Today, June 30, 2015, the Department of Labor has announced a proposed rule that would extend overtime protections to nearly 5 million white collar workers within the first year of its implementation. Specifically, the Obama administration proposed requiring overtime pay for workers who earn nearly $1,000 per week, more than doubling the current threshold.

To keep up with future inflation and wage growth, the proposal will peg the salary threshold at the 40th percentile of income. With today’s long-awaited proposal, the Labor Department will raise the threshold to $970 a week — $50,440 a year — by 2016.

The Labor Department’s estimates suggest the proposal would raise wages for 5 million people, but other estimates are far higher. The Economic Policy Institute (“EPI”), a liberal think tank, recently estimated that a threshold of $984 a week would cover 15 million people.

Currently, salaried employees who are paid more than $455 a week — or $23,660 a year — can be exempted from overtime pay if their employer deems them to be “managers,” even if they have little in the way of supervisory duties. The overtime regulations have left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year. For example, a convenience store manager, fast food assistant manager, or some office workers may be expected to work 50 or 60 hours a week or more, making less than the poverty level for a family of four, and not receive a dime of overtime pay.

Under the current threshold of $455 per week, only about 8 percent of salaried workers are eligible for 1½ times their regular pay when they work more than 40 hours per week. The EPI estimates that doubling the salary level would make up to 40 percent of salaried workers eligible.

Obama’s proposal aims to narrow a loophole that the president has long said is exploited by some employers to avoid paying overtime. The White House’s proposed changes will be open for public comment and could take months to finalize. Of utmost importance is that these proposals can be enacted through regulation, without approval by the Republican-led Congress.
The “Take Away”

The current administration is sending a clear message that an expansion of overtime to include significantly more employees is imminent. Businesses may decide to simply pay the increased labor costs or hire additional workers to avoid paying overtime or extend the hours they give part-timers. Regardless, employers must be prepared. We can help you and your Clients plan accordingly. Call or email us today.

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