Updated May 18 at 10:15 a.m.

Effective Dec. 1, the U.S. overtime pay threshold for white collar, salaried employees will increase from $23,660 per year to $47,476 per year, according to the U.S. Department of Labor.

The new threshold will affect about 4.2 million employees in the country, including 370,000 employees in Texas. The DOL estimates that white collar workers will earn an additional $1.2 billion per year as a result of the rule.

After the initial threshold increase, the salary threshold will increase every three years, beginning Jan. 1, 2020.

The salary threshold is being raised based on the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South, according to the DOL. Each update will also increase the threshold to the 40th percentile, which is estimated to be $51,168 in 2020.

The Highly Compensated Employees salary level is also being increased to the 90th percentile of full-time salaried workers nationally, which raises the level from the current $100,000 per year to $134,004 per year.

The new overtime pay threshold is slightly less than what the DOL originally estimated for 2016, which was $50,440 per year. The DOL also originally proposed updating the threshold every year.

There is currently no exemption for small businesses and nonprofits.

Original story

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 thousands in the Conroe area.

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. That salary level would change to $50,440 or more per year in 2016 under the proposed rule.

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

If implemented, the rule could effect the area—where 66 percent, 55 percent and 76 percent of Conroe, Montgomery and Willis full-time workers earned less than $50,000 per year in 2014, respectively, according to the U.S. Census.Feds could update overtime rules

Administrative assistants, mechanical assemblers, directional drillers, engineering technicians, programmer analysts and surveyors are among salaried positions that average less than $50,440 in the Conroe area, according to a 2014 survey report compiled by Dallas-based economic development consulting agency The Pathfinders.

U.S. Rep. Kevin Brady, R-The Woodlands, said the proposed rule has the potential to hurt businesses and reduce midlevel employment opportunities.

“It certainly makes it harder for small businesses who are already struggling under higher taxes, ‘Obamacare’ and a lot of new red tape out of Washington,” Brady said. “This really hurts the people who were trying to move from the second to the third rung on the economic ladder. Opportunities for advancement normally come from salaried management and higher positions.”

The DOL argues the rule would help workers receive fair compensation for their work as well as create hundreds of thousands of jobs by leading employers to hire part-time workers to take over excess hours their full-time employees are currently working, said Ross Eisenbrey, Economic Policy Institute vice president and DOL expert.

However, the rule could instead lead employers to reduce the number of full-time workers they hire and replace certain positions with multiple part-time employees—who may also not earn fringe benefits from their employers, said Fred Welch, Greater Conroe Economic Development Council executive director.

“I realize what the Department of Labor is trying to do, but I think it will drive businesses to look at ways to cut people and not add,” Welch said.

Effects on businesses

The DOL interviewed employer stakeholders before announcing the proposed rule. The department’s report states that implementing overtime pay is intended to encourage employers to hire more employees.

“If [employers] think that paying time and a half for overtime is too expensive, the answer is don’t do it,” Eisenbrey said. “Don’t work people long hours. It’s bad for their families; it’s bad for their productivity; it’s bad for their health. It’s a bad idea.”

The report stated that some stakeholders said many of their employees value the time flexibility that comes with salaried positions. Conroe City Manager Paul Virgadamo said losing that flexibility would place a burden on local employers.

“That is going to put a burden on businesses if they have to pay overtime at the time and a half rate for positions they wouldn’t normally pay overtime to,” Virgadamo said. “Before they could allow someone to take time off or earn some sort of comp time. [In fact] it would put a burden on us here at the city if that happens.”

Welch said the policy could also restrict the number of lower management jobs in the market—which often serve as a training position for young managers working their way up the ranks of their respective companies.

“We may not have as many assistant managers and drop that excess work off to the higher paid manager and let them do more,” Welch said.

Feds could update overtime rules

Time for a change

The rule proposal comes in response to a presidential memorandum signed by President Barack Obama in 2014 directing the DOL to update its regulations that define which white collar workers are protected under the Fair Labor Standards Act’s overtime rules.

In the past, the salary threshold for overtime pay has been a set number. This time, the proposed rule suggests changing the salary level to the 40th percentile of earnings, which equate to $50,440 per year in 2016. The DOL also proposes updating the salary level every year to maintain its effectiveness.

“The basic rule under the Fair Labor Standards Act is that everybody is entitled to overtime [compensation],” 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.”

Instead of the federal policy, Welch said he would prefer to see more training opportunities implemented for people in the low- to moderate-income range so they can earn higher wages.

“Everybody wants a livable wage and everybody wants to be fair, but I don’t know that there is an arbitrary thing in Washington, D.C. that says this is the way that everybody should do it,” Welch said. “That is always the problem. I hate a federal mandate. I would rather let the free market figure it out.”