Obama Administration Expands Overtime Pay Eligibility

The Obama administration expanded overtime eligibility for millions of workers Thursday, releasing a long-awaited rule change that the Labor Department estimates will extend overtime pay to 4.2 million more workers.

The rule increases the salary threshold below which most white-collar, salaried workers are entitled to overtime from the current $455 per week (or $23,660 for a full-year worker) to $913 per week (or $47,476 for a full-year worker).

“If you work more than 40 hours a week, you should get paid for it or get extra time off to spend with your family and loved ones,” said President Barack Obama in a statement Tuesday previewing the announcement. “It's one of the most important steps we're taking to help grow middle-class wages and put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.”

Vice President Joe Biden spoke in Columbus, Ohio, on Tuesday about the new rules. Ahead of the announcement, he wrote, “Right now, you're guaranteed overtime if you’re an hourly worker, but if you’re salaried, you’re only automatically guaranteed overtime if you make less than $23,660. If you’re a manager on salary and you work an extra 10, 20, 30 hours a week—you often don’t get paid a dime more for those additional hours. That’s simply wrong. Starting in December, we're making sure that more workers get paid fairly for the overtime hours that they work. With this new rule, we’re increasing the cutoff for automatic overtime for salaried workers to $47,476—most salaried workers making less than $47,476 will be guaranteed overtime pay for working more than 40 hours a week.”

The final rule will also ensure the salary threshold is updated every three years; raise the “highly compensated employee” (HCE) annual salary threshold from $100,000 to $134,004; make no changes to the “duties test” under the white collar exemptions; and allow bonuses and incentive payments to count toward up to 10 percent of the new salary level. According to the Department of Labor, the rule will take effect on Dec. 1, 2016. Accountants will need to advise their business clients and the organizations where they work about the change.

“With one in five business owners unaware of the DOL’s proposed overtime rule and a limited window to meet the new standards, the time for business owners to act is now,” said Martin Mucci, president and CEO of the payroll giant Paychex, in a statement.

The salary threshold for the highly compensated exemption will increase every three years to the 90th percentile of earnings of full-time salaried workers nationally, according to Venable LLP employment law partner Brian Turoff. “The DOL estimates that this threshold will increase to $147,524 during the first automatic update in 2020,” he wrote. “The DOL will post all new salary thresholds 150 days in advance of their effective date, beginning Aug. 1, 2019.”

Not everybody is happy with the new rules, however. Speaker of the House Paul Ryan, R-Wis., is vowing to fight it. “This regulation hurts the very people it alleges to help,” he said in a statement. “Who is hurt most? Students, nonprofit employees and people starting a new career. By mandating overtime pay at a much higher salary threshold, many small businesses and nonprofits will be unable to afford skilled workers and be forced to eliminate salaried positions, complete with benefits, altogether. For the sake of his own political legacy, President Obama is rushing through regulations—like the overtime rule—that will cause people to lose their livelihoods. We are committed to fighting this rule and the many others that would be an absolute disaster for our economy.”

The American Institute of CPAs also registered its objections. “The AICPA has clearly and consistently outlined its concerns that the Department of Labor proposed rule will increase the administrative burden in complying with the regulations while dramatically increasing employers’ payroll costs,” said AICPA president and CEO Barry Melancon. “The proposed revisions fail to modernize or streamline the regulations, are not reflective of the realities of the modern workplace and a changing workforce, and would adversely affect both employees and employers. DOL’s modifications to the rule did little to lessen the likelihood that CPA firms and countless other businesses will be forced to curtail hiring—and may even have to reduce the size of their workforce. The changes would have an especially negative impact on smaller accounting firms and the millions of small business clients they represent that simply cannot afford to raise their salaries for exempt employees above the new proposed threshold but also cannot afford to pay overtime to exempt workers. As a member of the Partnership to Protect Workplace Opportunity—a diverse group of stakeholders including businesses and associations that represent millions who could be impacted by the proposed rule—we urge Congress to intervene in the process so that regulations governing overtime pay reflect the evolving workplace in a manner that is not economically counterproductive.”

The financial information company Sageworks also raised concerns. “Raising the minimum overtime-eligible salary to $50,440 (with increases each year) will kill startups, and it will hurt young people who will not be able to be hired in those start-ups,” wrote Sageworks chairman Brian Hamilton and research specialist Mary Ellen Biery in a recent opinion piece for The Hill.

However, the new rule promises to help many Millennial workers (see Millions of Millennials May Benefit from New Rule on Overtime). While they only represent 28.2 percent of the salaried workforce, they comprise 36.3 percent of those now covered under the new rule, according to Ross Eisenbrey, vice president of the Economic Policy Institute.

Workers struggling to make their paychecks cover their living expenses are likely to welcome the extra take-home pay promised by the new rule.