Obama extends overtime pay to 4.2 million workers: Could it backfire?

The new rule is meant to put more money in the pockets of middle-class workers, but industry leaders say it could end up leading employers to demote workers.

First Look

The Obama administration on Tuesday released information on updated rules regarding overtime for salaried workers in a controversial move that would allow an additional 4.2 million workers overtime pay.

Overtime, which requires employers to pay their workers one and one-half times their regular wage for working more than 40 hours per week, can be denied for salaried workers if they earn more than $23,660 annually. This made some employees, especially those in managerial positions, ineligible for overtime pay despite longer hours worked.

The Obama administration hails the move as a boost for middle-class workers and the greater US economy . But industry representatives say the new rule could force employers to demote workers or reduce base pay to avoid taking on prohibitive increases in compensation.

The new rules will raise the overtime threshold to $47,500, an increase President Obama says will grant workers billions in additional pay over the next decade. That limit is down from the $50,440 standard initially proposed last year.

“We're strengthening our overtime pay rules to make sure millions of Americans’ hard work is rewarded,” Obama wrote in a White House email. “If you work more than 40 hours a week, you should get paid for it or get extra time off to spend with your family and loved ones. It's one of most important steps we're taking to help grow middle-class wages and put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.”

However, the measure has seen opposition from some Republicans and business leaders, though, who say the changes could slow hiring and force employers to cut wages or convert salaried workers to hourly pay in order to monitor their proximity to the overtime limit.

“With the stroke of a pen, the Labor Department is demoting millions of workers,” David French, senior vice president of the National Retail Federation, told the Associated Press. “Most of the people impacted by this change will not see any additional pay.”

Obama says the additional opportunity for overtime pay will end up benefiting the middle class, and the economy.

“This is a step in the right direction to strengthen and secure the middle class by raising Americans' wages,” he wrote. “When workers have more income, they spend it – often at businesses in their local community – and that helps grow the economy for everyone.”

Tammy McCutchen, an attorney for employers and former Department of Labor Wage & Hour Division administrator, said the new rule could end up slowing economic growth in rural states and leave employees with less flexible schedules.

The final threshold will include bonus payments and will not take effect until December.

Material from Reuters and The Associated Press was used in this report.