President Obama is proposing expanded eligibility for overtime pay to workers who earn up to $50,440 annually by 2016.
The proposed new Department of Labor overtime rule, long anticipated by labor groups and business associations, would more than double the income cutoff for overtime from the current $23,660, making an estimated five million more workers eligible for added pay.
In addition, the administration is proposing to add “a mechanism for automatically updating the standard salary test,” according to the official regulatory notice, meaning the overtime threshold would rise without the administration having to go through further bureaucratic hoops. The White House said it still considering what the mechanism for updating threshold would be, with the Consumer Price Index as one possibility.
“Today’s system all too often allows managers to violate one of the pillars of the Fair Labor Standards Act,” said Labor Secretary Tom Perez in a conference call with reporters Tuesday, saying that was a result of the last revision to the rule 2004, which gave employers more flexibility to designate employees as managerial and therefore exempt from having to be paid overtime.
Currently, employers are required to pay hourly employers time and a half for any work done past 40 hours in a week. Employers can exempt workers if they are deemed managerial employees. One requirement for exemption is that the worker must make at least $455 a week.
The administration’s proposed update, the news of which was first reported by Bloomberg news Monday night, would mandate overtime pay for anyone making more than $970 a week, which translates to $50,400 annually. It also would exclude certain classes of high-skilled workers.
Perez said that threshold was chosen because it was the 40 percentile of weekly earnings for full-time salaried workers. He said the department’s research determined that was a “good proxy” for what separates white-collar workers for whom the exemption was originally aimed at from other workers.
He added that the administration would engage in an “aggressive outreach campaign” to ensure that employers know how to properly monitor worker hours to ensure that employees are covered. He predicted that many employers would give workers raises to be able to continue to exempt them from overtime.
“So, in other words, somebody who is currently an exempt employee now making $45,000, for some subset of those employees, their employer’s response will be to give them a $5,000 raise,” Perez said.
The White House estimated that the proposed new rule would affect an additional 4.7 million workers, including 2.5 million college-educated workers.
The administration has stressed that the rule was overdue for an update. “We’ve got to keep making sure hard work is rewarded. Right now, too many Americans are working long days for less pay than they deserve. That’s partly because we’ve failed to update overtime regulations for years — and an exemption meant for highly paid, white-collar employees now leaves out workers making as little as $23,660 a year — no matter how many hours they work,” Obama said in an op-ed in the Huffington Post Monday night.
The administration still has a way to go before the proposal is official. It must submit the rule for public comment by interested parties, including business groups. Rejecting the groups’ counter-proposals would give them standing to challenge the final rulemaking in court, so the administration will be pressured to negotiate with them.
While it is the most prominent factor, salary is not the only consideration in whether a worker can be excluded from being paid overtime. A White House statement noted that the proposal “does not include specific regulatory changes to the so-called ‘duties test’ that determines whether salaried workers earning more than the threshold are entitled to an exemption from overtime rules.”
An updated and expanded overtime rule would be a victory for labor groups, who have argued the current level is often abused by employers.
“Working people called on President Obama to go bold, and his response will provide a much-needed boost to our entire economy. This is a critically important step forward for the Raising Wages Agenda, but it is just that — a first step,” said AFL-CIO President Richard Trumka.
Businesses, however, have warned that it would hurt employment or force managers to turn to hourly paid workers. Small businesses would be hard-pressed to accept the higher labor costs and have to cut back, warned Angelo Amador, the National Restaurant Association’s senior vice president for labor.
“Supporters of these regulations say they want to increase Americans’ take-home pay, but these sweeping changes to the rules could mean anything but. More than 80 percent of restaurant owners and 97 percent of restaurant managers start their careers in non-managerial positions and move up with new, performance-based incentives. If these regulations stand, that mobility and adaptability of employee schedules, which makes our industry appealing, will be severely diminished.”
National Retail Federation spokesman David French said his group’s research showed that the managers the administration claimed would benefit actually oppose the plan and that few workers would see gains. “There simply isn’t any magic pot of money that lets employers pay more just because the government says so,” French said.
Republicans are opposed to expanding the overtime rule and will likely seek to block the rule once it is proposed.
Perez dismissed the critics, saying that every time a new regulation is proposed business groups claim the “the sky is falling.” Cecilia Munoz, White House director of domestic policy, told reporters the proposal was fully within the department’s regulatory authority and indicated the president would reject any congressional effort to blunt the rule.
The announcement comes a day after Obama signed Trade Promotion Authority legislation, which was bitterly opposed by many of the labor and progressive groups who were hoping for a higher overtime threshold.
