The rules, which would not likely take effect until 2015, are aimed at workers currently designated as supervisory employees but who are exempt from overtime because they get paid a salary of more than $455 a week. Obama plans to order his Labor Department to recommend regulations that would increase that salary threshold and change the definition of what constitutes a supervisor.
Obama’s attention to overtime dovetails with his emphasis on correcting wage disparities, a theme that he has said will be central to the remainder of his presidential term. It also serves his political ends during a midterm election year, giving him a populist issue to go along with his calls for a higher minimum wage and better pay for women.
The president’s directive, to be announced today, leaves the details of a proposed rule to the Labor Department, which is not expected to come up with a recommendation before the fall. Still, it drew swift protests from Republicans, who complained he was sidestepping Congress, and from the business community, who said such rules would increase burdens on employers.
“How does he expect us to work with him?” said Sen. John McCain (R-Ariz.) “It’s just a poisonous relationship.”
The salary limit separating those who get overtime and those who don’t was increased to $455 in 2004 during the Bush administration. At the time, it hadn’t been increased since the mid-1970s.
“What we know right now is the threshold has been eroded by inflation, and there 3.1 million people who, if the threshold had kept up just with inflation, would automatically be covered by overtime provisions,” said Betsey Stevenson, a member of Obama’s Council of Economic Advisers.
Overtime and minimum wage rules are set by law in the Fair Labor Standards Act that Congress originally passed in 1938. The law gives the administration some leeway to define the rules through regulations.
The law requires most workers to be paid overtime that is 1.5 times their regular wages if they work more than 40 hours per week. The law allows exemptions for executives, managers and professional workers and sets the salary threshold above which workers don’t have to get overtime pay. The law also gives employers leeway to define workers as supervisors, and thus ineligible for overtime, even if they spend much of their work day performing non-supervisory work.
New rules would likely establish a minimum amount of managerial duties that a worker would have to carry out to be exempt from overtime.
While the White House would not say what threshold it was considering, economists allied with the White House have proposed doubling the current limit to nearly $1,000 a week, or about $52,000 a year, which, when adjusted to inflation would make it similar to what the threshold was in 1976.
Ross Eisenbrey, the vice president of the liberal Economic Policy Institute, said there are about 10 million more workers who would qualify for overtime under that higher threshold. But he said not all work overtime and he estimated that such an increase would more than likely actually affect about 5 million salaried workers.
The current salary limit —equal to $23,660 a year —is below the poverty level for a family of four. “It’s so far from being an executive salary as to be a joke,” Eisenbrey said.
Business groups said any forced increase in wages has consequences that could affect employment, prices and the survival of certain companies which, they said, already have to comply with requirements of a new health care law.
“Similar to minimum wage, these changes in overtime rules will fall most harshly on small and medium sized businesses, who are already trying to figure out the impact of Obamacare on them,” said Marc Freedman, executive director of Labor Law Policy for the U.S. Chamber of Commerce.”
Keith Koenig, president of City Furniture, which owns 10 Ashley Furniture HomeStores in Florida, says a new threshold of $800 would cost him several hundred thousand dollars more in overtime. He said he would have to tell affected workers that they couldn’t work more than 40 hours a week.
“I can’t afford to pay them time and a half. It breaks my budget,” he says.
AFL-CIO President Richard Trumka said that Wall Street executives benefited from a 15 percent increase in bonuses last year.
“Americans are fed up with Wall Street,” he said, yet more hopeful than we’ve been in a generation that real efforts to raise wages are being put in place.”