More pay? Or just fewer work hours?
The new overtime rule the Obama administration issued Wednesday could mean thicker paychecks for some Americans who work longer hours — or, just reduced time on the job.
The rule doubles the salary level that employees must receive to be ineligible for overtime pay. If they earn less than the new threshold, they get 1½ times regular wages for any work done beyond 40 hours a week. The threshold will be $47,500 a year, up from the current $23,660. Hourly workers are already entitled to overtime pay.
Labor Secretary Tom Perez said the change, which will take effect Dec. 1, will qualify 4.2 million more workers for overtime pay. The higher level is intended to offset inflation, which has eroded the old limits. Some retail and restaurant chains pay low-level managers as little as $25,000 a year and no overtime — even if they work 60 hours a week.
Business groups argue that the rule will raise compliance costs and paperwork because companies will have to track workers’ hours more meticulously. They also contend that many small businesses can’t afford either to raise managers’ salaries above the new threshold or pay them overtime.
Here are some questions and answers about the new rule:
Q: I’m a manager at a fast-food restaurant and frequently work 50 or 60 hours a week. Am I now going to get paid for the extra time?
A: If you make more than $23,660 but less than $47,500, you will now be eligible for overtime pay. But that doesn’t mean you will necessarily get it.
The National Retail Federation said about one-tenth of salaried employees newly eligible for overtime will probably receive raises high enough to lift them above the $47,500 threshold. They will make more money, but won’t qualify for overtime pay. Managers paid more than the threshold are ineligible because they fall under the so-called white-collar exemption that excludes supervisors and professionals from overtime.
Q: What if my salary is still below the $47,500 threshold and I work overtime?
A: Then you might get time and a half. But the NRF, for example, said that more than half of salaried retail and restaurant employees who earn less than the threshold will probably have their base wages cut. As a result, even after receiving overtime pay, their overall income won’t change. And an additional one-third will probably have their hours cut to below 40 hours a week, the retail federation estimates.
Administration officials disagree that pay cuts will be so widespread.
“These are their most valuable employees,” Perez said Tuesday. “They go to the bank and deposit the money. … It’s irrational to lower the salary of your most trusted employees.”
Q: Will this help reduce my time at work?
A: It could, if your employers cuts your hours rather than paying overtime. But if you’re a doctor, lawyer, software engineer or other highly paid professional, the new rule won’t affect you. Doctors and teachers are specifically excluded from earning overtime, and most other professionals make more than the threshold. The rules assume highly paid workers have the ability to bargain for either larger salaries or more time off.
Q: Does this mean I will have to punch a time clock and get paid hourly?
A: If you are below the threshold, business groups said that could happen. Companies will convert you to hourly status and closely track your hours to avoid paying overtime.
“For most employees, that’s viewed as a demotion,” said David French, a senior vice president at the National Retail Federation.
Hourly workers typically receive fewer benefits and are unlikely to have paid vacation. They also aren’t paid if they leave early to attend a parent-teacher conference or other family event.
But supporters of the overtime rule respond that it doesn’t force companies to do any of this. Employees who are eligible for overtime can still be paid a salary and given flexibility over their work time.
Q: Who else might be affected?
A: Colleges and universities have complained that they will have to boost pay for researchers and teaching assistants. Coaches as well as admissions officials will probably have to travel less to avoid incurring too much overtime on the road.
Melissa Bard, chief human resources officer at East Carolina University, said the school has 286 employees who currently don’t receive overtime but would become eligible under the new rule. If they are close to the threshold, she said, they could get a raise to lift them back above it.
“For the smaller colleges like us, it’s going to have a significant impact,” said Scott Miller, president of Virginia Wesleyan College. “The immediate doubling of the threshold is way too high. It’s too expensive, and it’s happening too quickly.”
Nonprofits will also be affected.
Bill McKinney, director of research and evaluation at The Food Trust in Philadelphia, said his group already seeks to limit workers’ overtime hours.
Fluctuations in pay “can have a great impact because we aren’t built to have large stores of reserves,” McKinney said.
The liberal Economic Policy Institute estimates the new rule will benefit roughly a third of salaried employees in the agriculture, restaurant and hotel, construction and retail industries.
Q: How easy will it be to track employees’ hours?
A: Not as easy as it used to be. Andrew Volin, a lawyer in Denver who represents employers, said current work habits could make it difficult. How will they count time that an employee spent reading an email after-hours, at home? How will they know when he or she even saw it?
“This is going to create a new cottage industry for companies that have technology to track work time,” he said.
Q: What will the other impacts be?
A: Labor Secretary Perez said the rule will collectively raise workers’ pay by $1.2 billion annually, though that is just a fraction of the $8 trillion in wages and salaries Americans will receive this year.
Even if employers cut hours for some workers to avoid overtime pay, they could be forced to step up hiring to ensure that necessary work is done. Economists at Goldman Sachs estimate that employers will create an extra 120,000 jobs in the year after the rule takes effect to offset the cut in hours.