New Overtime Rules Affect 4 Million Workers

Last month (May 18th, 2016) the Obama administration announced a big change to the current laws regarding overtime for workers.

This change comes in the form of a new rule that The Labor Department estimates will make 4.2 million middle-income workers eligible for overtime pay.

Under the new regulations, the minimum threshold under which full-time salaried employees can earn overtime has been increased from $23,660 a year, to $47,476. This means that full-time workers earning less than this amount would be eligible for time and a half when they work extra hours.

Currently, only about 7 percent of full-time salaried workers are eligible for overtime, but under the new threshold, it’s estimated that about 35 percent of full-time salaried employees will qualify.

While many workers assume that these rules will automatically mean bigger paychecks, this isn’t necessarily the case. In response to the new rule, many employers will be looking for ways to avoid paying the increased wages, instead opting to make changes that will exempt them from the new rule.

Here’s a quick look at four potential outcomes that could happen as a result of these changes.

1. Workers Could Get Paid for Overtime

The first scenario is that employers will simply pay workers the overtime. With the new rules in place, employees who make less than $47,476 annually, more than double the current threshold of $23,660 per year, will be eligible for overtime –and time and a half. Under the new rules, employers will be required to keep a closer eye on time and compensate employees for hours worked overtime.

2. Workers Could Get a Small Raise

According to Tammy McCutchen, a management-side lawyer for the firm Littler Mendelson, many employers may bump up their employees’ wages to avoid having to pay overtime. “If you earn just under the new threshold, your employer may decide to just raise your base pay by a few thousand dollars to avoid having to pay you overtime,” McCutchen says.

3. Workers’ Could Be Limited to 40 Hours a Week

Some employers may simply limit the number of hours that employees that are allowed to work, instead hiring part-time workers, and spreading the work out more, limiting workers to 40-hour work weeks.

4. Workers Could Work the Same Hours for Lower Pay

Another scenario is that employers may lower workers’ hourly pay, meaning that employees will find themselves working the same hours they were before, without any additional compensation. As unfortunate as this scenario is, as long as employers are paying their employees minimum wage, they technically aren’t breaking the law. Although it’s relatively uncommon for workers to give employees pay cuts, and they could risk higher levels of turnover as a result.

Finally, workers could experience some combination of the above scenarios. Workers who are classified as non-exempt from the new rules could even see changes to health benefits, vacation accrual schedules, or bonuses.

This law has been met with mixed reactions, with small business owners and nonprofits saying that they may have to switch salaried workers to hourly positions.

“For many of these types of employees they’re going to be viewing it as a demotion,” says David French, senior vice president of government relations for the National Retail Federation. “They’re going to have to clock in and clock out. They’re no longer going to have flexibility at work.”

Still, others remain optimistic. Many labor groups and unions feel that this change was long overdue since many people who work 50 to 60 hours a week without overtime are actually earning less than the minimum wage after all of their hours are taken into consideration.

“The current level isn’t even enough to keep a family of four out of poverty,” says Judy Conti, federal advocacy coordinator for the National Employment Law Project. “It is not at all reflective of somebody who is an executive or a professional.”

These changes are scheduled to take effect on December 1, 2016. For more information on the new legislation, visit the Department of Labor.

What are your thoughts on the new overtime law?