President Obama announced a rule change Monday night that would make 5 million more American workers eligible for overtime pay, reports Politico.
Under current law, the threshold for time-and-a-half overtime pay (which kicks in once an employee works more than 40 hours per week) stands at $US23,660 a year. The proposal would raise overtime-eligible annual income to $US50,440.
“Right now, too many Americans are working long days for less pay than they deserve,” Obama wrote in an op-ed on The Huffington Post. “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 $US23,660 a year — no matter how many hours they work.”
This would set the exemption threshold at the 40th percentile of income, restoring it to “roughly where it stood in 1975 in terms of purchasing power,” according to the New York Times.
It would also increase the number of people who would qualify for overtime. Right now, only 8% of salaried workers are covered, according to an analysis by the Economic Policy Institute.
“I can’t think of any other rule change or executive order that would lift more middle-class workers,” Jared Bernstein, a former White House economist who’s advocated for the change, told the Times.
Bernstein and other supporters say that increasing the salary threshold will be unequivocally good for the economy — and for workers — because it will ensure the employees are getting compensated for their labour.
One thing this would specifically address is the all-too-common practice of hiring people to lower-level “management” positions, paying them a salary appropriate for a 40-hour work week, and then requiring them to work 50 or 60-hours — “and those extra 10 to 20 hours a week are basically free to the employer,” says Judith Conti, federal advocacy coordinator for the National Employment Law Project.
Either those people should be receiving more money for their labour, she tells Business Insider, or those excess hours should be spread to other people.
The administration estimates this will result in between 1.2 and 1.3 billion dollars “in the pockets of workers,” Conti says, while also stimulating the economy by creating more jobs and more people with disposable income.
Not everyone, however, is convinced — particularly conservatives and some business groups, including the National Retail Federation, which recently released a report arguing against the threshold increase.
“The 40th percentile is way too high,” says Tammy McCutchen, former Administrator of the Department of Labour’s Wage and Hour Division and policy fellow at the American Conservative Union, arguing that while an increase is in order, raising the threshold to the proposed level is “simply not workable.”
Accordingly, she predicts, employers will find ways around it — and workers who “now enjoy the status of being an exempt employee” will be reclassified as “non-exempt.”
If you’re eligible for overtime, that means you have to “punch a time clock,” McCutchen says. Hours that weren’t being tracked will be tracked — and that, she argues, could mean a loss of flexibility for workers.
“Exempt employees” — that is, employees who are not eligible for overtime — “have to be paid the same guaranteed salary for every week in which they perform any week at all,” she says. But that ability to juggle hours would disappear with the proposed increase, she says.
McCutchen — like other critics of the proposal — says that workers would not see an increase in their total pay, and some employees might even see less because, newly reclassified, they would no longer be eligible for certain compensatory perks, like management bonuses.
Another argument from critics: It’s possible that employers would actually lower baseline pay, anticipating a certain amount of overtime, McCutchen says. The distribution of the compensation package might change, she says, but the ultimate income would stay exactly the same. “In the end,” McCutchen says, it would be “cost-neutral.”
And then there’s the possibility that businesses would actually require employees to work less — which, arguably, is the whole point of overtime in the first place. But McCutchen and fellow objectors argue that, too, would be bad for workers.
By enforcing a 40-hour work week — something employers might be more inclined to do, since paying overtime is potentially costly, and having employees secretly work extra hours opens them up to potential lawsuits — employers will be preventing ambitious workers from opportunities for advancement.
Lower-level employees will have “a lot less opportunity to distinguish themselves and be promoted,” McCutchen predicts. They also may lose certain quality of life perks, she argues, since they’d have to get 100% of weekly work done in exactly 40 hours.
Because she predicts businesses will find workarounds, McCutchen doesn’t anticipate that most reclassified people would actually see an income increase. “There might be a small percentage of employees who see increased earnings,” she acknowledges, “but that would have to be offset by increased prices to consumers.”
Supporters, however, aren’t convinced by any of this. “If there’s demand for something,” Judith Conti of the National Employment Law Project says, “then there is money to pay for it.”
“If an employer needs that much overtime done in order to meet the demand for their services, they will find ways to make that happen,” she says.
“We can empirically look at California and New York” — two states with notably stringent overtime laws — neither of which have been overwhelmingly hindered by their policies.
“All of these prophesies of doom didn’t happen,” she says, noting that while some hours were redistributed, employers “didn’t use these kinds of workarounds, by and large.”
“Employers aren’t idiots,” Conti says. They know treating employees well is essential to retain talent.
“This kind of widespread reclassification and lowering of wages and worsening of conditions — it’s a nice narrative to try to scare people away from making any changes,” she adds, “but there’s no proof in history that it happens.”
The president will formally announce the proposed rule in La Crosse, Wisconsin on Thursday. It is expected that congressional Republicans will “almost certainly attempt to block” the rule, says Politico.
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