One of Obama administration’s last law is going to take effect on December 1, and it will affect over 4 million workers and thousands of companies in the country. The new overtime law stipulates that workers paid under $47,500 will be eligible for overtime pay when they spend more than 40 hours working in a week.
The law is controversial, to say the least. Just recently, a federal judge voted to block the implementation of Obama’s new overtime law.
This article will explain the new overtime law and will explore its effect on Millennial workers.
Did America Really Needed a New Overtime Law?
The basis used by the White House is the fact that the 40-hours work schedule is already outdated, as workers are spending more time doing work-related chores, without receiving any compensation. Until December 1, the situation was more difficult for employees and more suitable for companies, as the limit for eligibility for overtime pay was only $23,660 per year.
Some people might believe that the ones to benefit more of this law update will be the overworked, underpaid millennials, and the reasoning is not completely false. Roughly 60% of the people that will be affected by the new overtime paying protection are under 35. But the fact is that even though there is a general perception that millennials are extremely hard workers, according to a Manpower Group report, the American millennial works only 45 hours a week.
The explanation lays in the fact that people, especially millennials, have less knowledge about the time they spend each week to perform their tasks. So, they estimate. Most estimation is exaggerated and is a bit far from the reality. Therefore, people that believe they work 40 hours a week, in reality, worked only 37 hours. And the overestimation increases for people who have a higher number of work hours. Workers declaring they work 75 hours, actually spend 50 hours at work.
In 2014, a study made amid American employees showed that the average workweek was believed to be around 47 hours a week. In fact, the true number was only at 38.7 work hours, as published by the National Bureau of Economic Research. Four out of 10 surveyed employees declared that their workweek lasts 50 hours, while only 8% confirmed they worked less than 40 hours per week.
Is the Law Useless?
No, regardless of what studies might suggest, it doesn’t mean the law is not useful. What research shows is that it only might not become useful for as many people as we think. During the last 200 years, the American worker has decreased its time spend on working tasks. Since the 1920s, the six-day workweek implemented until that time became a five-day workweek.
However, the trend appears to be changing. In 1980, the average workweek time was about 38.1 hours, and it increased to 38.7 hours in 2015. Robert Fogel, economic historian and scientist, awarded with the Nobel prize, even estimated that 25% of our leisure time (sleep, meals, and hygiene) will be used for overtime paid work by 2040. But even increasing, it would take almost 23 years to reach the point where the average American will need overtime payment.
The good thing about the new overtime law that the West Coast Trial Lawyers agree with, is that it makes companies more attentive to their employee hours. More than that, it will give employees more leverage on their salary deals. Firms will need to organize their payroll systems better and decide whether it is more efficient to raise the salaries to the $47,500 threshold or pay the overtime hours. Also, this new law might even induce corporate changes regarding bonuses and incentives or increased paid time off.
How Does the Law Work?
For an employee to qualify for overtime payment, he must avoid meeting these three conditions:
- The salary level test – being paid above a certain yearly salary;
- The salary base test – having signed a contract where the concrete salary cannot be changed, no matter if the employee makes a mistake;
- The duties test – taking part in an executive, administrative, outside sales, computer, or professional role.
The law also stipulates that the salary level will be updated every three years. Therefore, the threshold might rise to $51,000 by 2020.
The new law represents the first significant update in over 40 years and is supposed to have an effect on nearly every industry of the American economy. The greatest impact will be felt by retailers, hotels, restaurants and nonprofit groups, whose employees are paid below the new salary threshold.
The change was confronted with complaints from companies and business groups that believe that the increase of the salary threshold is unconstitutional, being costly and unsupportable by many businesses.