Why millions of US workers will now get overtime pay

By the end of the year, 4.2 million more salaried US workers will be eligible for overtime pay, the Obama administration announces Wednesday. 

More than 4 million U.S. workers will become newly eligible for overtime pay under rules to be issued Wednesday by the Obama administration.

The policy changes are intended to counter erosion in overtime protections, which date from the 1930s and require employers to pay 1 ½ times a worker's regular salary for any work past 40 hours a week.

In the fast food and retail industries in particular, many employees are deemed "managers," work long hours, but are barely paid more than the people they supervise.

Under the new rules, first released in draft form last summer, the annual salary threshold at which companies can deny overtime pay will be doubled from $23,660 to nearly $47,500. That would make 4.2 million more salaried workers eligible for overtime pay. Hourly workers would continue to be mostly guaranteed overtime.

The White House estimates that the rule change will raise pay by $1.2 billion a year over the next decade. In addition, some companies may instead choose to reduce their employees' hours to avoid paying the extra wages.

"Either way, the worker wins," said Vice President Joe Biden on a conference call with reporters Tuesday afternoon.

Business groups, however, said the changes will increase paperwork and scheduling burdens for small companies and force many businesses to convert salaried workers to hourly ones in order to more closely track working time. Many employees will see as a step down, they said.

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

The overtime threshold was last updated in 2004 and now covers just 7 percent of full-time, salaried workers, administration officials said. That's down from 62 percent in 1975.

The higher threshold, which will take effect Dec. 1, will lift that ratio back to 35 percent, Labor Secretary Tom Perez said. Perez has spearheaded the administration's effort and worked on formulating the rule for the past two years.

The new rule is intended to boost earnings for middle- and lower-income workers, Perez said, which have been stagnant since the late 1990s. Overtime pay hasn't gotten as much attention as nationwide efforts to increase the minimum wage, but it could have a broad impact.

"This in essence is a minimum wage increase for the middle class," Judy Conti, federal advocacy coordinator for the National Employment Law Project, an advocacy group, said.

Overtime has become a sore point for many managers, assistant managers, and management trainees in the fast food and retail industries.

Despite their titles, they have complained in lawsuits against chains such as Chipotle and Dollar General that they spend the vast majority of 50- or 60-hour weeks working cash registers, mopping floors, or performing other tasks typical of regular employees. Yet they don't get paid time and a half when they clock more than 40 hours in a week.

Still, Tammy McCutchen, a lawyer who represents employers and a former Labor Department official during the George W. Bush administration, said the rule could leave many workers with less flexible schedules. That's because employees eligible for overtime are only paid for the hours they work.

As a result, an hourly worker "who takes an afternoon off to attend a parent-teacher conference will not be paid for that time, but an employee (who is exempt from overtime) will be paid her full guaranteed salary," she said in congressional testimony last week.

Perez said the administration took several steps in the final rule to address business concerns: The threshold was lowered from the original proposal of $50,440; bonus payments can count toward the threshold; and the rule will have a long phase-in before taking effect Dec. 1.

Mara Fortin, president and CEO of seven Nothing Bundt Cakes bakeries in San Diego, said she might give raises to her "superstar" managers to lift their pay above the overtime threshold. But she would have to cut back on end-of-year bonuses she frequently gives to offset the cost.

Fortin has 14 salaried managers and assistant managers among her 110-member staff. The new rule will create problems for managers, some of them newer, who take longer to get their work done, she said. She might have to cut their base pay so they make the same amount as they do now, even including overtime.

"We can't pay you time and a half because you're slow," she said. "This is extremely frustrating for me."