Millions of Americans just got a little more reason to look forward to staying late at work. The Obama administration has revised the national overtime rules to entitle nearly 5 million workers to the right to earn 50 percent more than the base wage for each hour worked in addition to the standard 40-hour week.
The proposed rule, announced this week by the Department of Labor, would raise the threshold at which certain professionals qualify for overtime coverage under the Fair Labor Standards Act (states have a variety of different overtime protections). The administration would more than double the cut-off from $455 a week to $970 a week. Basically, a lower-level retail-chain manager earning a modest income of $50,000 a year or less could qualify for time-and-a-half.
The original overtime threshold has grown outmoded over the past few decades, largely because inflation has eroded it by nearly 60 percent from its peak value. The new threshold reflects more realistically the kind of compensation levels that many people categorized as “managers” today are earning in service industries like retail and hospitality. Working behind the counter at a dollar store or running a gas station, their daily duties are actually more akin to regular front-line service jobs than the stereotypical “white collar” professions. The vast majority of the workers affected are aged 25 or older, and most have some college education. And, reflecting a racial and gender bias even in the professional classes, the rule would disproportionately affect women and people of color.
The expansion of overtime through the pending executive rule making would set off a number of dynamics in the workforce. As the labor cost of overtime hours grows, employers might calculate that it’s more cost-effective to hire new workers to do that work or to turn a few part-time co-workers into full-time staffers to even out duties across the workplace. Ideally, the redistribution of hours toward the standard 40-hour week would provide for a more rational schedule for all, especially in industries like retail, where erratic part-time hours and on-call shifts are the norm.
Although industry groups argue that this will impose undue burdens on employers and could drive down base wages, advocates say that overall, the rule would discourage the exploitation of lower-level managers and would benefit workers. According to Ross Eisenbrey, vice president of the Economic Policy Institute, “Salaried people who are currently working overtime will work fewer hours. Their hours will be shifted to hourly workers, paid less, who need the work. It’s a win win for the workforce.”
A study by the National Retail Federation concedes that the overtime reforms will have a job creating effect by encouraging new hiring. It’s true that a costlier overtime system could create incentives to hire underpaid part-timers, but that could be offset by raising minimum wages or passing legislation like the recently proposed Schedules that Work Act, which aims to stabilize part-time hours and encourage employers to create steady long-term jobs.