The U.S. Department of Labor has proposed a new rule that, if passed, would extend overtime pay eligibility to nearly 5 million additional salaried workers nationwide. The rule, which will be voted upon by the DOL in July, would change the salary threshold for those who are exempt from receiving mandatory overtime pay. Currently, full-time, salaried workers making $23,660 or more per year do not qualify for overtime pay. Under the proposed rule, that salary level would change to $50,440 or more per year in 2016. The DOL estimates that 4.6 million employees currently exempt from overtime pay would receive overtime protection under the proposed rule, which the department argues would help those workers receive fair compensation for their work. In addition, employers would hire part-time workers to take over any excess hours their current full-time employees were working, said Ross Eisenbrey, Economic Policy Institute vice president and DOL expert. “You can estimate safely that there will be hundreds of thousands of jobs created,” he said.

Time for a change

In 2014, President Barack Obama signed a presidential memorandum directing the DOL to update its regulations that define which white-collar workers are protected under the Fair Labor Standards Act’s overtime rules. The FLSA, which was passed in 1938, establishes overtime and minimum-wage standards. In response, the DOL sought to modernize and simplify its regulations and ultimately proposed changing the salary threshold in 2015. “The basic rule under the Fair Labor Standards Act is that everybody is entitled to overtime,” Eisenbrey said. “The policy is that people shouldn’t work more than 40 hours a week. If they work over 40 hours a week, they should be paid extra, and that discourages employers from working people long hours because they do have to pay extra.” The DOL has changed its salary threshold seven times since implementing overtime protections, with the last time being in 2004 when the salary level was changed to $23,660 per year. Before then, the salary levels had not been updated since 1975. A DOL argument for updating the salary level is that the current threshold falls below the poverty level for a family of four, which is $24,250 per year. In the past, the salary threshold has been a set number. This time, the proposed rule suggests changing the salary level to the 40th percentile of earnings, which would equate to $50,440 per year in 2016. The DOL also proposes updating the salary level every year to maintain its effectiveness.

Who would be affected?

Tyler Young, a political science professor at Collin College, said the proposed change would mainly affect middle-management employees. “These are people who are working 50-60 hours a week,” he said. “If they were hourly employees, they would have protection because they are required to receive time and half after 40 hours, and you get paid double after a certain amount of more [hours].” Young said the proposed change would have a positive effect on the local economy since the change will take place across the board. “This could reduce our social obligations—like welfare spending—and it could increase the spending power of the middle class,” he said.

Effect on businesses

On the national scale, the National Retail Federation estimates that the proposed overtime changes would cost restaurants and retailers between $5 billion and $9 billion per year. “It’s too early for McKinney to fully understand the impact of proposed changes to overtime pay until the firm details are finalized,” City Budget Manager Mark Holloway said. “However, it appears that for any employer, this is going to increase costs, for some much more than others.” Holloway said in the city’s case preliminary analysis estimates the changes would impact perhaps less than 25 city employees in positions that are not traditionally heavy overtime users, and he does not anticipate a significant change in the budget. Don Day, a council member and business owner, has roughly 140 employees throughout The Grand Hotel, Harvest Seasonal Kitchen, Rick’s Chophouse and Uptown. According to Day, the first problem the potential change could cause is the creation of a new set of government forms and regulations that businesses must respond to and observe. “The forms and time spent for compliance will cost businesses money before it has any impact on employees,” he said. “It will create a new expense just to ensure that businesses are in compliance.” As for the impact on small business, Day said that it would have a definite impact, but not a lot in his case. “We expect our employees to work 40 hours per week,” he said. “[If] they work more hours, we pay them for the extra hours or give them compensating time off. If someone works for me, I expect to pay them in a fair and reasonable manner.” The DOL interviewed employer stakeholders before announcing the proposed rules. In a report, some stakeholders said employees value the time flexibility that comes with a salaried position. The DOL report states one of the original intentions of implementing overtime pay is to see that employers hire more employees rather than requiring existing employees to work longer hours. The other intention is to prevent employees from being overworked and, therefore, avoid negative health effects on workers. “If [employers] think that paying time and a half for overtime is too expensive, the answer is don’t do it. Don’t work people long hours,” Eisenbrey said. “It’s bad for their families; it’s bad for their productivity; it’s bad for their health. It’s a bad idea.”

The final decision

The DOL opened a comment period on the proposed rule from July 6-Sept. 4 last year. During that time, the department received more than 270,000 comments. The DOL must review all of those comments before making a final decision this summer. The proposed rule does not have to go before Congress because Congress has given the DOL authority to regulate policies related to labor. The president and the U.S. Office of Information & Regulatory Affairs may review the final rule prior to it being published.