July 03, 2015
After 40 years of consistent overtime regulations, employers are bracing for major changes. In a recent Huffington Post op-ed, President Obama outlined new rules that would extend overtime coverage to 5 million salaried workers in a higher income bracket. This anticipated change has all of the major news networks talking and many industry groups complaining. Business owners and lobbyists have 60 days to comment on the upcoming Labor Department rule, which does not require approval from Congress.
Obama's goal is to strengthen the middle class and improve wages for hard-working managers and salaried employees who work 50 or 60 hours per week and are not eligible for overtime. According to some reports, many salaried managers make less than the hourly employees that they supervise. Today, a company does not have to offer overtime to any salaried employee who makes more than $23,660 annually, which is about $450 a week.
If Obama's proposed rule is accepted in its current form, salaried workers who earn up to $50,440 per year, or about $970 per week, will be eligible for overtime. Based on some estimates, this could increase national earnings by $1.2 billion during the first year.
The current rule was established in the 1970s when 60 percent of employees were salaried. The regulation was intended to limit pay for well-compensated white-collar employees. Due to the higher cost of living and slow rate of pay growth today, the rule is affecting lower income families instead.
Some small changes were made in 2004 under former President Bush, but President Obama argues that they weren't enough. The goal of the proposed regulation is to help workers and set a wage threshold that will keep pace with inflation.
Large retail and restaurant chains, including Dollar General, Rite Aid and Chipotle, have been used as examples of how current overtime exemptions prevent families from prospering through their hard work. However, the proposed rule might not make things better. The National Retail Federation is leading the fight against the change. The group said that many member businesses would withhold vacation and benefits while putting salaried workers back on an hourly payroll. At the same time, economists say that the rule could have ancillary benefits depending on the choices that employers make.
What Employers Can Do
Employers have several options for coping with the impending regulations. Some companies may offer overtime to their salaried employees, or they might decide to cut back on the worker's hours. This could give employees valuable free time and improve worker loyalty. If companies decide that they have too much work and don't have the resources to pay overtime, they might choose to hire more part-time hourly workers. This has the potential to promote job growth nationally.
For years, companies have looked at salaries as a way to secure employees and control costs. Now, this era is coming to an end. Small and large companies must find a practical, sustainable and fair way to manage their workforce and payroll. Whatever happens, the new overtime rule won't go into effect until 2016.