President Barack Obama announced Monday night a rule change that would make millions more Americans eligible for overtime pay.
The rule would raise the salary threshold below which hourly workers automatically qualify for time-and-a-half overtime wages to $50,440 a year from $23,660, according to an op-ed by the president in The Huffington Post.
“Right now, too many Americans are working long days for less pay than they deserve,” the president wrote.
The administration has the power to issue the regulation, which would restore the overtime salary threshold to roughly where it stood in 1975 in terms of purchasing power, without congressional approval.
Advocates for the change immediately hailed the decision.
“The president said he wanted to go big here and he did,” said Jared Bernstein, a former White House economist who co-wrote an influential report on the benefits of expanding overtime pay after leaving the administration in 2011. “I can’t think of any other rule change or executive order that would lift more middle-class workers.”
At least two candidates for the 2016 Democratic presidential nomination, Gov. Martin O'Malley of Maryland and Sen. Bernie Sanders of Vermont, have urged action on the overtime regulations.
Conservatives and business groups have bitterly opposed the idea, warning that it will cost jobs. The National Retail Federation, a trade group, has argued that expanded overtime will “add to employers’ costs, undermine customer service, hinder productivity, generate more litigation opportunities for trial lawyers and ultimately harm job creation.”
The rule, which would most likely be completed in 2016, would give workers whose salary is between the current threshold and the new threshold a raise if they work more than 40 hours a week. Advocates on both sides of the issue expect the policy to be challenged in court and perhaps in Congress as well.
Republicans could, for example, attach a so-called rider undoing the change to must-pass appropriations measures later this year.
The momentum for the rule change increased after Bernstein and a colleague, Ross Eisenbrey of the Economic Policy Institute, wrote their report in late 2013, one of a number of papers the Labor Department commissioned to commemorate the 75th anniversary of the Fair Labor Standards Act.
By March 2014, the president had been won over, ordering the department to revise federal overtime rules. What followed was escalating pressure from labor, liberal activists, and Democratic politicians encouraging the administration to expand overtime eligibility as broadly as possible, despite pushback from businesses.
That was particularly true after reports last fall that the administration was considering a more modest rule change.
“We made it known that critics are going to criticize them no matter what they do,” said Kelly Ross, deputy policy director of the AFL-CIO. “If what they want to do is have an impact on wages, they need to go big here.”
Assuming the rule is put in place, economists believe that many employers will most likely reduce workers’ hours so as to save on overtime pay. Even so, the White House believes the rule could affect nearly 5 million workers in the short term. Meanwhile, any attempt to scale back hours could increase hiring.
Over the longer term, the effect of the rule could diminish substantially as employers offer new hires a lower base wage. This could make their overall pay, including the higher overtime wage, equivalent to what comparable employees make today in the absence of the overtime rule.
In that case, Bernstein said, future workers would only benefit if they end up working more overtime hours than the employer expected when negotiating their wage.
Under the proposed rule, the overtime threshold will be indexed to some measure to rise over time, although the exact measure isn’t likely to be settled until after a public comment period.