Experts say Obama's new overtime rule will benefit 12.5 million US workers

Obama signing overtime pay memorandumMark Wilson/GettyPresident Obama signs a presidential memorandum for overtime protections for workers at the White House, on March 13, 2014.

If you’re a salaried employee making less than $47,476 a year, experts say you have good reason to rejoice.

Currently workers covered by the Fair Labour Standards Act (FLSA) of 1938 must be paid at least time-and-a-half for each hour they work beyond 40 hours a week.

But the salary threshold under which workers are automatically eligible to receive overtime pay is a mere $23,660 a year (or $455 a week). Workers who make more than the threshold can be excluded from overtime protection if their jobs are determined to be executive, administrative, or professional. This easily allows employers to avoid paying overtime by simply giving workers manager titles and paying them just above the $23,660 annual threshold.

That will change on December 1.

The White House on Wednesday announced the final version of a new Department of Labour rule that would more than double the income threshold for overtime eligibility for salaried workers to $47,476 (or $913 a week), the first major increase to account for inflation that’s happened in decades.

“This rule is necessary because, over the past four decades, updates to the so-called ‘white collar exemption rules’ have been infrequent and inadequate,” Christine L. Owens, executive director of National Employment Law Project, a workers’ rights advocacy organisation, said during a press conference Wednesday.

As a result, she said, a mere 7% of salaried employees currently have guaranteed overtime pay protections, compared to more than 60% of salaried employees in 1979.

Ross Eisenbrey, vice president of nonprofit think tank the Economic Policy Institute, said the new overtime rule would bring that coverage closer to 23%.

While the Obama administration said the proposal will extend overtime pay to nearly 5 million workers within the first year of its implementation, Eisenbrey believes this number is a conservative estimate, and he puts the number of affected workers closer to 12.5 million, which is how many workers earn salaries between the old threshold of $23,606 and the new threshold of $47,476.

“All of them will have their rights improved,” he said.

“They will either be newly entitled to overtime pay when they never were before, or they will have their rights strengthened and clarified, because, frankly, most people think that, if you’re paid a salary, you’re not entitled to overtime,” Eisenbrey said.

Because the salary threshold has been so low, Eisenbrey explains, employers have been able to render people exempt who shouldn’t be by, for example, treating low-level assistant store managers or frontline store managers as executives.

He believes these 12.5 million workers will benefit from the new rule, either by receiving time-and-a-half pay for any hours worked over 40 in a week, having their hours scaled back to 40 hours a week while still taking home the same pay, or getting a raise to put them above the threshold.

He also predicts that 100,000 more workers will benefit, as the overtime work will likely be shifted to either new employees or part-time employees who would not be working overtime. In fact, a study by Oxford Economics found that if the salary threshold were raised even to $808 a week, 76,000 part-time workers would be hired to fill the labour needs of businesses.

The new overtime rule would also automatically increase the threshold every three years, something Eisenbrey considers incredibly important. “The salary threshold will never erode again. We won’t go through what we did — a 29-year period at one point where the salary threshold was not improved. It won’t take an act of political courage in the future,” he said.

While the new rule has drawn criticism from business groups and Republicans, it has also been met with support.

“The system is rigged and people know it,” said Bill Samuel, legislative director of the American Federation of Labour and Congress of Industrial Organisations. “Taking this step to restore overtime is one of the many ways we’re beginning to change the rules of our economy that are rigged in favour of Wall Street.”

Anne Babcock-Stiner, a lawyer and the senior vice president of human resources at PathStone Corporation, said that, since her non-profit employer cannot afford to adjust salaries or paying overtime, it is taking the new overtime rule as an opportunity to ensure people get their work done in 40 hours a week and “get work-life balance back.” “You’re going to be able to go home. You’re going to be able to be a caregiver to your children or to your parents. You can continue to be involved in your community,” she said.

Babcock-Stiner also notes that the salary threshold is meant to be a shortcut for employers. As an HR professional who has had to review 582 employees’ constantly evolving job descriptions to determine if they’re exempt or not, she’s very happy to have the new salary threshold in place as a way to easily determine compliance.

“Now all I have to do is go into my payroll database and pull a report of folks who are below the threshold, and that takes care of an overwhelming majority of the decisions I have to make about classifying somebody,” she said.

“It is going to be so much clearer now for employers that they have to pay people under this salary threshold regardless of what their duties are,” Eisenbrey said.

For a visual idea of who will be affected, take a look at EPI’s economic snapshot:

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