employers often took advantage of the high poverty rates of the time to force their workers to put in exceedingly long days just to provide the bare essentials for their families.

“Something Has to Be Done”

Everything changed in 1938. While President Roosevelt was campaigning in Bedford, Massachusetts for a second term as president, a girl in the crowd tried to pass him a note. When a policeman attempted to push her back into the masses, Roosevelt insisted that he see the note.

The note read “I wish you could do something to help us girls…We have been working in a sewing factory. Up until a few weeks ago we were getting our minimum pay of $11 a week…Today the 200 of us girls have been cut to $4, $5, and $6 a week.”

In response to the note, Roosevelt declared “Something has to be done about this.” In June of that year Roosevelt signed the Fair Labor Standards Act (FLSA), a bill that granted many of the workplace rights in effect today.

It established minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in the Federal, State, and local governments.

Everybody’s Working for the Weekend

The bill also required employers to pay their employees “time-and-a-half” wages (one and a half times the employee’s regular hourly wage) for all hours worked over the national overtime limit of 40 hours per week. It basically gave working Americans the green light to take the weekends off.

The overtime rules were designed to address several problems that Roosevelt had identified: lack of jobs, and the exploitation of workers. Having to pay workers overtime wages would discourage companies from overworking their employees. As a result, more employees would have to be hired to make up for the fewer hours being worked by their existing employees.

Time to Update Your Status

Since overtime was specifically designed to protect blue-collar workers, a variety of exceptions were made, specifically those employees who do non-manual labor or management/administrative duties.

On August 23, 2004 the “FairPay” rules released by the Department of Labor (DOL) went into effect under President George W. Bush. The purpose was to strengthen the rights of the workers who were denied overtime because of these exemptions. Under the new rules, workers earning less than $23,660 per year (or $455 per week) were guaranteed overtime protection.

These regulations also required employers to categorize employees as either “exempt” or “non-exempt” for the purpose of determining whether overtime should be accrued. Those with a non-exempt status are required to earn overtime pay. To read more, visit the United States Department of Labor list of exemptions.

Fast Forward to 2016

The cut-off to be overtime eligible remained unchanged until 2016. On May 18th President Obama announced the publication of the DOL’s final rule updating the regulations. The new rule raises the threshold to $47,476 per year (or $913 per week), ensuring protection to 4.2 million workers. The DOL set the effective date at December 1st giving employers six months to prepare. They also published three options to consider to respond.

It also establishes a mechanism for automatically updating the salary and compensation levels every three years beginning on January 1, 2020. To read more about the 2016 ruling, read our article Final Rule on Overtime Laws: What’s Your Strategy for Compliance?

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