How several states are taking the lead on restoring overtime pay

This article is from Capital & Main, an award-winning publication that reports from California on economic, political, and social issues. After decades of decline in overtime pay, the Biden administration is considering action to sharply expand access in a time of high inflation. This is the fourth article of a four-part series examining the 40-year effort by big business and elected officials to deny Americans extra pay for extra work.

With Americans struggling with inflation, workers’ advocates are banking on a White House that has promised to make millions more workers eligible for overtime wages that pay time and a half.

Two presidents who made similar promises over the last 45 years failed to deliver, resulting in outdated federal overtime guidelines and underfunded labor enforcement.

But during decades in which lawmakers and lobbyists cut away at overtime access, states like Washington and California actually strengthened it. They increased the amount that a worker could earn while remaining eligible for overtime, and expanded overtime to previously exempt professions, such as farm work.

“In recent years, states have been leading the way for bolder action to restore and strengthen overtime protections,” says Paul Sonn, state policy program director at the National Employment Law Project.

By tapping into their progressive traditions to fill the federal void, such states suggest a pathway for others interested in bolstering such rights, regardless of what the White House does.

No “Life of Leisure”

As a child growing up in Washington State in the 1960s, Marilyn Watkins, now a policy director at the Economic Opportunity Institute in Seattle, eagerly anticipated a Jetsons-like future full of cool gadgets, more pay, and less work. “With automation, it felt like: We’re all going to have a life of leisure.”

Generations later, the gadgets may be ubiquitous, but for many workers struggling to keep up with rising prices. the idea of more play time and less work might feel like something happening in another universe.

While technology has replaced or devalued many traditional jobs, especially in manufacturing, Watkins notes that “we live in a time when many people struggle to achieve basic economic security, and employers expect their workers to put in long hours and check email 24-7.”

Washington State has long been known for its strong labor movement anchored to the shipping industry and major manufacturers like Boeing and Honeywell Aerospace. Many of the state’s workers became part of a strong middle class based on solid jobs with secure pensions, respectable salaries, and overtime pay for those who worked extra hours.

The underpinnings of such advances were established early in the 20th century. The state passed a minimum wage for women in 1913, which marked a progressive coup, but one that went largely unenforced during the Great War and the Roaring ’20s.

Then, during the Great Depression, Elsie Parrish tried to use the courts to make sure the law was applied to women like her. A hotel chambermaid in the town of Wenatchee, Parrish was working 48 hours per week and, in accordance with the wage legislation, she wanted to be paid for every one of them. Her case advanced through the courts, ultimately reaching the business-friendly U.S. Supreme Court where, improbably, she won.

It proved to be one of the most consequential legal victories for American workers in the 20th century, helping to pave the way for passage of President Franklin Delano Roosevelt’s landmark Fair Labor Standards Act, which enshrined the minimum wage and overtime as fundamental employee rights.

But two generations later, in the 1970s, overtime eligibility and wage protections began to erode. Spurred by industry lobbyists, policymakers succeeded in securing the exclusion of a growing number of categories of jobs from overtime eligibility, as well as keeping a tight lid on the maximum income that workers could earn and still receive overtime.

The result: While most salaried workers were once eligible for overtime pay, today only a small fraction of them are. That means that many millions of workers who put in more than 40 hours a week have no chance of qualifying for time and a half, which is particularly relevant at times when the cost of living increases substantially.

In the absence of strong federal action on overtime, states filled the gap with a mishmash of policies, leaving a huge divide between wealthy and generally liberal states like California, New York, and Washington, and dozens of rural states with weak worker protections and low wages. Take South Carolina, where there are more than 400,000 workplaces but only five investigators looking into possible labor violations, according to a spokesperson for that state’s wage and hour division.

Former Labor Department investigator Michael McGrorty explains, “In places like that, where they need it the most, the protection is the thinnest.”

Where There’s a Consensus on Overtime

By the 1990s, Washington State’s manufacturing sector was eroding, and the labor movement began to lose sway. So, while the state’s economic productivity jumped 53% between 1979 and 2016, wages for most workers stagnated, and the median wage grew just 2.6% when adjusted for inflation during that period. When the rising costs of housing, education, and healthcare are factored in, many workers’ purchasing power declined sharply.

And as the tech industry boomed, income inequality in the state soared. An Economic Opportunity Institute analysis of federal government data found that when adjusted for inflation, wages for the bottom 60% of workers in the state increased just $1 per hour over that 37-year period, while the top 10% of earners enjoyed an hourly pay increase of nearly $18.

Washington made early strides to address the changing equation for workers when, in 1998, it became the first state to automatically peg its minimum wage to increases in the cost of living. In 2016, voters passed an initiative that established increases in the state’s lowest legal hourly pay rate, which currently stands at $14.49. Washington also made sick leave into a legal right for nearly all workers.

Despite such advances, overtime was not addressed in any consequential way. Lawmakers failed to update the state’s overtime wage threshold so that it kept pace with inflation, mirroring decades of federal inaction on that front. Watkins says that the maximum income a worker in Washington could earn without becoming ineligible for overtime increased with inflation until 1976, when it stopped.

More than a quarter century later, when the governor and other state leaders mulled over an expansion of overtime, members of the business community united in opposition. They claimed that the burden of paying their workers overtime could threaten their very survival.

Their efforts helped to squelch change, leaving Washington State pegged to the federal overtime threshold. So, in the early 2010s, someone earning up to $23,000 could potentially earn overtime in the fairly costly State of Washington. This meant that a head of household of a family of four needed to live below the poverty line to have any chance of earning overtime in what is the nation’s 13th most expensive state.

But change was in the air. In many states, key discussions over such issues tend to happen in closed-door meetings between lobbyists and legislators. In Washington, however, officials seeking input from stakeholders oversaw a much more inclusive process in the late 2010s, involving hearings around the state that attracted university assistants, fast-food cooks, and many others.

Sydney Kenney, who works with developmentally disabled adults as a social service worker in Tumwater, Washington, says he joined the push to overhaul the state’s labor laws, describing how he regularly worked 50 to 60 hours a week but never qualified for overtime because his $41,000 salary was above the income threshold.

“Employers have so much control over their employees—especially in certain industries like food service and retail—and you keep hearing rhetoric like, ‘If you don’t like it, you don’t have to work here.’ So many employers have that attitude. But what if every employer says the same thing?”

In late 2019, having reached a broad consensus, the state decided to phase in its own overtime rule that included staggered increases in the overtime income threshold so that it would rise from 1.25 times the minimum wage in 2020 to twice the minimum wage in 2024, and finally to 2.5 times the state’s minimum wage—equaling $83,000—in 2028. It is slated to become the highest salary threshold for overtime in the country, and will sharply increase the number of eligible residents.

Overtime and the Cost of Living in the Golden State

California has long led the nation on a variety of policies related to health, technology, and the environment. It also appears to be at the forefront in some ways when it comes to strengthening and broadening overtime access for its workers—despite strong resistance from employers and the state’s powerful agricultural lobby.

For decades, industry in the state has aggressively taken aim at a rule—the daily overtime requirement—from 1918. It mandates that businesses pay extra whenever an employee works more than eight hours in a day. It was intended to prevent safety hazards at factories resulting from overwork, and provides stronger protection than the federal rule, which focuses on the 40-hour workweek. California’s rule also eliminates the ability of some businesses to force employees to work long days without receiving paid overtime by cutting back their work on other days of the same week.

Major industry groups like the California Business Roundtable, California Chamber of Commerce, the California Manufacturers & Technology Association, the California Newspaper Publishers Association, and the California Restaurants Association have lined up against the rule, but have yet to dislodge it. They have also spent millions of dollars annually in campaign contributions to political parties and the state’s top lawmakers.

California has also been a battleground state when it comes to an oft-used overtime exemption related to managerial responsibilities. Known as the “duties test,” it says that a worker who manages even a few employees during half of their time on the job is exempt from overtime pay. As a result, the manager of a Dollar General or a fast-food chain who spends much of their time mopping the floor, manning the register, or flipping burgers cannot earn overtime if at least 50% of their work involves overseeing employees.

When the business lobby in California fights proposals to narrow the definition of a “manager”—which would allow many additional workers to qualify for overtime—debates can border on the surreal. During a hearing at the State Capitol in 2000, a labor commissioner questioned a lawyer for the retail industry about how a worker who spends most of the day stocking shelves and working at a cash register can be considered a manager. When the lawyer replied that an employee could, while wiping the counter, still be thinking about their management responsibilities, the room erupted in laughter.

The commissioner later noted, to more laughs: “We’re talking about someone who’s flipping burgers now for 60% of the day . . . and firing people the rest of the time.”

The erosion of overtime wages has also affected people with college degrees, the knowledge sector, and white collar workers, including some in Silicon Valley. The video game industry has long made its developers work grueling hours, providing a microcosm of the larger debate over overtime. During a 2006 deposition in a class-action suit filed by hundreds of workers at Electronic Arts, who claimed they had been illegally classified as exempt employees and deprived of overtime pay, one game developer described working 18 or more hours per day.

The case was part of a wave of litigation that resulted in the company paying multimillion-dollar settlements and the reclassification of many workers as eligible for overtime.

But that victory didn’t last long: The industry lobbied lawmakers in 2008 and convinced then-Governor Arnold Schwarzenegger to sign a new set of overtime rules for the state that prevented computer workers, including video game developers, from earning overtime.

Still, California’s overtime laws are far more expansive than those in most of the rest of the country. For one, the state’s salary threshold is $58,240 for employers of 26 or more employees—a fact about which employers have long complained. But the impact of the state’s overtime laws on its huge economy is difficult to assess.

Companies have for decades griped about the state’s business climate—the regulatory and tax environment—and some have relocated to less regulated states. Between 2018 and 2021, 114 of the known California companies that left the state moved their headquarters to low-regulation and low-tax Texas, while 17 moved to Arizona, according to the Hoover Institution.

It isn’t clear whether the state’s overtime policies played any role in those companies’ decisions to move away, but a rep for the California Chamber of Commerce, which has long opposed efforts to expand overtime protections, says that it currently has no plans to push for changes to overtime law in the state. The representative called the routine income-threshold increases “predictable,” which has allowed many companies in the state to come to grips with it.

Just because overtime rules are implemented doesn’t mean they are always enforced. Even in California, few businesses that commit wage violations are punished.

McGrorty once worked for construction industry unions to help them go after small contractors’ infractions of prevailing-wage-and-hour laws but, he says, they “had no interest in paying [those] wages.”

Legitimate contractors were often outbid by small outfits and losing market share, he explains, so they would “have to hire investigators because the state wasn’t doing their job.”

In 2020, the California State Legislature delivered stronger protections to many more workers by approving a bill that provides overtime and other wage protections to some contract employees, who have long been exempt.

Pushback from the business lobby was intense. Gig companies, including ride-hailing giants, such as Uber and Lyft, and food delivery companies, such as DoorDash—which have earned billions by using gig workers who receive no guarantees of a minimum wage, nor any benefits—spent well over $200 million on a massive ad campaign to sway voters in a successful referendum that overturned the law, but their campaign was later ruled unconstitutional. California will argue in defense of the ballot measure, Proposition 22, in a state appellate court this year.

So how do stronger overtime protections in states like California and Washington harm businesses by jacking up costs?

When overtime was extended to farmworkers in California in 2016, the president of the state’s Farm Bureau Federation warned that farmers would be forced to reduce employee hours, increase food prices, and even leave the state.

But labor advocates say there is scant evidence to support such a grim forecast. At a recent hearing, Daniel Costa, Economic Policy Institute director of immigration law and policy research, pointed to the impact of making farmworkers in California eligible for overtime to encourage the establishment of similar protections in New York State. There is “virtually no credible evidence” that overtime pay for farmworkers “will hurt the industry or slash profits dramatically,” Costa testified.

He noted that Bureau of Labor Statistics (BLS) data show that total wages paid by employers in California “have not increased at a rapid or extraordinary rate since the implementation of the phased-in overtime law.”

In fact, the number of farms in California actually increased between 2018—the year before the overtime law was passed—and 2021, according to Costa, citing a BLS data set, the Quarterly Census of Employment and Wages.

“I’ve Got My Life Back”

The regional differences in salaries is often cited by fiscally conservative lawmakers, policymakers, and labor officials as a reason to avoid sharp increases in the federal overtime salary threshold. That’s why some of them have suggested letting state legislatures take the lead.

“It makes more sense to have states do the wage laws and push for a higher minimum wage,” says Gaspar Montañez, who was a longtime Labor Department investigator before his retirement.

Montañez points to Washington State’s recent reforms, which phased in rising overtime-income caps over a period of nearly eight years, and how it set different rates for employers—depending on whether they are large or small—as a possible model for other states. This framework brings overtime to a wide variety of workplaces and salary levels, from tech workers in Seattle to farmhands in eastern rural counties, in ways unseen since 1976.

Kenney, the social service worker, says that, as a result of Washington’s overtime overhaul, he now earns about $4,000 to $5,000 a year extra in overtime. “It helps with any and everything—our savings account, auto expenses, just about everything,” Kenney says.

But he’s also working fewer hours, since his employer cut back on costs by curbing excessive schedules, which gives him more time to enjoy life. “I’m not chained to my job, like when I used to sleep holding my phone and always making sure that I had cell reception in case they needed me. I’ve got my life back,” he says.

McGrorty notes the advantages of adjusting the minimum wage and the overtime threshold based on the cost of living in each zip code around the country. “When you apply one standard to an entire nation that has a great variety of economic situations, it’s going to be difficult.”

It remains possible, if uncertain, that the Biden administration will account for regional differences, dramatically increase the current salary threshold and eliminate exemptions to reward millions of hard workers for their labor. But until federal authorities do so, some key states may continue working overtime on the issue.

Copyright 2022 Capital & Main.

This is the fourth in a series of articles about overtime, produced by Capital & Main in partnership with the McGraw Center for Business Journalism at CUNY’s Newmark Graduate School of Journalism and Type Investigations, with support from the Puffin Foundation.