The federal government is about to give millions of Americans a pay raise. On Tuesday, the Department of Labor unveiled what would be the most significant change to the nation’s overtime regulations in four decades, proposing to raise to $50,440 the annual pay threshold at which virtually all salaried workers are eligible for time-and-a-half pay.
If the rule goes through, nearly five million workers will win access to overtime pay rights next year, according to President Obama. Under the landmark Fair Labor Standards Act, the executive branch has authority to make the change without approval from Congress.
Here’s how: Most people who get paid by the hour earn overtime when they work more than 40 hours in a given week. It’s a little trickier for salaried workers. They have to earn below a certain amount per week in order to automatically qualify, and under the current income threshold of $23,660 -- raised just once since the 1970s -- only about 8 percent of salaried workers do today. Employees earning more than that can still technically qualify, but if they’re classified as professionals, administrators or executives, then they’re exempt.
By raising the bar for automatic eligibility, Obama’s proposal effectively ends what's known as the white-collar exemption for millions of workers. All in all, the rule would extend overtime protections to 40 percent of the salaried workforce, according to the left-leaning Economic Policy Institute. Moreover, the new threshold -- pegged to the 40th percentile of earnings -- would rise over time.
It’s a big win for white-collar workers accustomed to putting in long hours at the office with little reward: a researcher at a non-profit, for instance, or an accountant who earns a salary of just $35,000 a year -- the same amount whether she works 45 hours or 55 hours a week. Under the proposal, her boss faces a decision: Pay more or let her work less.
The rule could also provide a lift to those workers grinding it out in low-paying sectors not typically associated with the professional world. That’s because some employers abuse the current system, critics say, intentionally misclassifying their workers as supervisors in order to skirt overtime pay obligations. In other words, a retail employee who earns $30,000 a year might work 46 hour weeks, stocking shelves and sweeping floors, but because her boss deems her a low-level manager, she isn’t eligible for those 6 hours of time-and-a-half pay.
The proposed rule arguably amounts to the most significant labor measure taken by President Obama in his more than six years in office. And indeed, labor unions, progressive groups and members of Congress that had lobbied the administration to set a high pay threshold cheered the proposal.
“Increasing the overtime threshold is probably the single most important thing the president could do, on his own, to raise pay,” said Mary Kay Henry, the president of the Service Employees International Union. “Working people called on President Obama to go bold, and his response will provide a much needed boost to our entire economy,” said Richard Trumka, president of the AFL-CIO, the nation’s largest labor federation.
On the other hand, business groups like the National Retail Federation and the U.S. Chamber of Commerce scoffed at the measures. Like-minded trade associations and conservatives are expected to fight the proposed rule -- in the comments that are part of the standard federal rule-making process, in the halls of Congress, and in the courts.
Critics say the rule would encourage businesses to reclassify salaried workers as hourly employees, limiting them to 40 hour weeks. They also say it could pressure employers to cut hours and pay, create more opportunities for spurious litigation, and hinder hiring. “On the heels of a recession and high unemployment, we shouldn’t be stifling opportunities for career growth,” Rob Green, the executive director of the National Retail Federation, said in a statement.
President Obama will discuss the proposal in a speech in Wisconsin later this week.