More work, more pay? New rule extends overtime to millions

Posted May 18, 2016

— More than 4 million U.S. workers, including about 156,000 in North Carolina, will become newly eligible for overtime pay under rules issued Wednesday by the Obama administration.

The rule seeks to bolster overtime protections that have been eroded in recent decades by inflation. A diminishing proportion of workers have benefited from overtime regulations, which date to the 1930s and require employers to pay 1½ times a worker's wage for work that exceeds 40 hours a week.

Vice President Joe Biden announced the changes at Jeni's Splendid Ice Creams in Columbus, Ohio.

Being overworked and underpaid is preventing middle-class Americans from improving themselves and from spending time enjoying their lives and families, Biden said.

"You're deprived of your dignity when you know you're working much, much harder and much, much stronger than you're getting compensated for," he said.

In the fast-food and retail industries in particular, many employees are deemed managers, work long hours but are paid a flat salary that barely exceeds the income of the hourly workers they supervise who receive overtime pay.

Under the new rules, released in draft form last summer, the annual salary threshold at which companies can deny overtime pay will be doubled, from $23,660 to nearly $47,500. That would make 4.2 million more salaried workers eligible for overtime pay. Hourly workers would continue to be mostly guaranteed overtime.

"All those people in between (the old and new thresholds) will either be getting a raise up to the new threshold so they can still be paid on a salary with no overtime, or they’ll start getting paid overtime for those extra hours they’re working," said Clermont Ripley, a staff attorney with the North Carolina Justice Center.

The White House estimates that the rule change will raise pay by $1.2 billion a year over the next decade. Some employers, though, might choose to reduce their employees' additional hours to avoid paying overtime, thereby making the workers' schedules more consistent.

"Either way, the worker wins," Biden told reporters Tuesday.

Business groups, however, argued that the changes will increase paperwork and scheduling burdens for small companies and force many businesses to convert salaried workers to hourly ones to more closely track working time. Many employees will see that as a step down, they said.

"With the stroke of a pen, the Labor Department is demoting millions of workers," David French, a senior vice president for the National Retail Federation, said. "Most of the people impacted by this change will not see any additional pay."

French predicted as many as 700,000 mid-level retail management positions would be re-classified into hourly, non-management positions.

"These are mid-career, salaried professionals, and within a few months of this announcement, they’re likely to be hourly employees," he said.

The overtime threshold was last updated in 2004 and now covers just 7 percent of full-time salaried workers, administration officials said – down from 62 percent in 1975.

The higher threshold, to take effect Dec. 1, will lift that ratio back to 35 percent, Labor Secretary Tom Perez said. Perez has spearheaded the administration's effort and has worked on formulating the rule for the past two years.

"What this is going to provide for employers is clarity. What it's going to provide for workers is either more money or more time with their families," Perez said.

The new rule is intended to boost earnings for middle- and lower-income workers, he said, which have been stagnant since the late 1990s. Overtime pay hasn't received as much attention as nationwide efforts to increase the minimum wage, but it could have a broad impact.

"This, in essence, is a minimum wage increase for the middle-class," Judy Conti, federal advocacy coordinator for the National Employment Law Project, an advocacy group, said.

Workers making more than $47,500 may still be eligible for overtime pay, unless they perform management, supervisory or professional functions – the so-called "white collar" duties test.

The liberal Economic Policy Institute estimates that 4.9 million people will become newly eligible for overtime, slightly more than the government's figure, and that an additional 7.6 million will benefit because they have previously been denied overtime pay as white collar workers. Yet with salaries below the new threshold, they will now have a stronger claim to overtime pay.

Overtime has become a sore point for many managers, assistant managers, and management trainees in the fast food and retail industries.

Despite their titles, they have complained in lawsuits against such chains as Chipotle and Dollar General that they spend most of 50- or 60-hour workweeks staffing cash registers, mopping floors or performing other tasks typical of regular employees. Yet, they don't get paid time-and-a-half when they clock more than 40 hours in a week.

The retail federation warns that many of the affected workers will have their hours reduced to below 40 hours a week. Others might receive overtime pay but would have their base wages reduced so their overall income would remain the same.

Tammy McCutchen, a lawyer who represents employers, contended that that workers converted to hourly pay from salaried status will likely have less flexible schedules.

An hourly worker "who takes an afternoon off to attend a parent-teacher conference will not be paid for that time, but an employee (who is exempt from overtime) will be paid her full guaranteed salary," McCutchen said in congressional testimony last week.

Joe Kukla, general manager of the 501 Bar and Grill in Flint, Mich., said he has mixed feelings about the new overtime rule. It benefits him personally, but will also "hurt the business." Kukla, speaking from behind the bar, predicted 501 will be forced to raise its food prices.

Perez said the administration took steps in the final rule to address business concerns: The threshold was lowered from the original proposal of $50,440. Bonus payments can count toward the threshold. And the rule will have a long phase-in before taking effect Dec. 1.

Mara Fortin, chief executive of seven Nothing Bundt Cakes bakeries in San Diego, said she might give raises to her "superstar" managers to lift their pay above the overtime threshold. But she said she'd have to reduce end-of-year bonuses she frequently pays to offset the cost.

Fortin has 14 salaried managers and assistant managers among her 110-member staff. The new rule will create problems for managers, some of them newer hires, who take longer to get their work done, she said. She might have to cut their base pay, meaning they would earn about the same income they do now, even including overtime.

"We can't pay you time and a half because you're slow," she said. "This is extremely frustrating for me."


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  • Ben Hill May 18, 2016
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    View quoted thread

    Not always. When the business has to pass on the increased wage cost to the consumer, I don't hear the consumers agreeing with you. But when the costs of things begin to increase as a result of this change, I'm sure you'll just blame the business anyway.

  • Craig Elliott May 18, 2016
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    I guess the thing to note here is that the employers claimed these workers' jobs were managerial or professional in nature and exempt from OT rules.

    If they can be replaced with two non-exempt workers then the managerial or professional OT exemption was invalid to begin with, right?

  • Demute Sainte May 18, 2016
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    I'm betting this will lead to more part-time workers. Overtime is expensive.... sometimes hiring two at part time is cheaper. Be careful what you wish for.

  • Demute Sainte May 18, 2016
    user avatar

    I'm betting this will lead to more part-time workers. Overtime is expensive.... sometimes hiring two at part time is cheaper. Be careful what you wish for.

  • Craig Elliott May 18, 2016
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    View quoted thread

    Not to be mean in any way, but why did you put up with that BS for so long? 12 hours a day, six days a week?

  • Ken Ackerman May 18, 2016
    user avatar

    I worked in Retail for ten years. The last seven of those years as a manager. Managers were supposed to get the bulk of their pay from bonuses based on profits. Oddly enough just when you thought you'd done everything right suddenly there'd be a large mysterious charge that would nullify any profit. They offered managers "tenure pay" for remaining in the same store. Once you started getting the tenure pay you had a target on your back.

    I generally was allowed one day off per week. My typical work week was around 70 hours (we were required to work a minimum of 54). From Nov 1st to Jan1st we were required to work every day, with the early openings and late closings it was not unusual to work 96 hours in a week during December. After all of that It was not unusual for my paycheck to be the smallest. I finally got smart, quit, and went to college.

    I felt a certain amount of satisfaction when that company filed for Bankruptcy last year.

  • Roland Kandalbar May 18, 2016
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    Whenever wages to workers are allowed to increase through better labor practices, it's always a good thing.

  • Craig Elliott May 18, 2016
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    Companies have been skirting the law for years by calling workers shift supervisors, asst. managers, manager trainees etc. to get free labor. It's rarely prosecuted because those that have these jobs need them badly.

    On the flip side, increasing wages by this method is just a Band-Aid, an election-year throwaway. The real challenge is to (re)create an economy that can generate good jobs and maintain consistent GDP growth.

  • Victoria Clark May 18, 2016
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    Only means they will hire another person. Obama cannot control the companies. Automation will take over many jobs where people want 15 an hour for being an unskilled worker. There are people making much less doing physical labor or need to have an education. Obama should advise people to read about places like Venezuela.

  • Roger Clements May 18, 2016
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    Sounds like a good idea to me.