Nearly 5 million more Americans would qualify for overtime pay under new rules proposed Tuesday by the Obama administration, a long-anticipated move expected to affect a broad swath of salaried employees from store managers to social workers to restaurant shift supervisors.
The Department of Labor?s proposal would require most salaried workers earning less than $50,440, or $970 a week, to be paid 1.5 times their normal pay for time worked beyond 40 hours a week. That?s more than double the current threshold of $23,660, or $455 per week, established in 2004.
While just 8 percent of salaried workers fall below the current threshold, the new rules would increase the share to 44 percent, according to the left-leaning Economic Policy Institute, which published an influential report last year recommending raising the salary threshold to $50,440. That level is indexed to inflation based on the 1975 salary threshold for overtime pay, when 62 percent of workers were covered by overtime protections.
The proposal, which does not need congressional approval to be adopted, will undergo a comment period before the Labor Department determines what to include in a final rule next year. Hourly workers will continue to get overtime as they do now.
U.S. Labor Secretary Thomas Perez said in a conference call with reporters Tuesday that the deck is stacked against low-earning managers.
?They have precious little time with their family because they work 50 to 60 hours and sometimes more, and yet they are not fairly compensated for working extra,? Perez said.
Perez said current rules help employers by keeping ?too many? workers, like managers who work side-by-side with rank-and-file workers, from getting the overtime protections the law intended. The department estimates that workers would get between $1.2 billion and $1.3 billion more because of the rule.
The proposed threshold is equal to the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers. To keep it up to date, the new rules propose keeping the threshold pegged to the 40th percentile as salaries shift or updating it based on inflation.
Advocates of an overtime overhaul applauded the proposal, saying it discourages employers from overworking their employees and spreads work around to more people who need jobs.
?Under the new threshold, 3.1 million mothers and 3.2 million fathers will be guaranteed overtime pay, and 12.1 million children will benefit from their parents? overtime coverage,? said Ross Eisenbrey, vice president of the Economic Policy Institute. ?Indexing the threshold guarantees that the law?s important protections will not be diminished by inflation.?
But groups representing business interests warned that requiring employers to pay more overtime could lead to them reducing base salaries, cutting hours and hiring more part-time workers to pick up the slack.
?Our research shows that the managers who would supposedly benefit oppose this plan and that few workers would actually see more take-home pay,? said David French, senior vice president for government relations at the National Retail Federation, a trade group representing retailers. ?There simply isn?t any magic pot of money that lets employers pay more just because the government says so.?
The Society for Human Resources Management said that while it supports the need to adjust the salary level, an increase will disproportionately affect nonprofits, which tend to pay lower salaries, as well as service-sector industries and certain areas of the country.
In addition, the trade association said, employees who are no longer exempt from overtime could lose autonomy and opportunity for career advancement as ?more employees will have to track their time while adhering to rigid schedules, with limited opportunities for workplace flexibility, all of which will have a significant impact on employee morale.?
Asked about business concerns, Labor Secretary Perez said: ?Every time we have a conversation for leveling the playing field for workers we hear that the sky is falling, the sky is falling.?
The proposed rules do not include changes to the ?duties test? of the Fair Labor Standards Act that determines whether salaried workers earning more than the threshold are entitled to a ?white-collar exemption? from overtime rules based on how they spend their time at work. In 2004, when the Bush administration updated the rules for the first time since 1975, the duties test was loosened to define an exempt employee as anyone whose ?primary? duties are executive, administrative or professional, which critics say is vague, subjective and allows employers to not pay overtime to workers who may spend 95 percent of their time stocking shelves and 5 percent supervising.
The administration expects 4.6 million salaried employees who earn more than $23,660 and less than $50,440 and are currently exempt from overtime to be affected in the first year. An additional 6 million salaried employees in that bracket who do get overtime will see their protections strengthened now that their status does not rely on the duties test.
Having to give more employees overtime will likely result in fewer lawsuits over whether workers meet the duties test for exemption, the Labor Department said.
?If there is a silver lining for employers, this is it,? Douglas Hass, a Chicago employment lawyer who represents businesses, said in a blog post about the new rules.
The proposed rule also updates the threshold from $100,000 to $122,148 for ?highly compensated employees? who are exempt from overtime pay. Highly compensated employees fall under a separate duties test, which is easier to pass. The department says raising that threshold is expected to affect 36,000 employees.