Obama overtime pay proposal draws concerns

President Barack Obama just gave millions of Americans a raise – potentially.

Published July 6, the Department of Labor issued a Notice of Proposed Rulemaking in the Federal Register regarding an increased wage threshold for overtime pay that could impact more than 5 million workers.

The move comes after a June 29 op-ed published by Huffington Post titled “A Hard Day’s Work Deserves a Fair Day’s Pay,” in which the president outlined a new overtime pay rule.

Set to take effect in 2016, the rule follows a directive to the DOL that Obama outlined in March 2014 ordering an update to the Fair Labor Standards Act of 1938, which also sets requirements such as minimum wage.

Currently, public and private employers are not required to pay overtime to salaried workers making more than $23,660, or about $455 a week. The new rule would update the threshold to $50,440 annually, or about $970 weekly.  

“Overtime is a pretty simple idea: If you have to work more, you should get paid more,” Obama said when issuing the directive.

“An exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year. If your salary is even a dollar above the current threshold, you may not be guaranteed overtime. It doesn’t matter if you’re working 50 or 60 or 70 hours a week – your employer doesn’t have to pay you a single extra dime.”

When originally created in 1938, the FLS act exempted “executive, administrative, professional and outside sales employees.” The DOL cites examples such as convenience store managers, fast food assistant managers and some office workers who may be expected to work 50 or 60 hours a week or more, but make less than the poverty level for a family of four.

Updated for inflation in 1975, supporters say the new rule will bring labor standards current and eliminate low wage standards for those classified as middle managers. According to the Obama administration, about 35 percent of workers were exempt in 1975, and, now, it’s estimated at more than 80 percent.

“Things haven’t changed in the last 40 years,” said Patricia Stoner Myers, a partner at The Whitlock Co.

“I think everyone agrees there needs to be an update, but all at once is pretty drastic. Maybe it could have been more incremental.”

The National Retail Federation has loudly voiced its opposition to the change.

“The administration seems to be under the impression that they can build the middle class by government mandate,” said David French, NRF senior vice president for government relations, in a statement. “Turning the managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and job creators that are the true path to middle-class success.”

According to an Oxford Economic study commissioned by the NRF, an increase in the exemption threshold would affect 2.2 million retail and restaurant workers and would cost businesses $874 million a year, assuming they make no changes to the current structure.

“I think businesses will have to take a hard look at what their managers are doing with their time,” Myers said. “It might mean hiring part-time workers to do some of their duties. You can hire someone at a lower cost than having to pay a manager overtime.

“This will change payroll, there is no doubt. But I’m not sure it will mean paycheck increases, it might just mean more people on the payroll.”

The study estimates only 2 percent would have their salaries raised because of overtime and NRF members would need to hire 117,500 part-time workers to fill the need.

The rule change has the most potential to affect large retail chains that employ numerous middle managers, such as Springfield-based O’Reilly Automotive Inc. (Nasdaq: ORLY) and Bass Pro Shops. At O’Reilly, which counts more than 70,000 workers nationwide, officials are still digesting the overtime regulation. A spokesman said the company was “not ready to speak publically about the issue.” Bass Pro Shops officials didn’t respond to requests for comment.

Smaller local chains, such as MaMa Jean’s Natural Foods Market LLC, which has three stores in Springfield, could miss the threshold.

“MaMa Jean’s has only three positions out of 168 that are salary positions,” said co-owner Susie Farbin, via email. “MaMa Jean’s pays overtime to any workers that exceed 40 hours, so this change will not directly affect us.”

Because the proposed measure is a rule change – analogous to an executive order – it doesn’t have to go through Congress for approval. The DOL’s public comment period on the change will remain open until Sept. 4. Organizations such as the NRF have vowed to fight, but analysts say it most likely will become law.

“Business owners are going to have to cut costs somewhere,” Myers said regarding preparations. “They can’t continue with lower profits, so that could mean raising prices. Look, at Starbucks, they just raised prices to cover costs. People don’t like it, but they aren’t going to stop going to Starbucks.”