New Overtime Rules Could Mean a Bigger Paycheck for You

earnings statement
Source: iStock

President Obama wants to give you a raise. If the Department of Labor’s (DOL) proposed changes to how overtime eligibility is determined become a reality, as many as 13.5 million American workers could see an increase in their paychecks, according to estimates from the Economic Policy Institute (EPI) — more modest estimates from the Pew Research Center and the DOL itself say about 5 million workers might benefit. Younger people in particular stand to benefit from the change, with 4.7 million workers under the age of 34 potentially seeing more money in their pockets, according to the EPI.

Hourly workers are already automatically eligible for overtime pay if they work more than 40 hours a week, whether they earn $8 an hour or $25 an hour. Yet employers can currently avoid paying overtime to salaried workers who earn more than $23,660 if they are classified “professional, executive, or managerial” employees. The Obama administration wants to double the salary threshold, so that people earning less than $50,440 a year would receive overtime if they worked more than 40 hours per week, even if they supervise other workers or have management responsibilities.

The exceptions to the overtime requirements for managers and professionals were originally designed with the idea that people in highly compensated white collar professions didn’t need overtime pay. But the salary threshold has only been adjusted once in recent decades, and as a result the number of people who qualify for automatic overtime pay has steadily shrunk. In 1975, 62% of full-time salaried workers were eligible for overtime pay. Today, only 8% are eligible.

manager holding clipboard
Source: iStock

Today, an assistant store manager with an annual salary of $32,000 and who regularly works 50- or 60-hour weeks doesn’t have to be compensated for those extra hours if his employer classifies him as exempt. That drives down his real hourly wage, in some cases so much that he may earn less per hour than the people he supervises.

“[I]f you’re making $23,000, typically, you’re not high in management,” said President Obama in 2014. “If your salary is even a dollar above the current threshold, you may not be guaranteed overtime. It doesn’t matter if what you do is mostly physical work like stocking shelves, it doesn’t matter if you’re working 50 or 60 or 70 hours a week — your employer doesn’t have to pay you a single extra dime.”

Source: Pew Research Center
Source: Pew Research Center

While millions of workers stand to benefit if the overtime rules are changed, especially retail managers and administrative professionals, younger workers are one of the groups that stands to benefit the most. Seventy percent of full-time salaried workers between 16 and 24 would become eligible for overtime pay, along with 41% of workers between 25 and 34, according to the Center for American Progress.

Not surprisingly, business groups are generally opposed to any overtime changes. Such changes “will negatively impact small businesses and drastically limit employment opportunities,” said Randy Johnson of the U.S. Chamber of Commerce. Retail stores and restaurants might respond to new overtime rules by slashing workers’ pay, eliminating bonuses and benefits, or cutting workers’ hours, according to a report from the National Retail Federation.

Given the president’s enthusiastic support for updating the overtime rules, and the fact that such a move doesn’t require Congressional approval, change could be coming fairly soon. The period for public comment on the proposed change ends September 4, and the Department of Labor may issue a final ruling as soon as the end of 2015, the Los Angeles Times reported. For overworked salaried workers who are struggling to make ends meet, that could be welcome news indeed.

Follow Megan on Twitter @MeganE_CS

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