The U.S. Department of Labor has proposed a new rule that would extend overtime pay eligibility to nearly 5 million additional white-collar salaried workers nationwide, including many in Cy-Fair.

The rule 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 is expected to make a final decision on the rule by July.

Those familiar with the proposal say it has the potential to help employees and hurt businesses. The DOL estimates that 4.6 million employees who are currently exempt would receive overtime protection under the proposal, which the officials argue would help workers receive fair compensation.

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.

On the other hand, the U.S. Chamber of Commerce predicts that businesses—especially small and mid-sized businesses—would struggle to absorb the increased labor and litigation costs. The full effect at the local level is not likely to be felt until after the law sets in, officials 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 to the memorandum, the DOL sought to modernize 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.”

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. However, the current salary threshold is also nearly $12,000 more than the poverty level for one person.

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. The DOL believes this method of updating the salary level is the simplest.

The National Retail Federation estimates that the proposed overtime changes would cost restaurants and retailers between $5 billion and $9 billion per year. Other smaller businesses say they would have to increase costs, which would affect consumers.

Keith Vrana, co-owner of the Cy-Fair-based food packaging company Consolidated Mills, said he recognizes the need to address how many companies take advantage of their workers but is unsure if this is the right way to do it.

“From a small-business standpoint, this is just one more thing that puts a chokehold on us,” he said. “All new jobs in this country are essentially created by small businesses, and it’s so tough for them to grow right now.”

Vrana said his business would be able to handle the proposed changes and is dedicated to paying workers fairly, but recognized that many small businesses depend on people putting in extra hours to stay afloat. The effects could range from people losing their jobs to businesses scaling back production.

“You’re going to have to learn how to do more with less,” he said. “You have to find a way to cover the difference in how much more you have to pay people, and it’s inevitable that some businesses are going to have to let some of their salaried people go.”

Additional reporting by Shawn Arrajj