The Impact of New Overtime Rules

Under a new rule announced by the White House May 18, overtime pay will be extended to salaried workers earning up to $47,476 a year ($913 a week) when they put in more than 40 hours a week. This is double from the current annual salary threshold of $23,660 ($455 a week).

Bonuses and incentive payments may count toward up to 10 percent of the salary threshold. The change will go into effect Dec. 1, 2016, giving employers roughly six months to prepare.

“Companies will have a choice: Pay their workers for the extra hours they put in, or cap their hours at 40 hours a week,” Vice President Joe Biden said in a message to the White House email list. “For over 4 million workers, this change means they’ll either get a bump in pay or will get more time with their families if they work more than 40 hours a week. Or more time to go back to school or get additional job training.

“[…] The law since the 1930s has said that anyone working more than 40 hours a week is working overtime,” he continued. “And if you’re working overtime, you should get paid for it. We can’t allow folks with families to support to work long hours without being paid fairly for it. It’s not right. So today, we’re doing what we can to fix it. The President and I have been laser-focused on rebuilding the basic middle-class bargain that used to exist, and that both parties have signed on to.”

Among the 4.2 million affected employees, 55.6 percent are female, 31.3 percent are between the ages of 25 to 34, and 39.2 percent have obtained a bachelor’s degree, according to statistics from the White House.

Labor Secretary Thomas Perez told reporters that the salary threshold was originally intended to exempt high-paid executives, but instead has denied overtime to low-level retail supervisors and entry-level office workers who often work closer to 50 to 70 hours a week. “Too few people are getting the overtime that (federal law) intended,” he said to USA Today. “It’s simply not right.”

But not everyone is happy with the changes. Some argue that those affected will feel demoted, while others say there will be less flexibility to attend to personal business during the day or to work from home.

Employers also may feel less inclined to hire managers. “[The new] overtime rule will reduce valuable middle management positions … [It] breaks the basic American bargain: If you’re willing to work until the job gets done, you can quickly climb the career ladder,” Alfred Ortiz, head of the Job Creators Network, a business trade group, told CNN.

It is important to note that the new threshold will be updated every three years to ensure that it remains at the 40th percentile of full-time salaries in the lowest income region of the country. CNN reported that based on wage growth projections, the number could increase to $51,000 by 2020.

How will this new rule affect your company? Let us know.