Risk & Compliance

U.S. Doubles Threshold for Overtime Eligibility

The Obama administration says its new overtime rule will strengthen the middle class but a business group calls it a "career killer."
Katie Kuehner-HebertMay 18, 2016

The Obama Administration has announced new regulations that will extend overtime pay to 4.2 million workers, saying the move would stimulate economic growth by strengthening the middle class.

The rule unveiled Tuesday doubles the salary threshold for time-and-a-half overtime eligibility from $455 a week to $913 a week, or from $23,660 to $47,476 for a full-year worker. The threshold will be automatically updated every three years, beginning Jan. 1, 2020.

Overtime eligibility was last updated in 2004 and now covers just 7% of full-time, salaried workers, administration officials said. The higher threshold, which will take effect Dec. 1, will increase that ratio to 35% and boost workers’ pay by an estimated $12 billion over the next 10 years.

“This is a step in the right direction to strengthen and secure the middle class by raising Americans’ wages,” President Barack Obama said in an email message. “When workers have more income, they spend it often at businesses in their local community and that helps grow the economy for everyone.”

According to Reuters, the rule is expected to have the greatest impact on nonprofit groups, retail companies, hotels and restaurants, which have many management workers whose salaries are below the new threshold.

The administration noted that employers could mitigate the effect of the rule by, among other things, raising salaries above the new threshold or limiting hours to 40 per week.

“Employers may decide to increase the salaries of some workers to push them over the cutoff so that the employers will not have to pay overtime or hire additional workers after limiting hours for existing employees,” The New York Times said.

But critics said the measure would undermine the morale of salaried employees by requiring them to account for every hour of their workdays.

“These rules are a career killer. 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 in a statement.

The White House initially proposed a $50,440 standard but lowered it to appease critics. “It means a million fewer employees will be helped,” Ross Eisenbrey, vice-president at the Economic Policy Institute,  told Reuters.

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