Obama overtime plan hurts workers, businesses say

NEW YORK — Retailers and manufacturers blasted a plan to make more Americans eligible for overtime pay, saying the move would stunt workers’ careers and cost companies billions, while President Barack Obama touted it as a move to aid middle-class workers.

Under the plan, outlined by the Department of Labor on Tuesday, workers who earn as much as $970 a week would have to be paid overtime even if they’re classified as managers or professionals.

The White House said 4.7 million workers nationwide would be affected within the first year of the rules being put in place, 50,000 of them in Arkansas.

Many employees now receiving as little as $455 a week, or $23,660 a year — below the federal poverty line for a family of four — aren’t entitled to overtime pay because they are classified as managers.

“A hard day’s work deserves a fair day’s pay,” President Barack Obama wrote in a blog published by the Huffington Post. “That’s at the heart of what it means to be middle class in America.”

The National Retail Federation said Obama’s proposed rule change would greatly increase how many salaried employees can claim overtime and would force companies to use more part-time and entry-level workers.

Businesses also may offer fewer promotions and convert salaried employees to hourly to avoid raising their pay, the organization said.

“The proposal is going to cost billions of dollars,” said Neil Trautwein, vice president of the federation, the industry’s largest trade group. “It’s going to limit advancement opportunities, and ultimately it will reduce employee benefits.”

Labor Secretary Thomas Perez said the new overtime rules should raise overall wages paid to U.S. workers by between $1.2 billion and $1.3 billion annually. In some cases employers may reduce overtime work that is currently uncompensated, he said.

The regulations would take effect in 2016 and extend overtime pay to an estimated 420,000 workers in California, 400,000 in Texas, and 290,000 in New York, according to a state-by-state breakdown from the White House. Workers in retail stores and restaurants are among those most likely to be affected.

The proposed changes will be open for public comment and could take months to finalize. They can be enacted through regulation, without approval of the Republican-led Congress.

The overtime salary threshold will be indexed to prevent future erosion because of inflation, though the administration hasn’t yet decided what measure to use to adjust it, Perez said. The administration chose a salary level that is at the 40th percentile of weekly earnings for full-time, salaried workers, he said. The threshold may be tied to either the consumer price index or a fixed percentile level.

The new overtime rule would be the broadest action by the administration to bolster middle- and lower-income workers, whose wages have stagnated since the recession. Obama is scheduled to discuss the economy during a trip to La Crosse, Wis., on Thursday.

The median U.S. household income of $54,600 in April was $1,600 short of the amount at the start of the recession in December 2007, according to inflation-adjusted estimates from Sentier Research.

“You would be hard pressed to find a rule change or an executive order that would reach more middle-class workers than this one,” said Jared Bernstein, a former economic adviser to Vice President Joe Biden who is now a senior fellow at the Center for Budget and Policy Priorities.

Cory Fritz, a spokesman for Republican House Speaker John Boehner of Ohio said the draft overtime rule would “limit opportunities and increase costs. America’s workers and small businesses deserve better.”

The Retail Industry Leaders Association, a trade group, also slammed the plan. The American Apparel & Footwear Association said it didn’t have a position on the rules.

“This proposed regulation is another in a long list of regulatory roadblocks to healthy and robust economic growth and job creation,” Joe Trauger, a spokesman for the National Association of Manufacturers, said in a statement.

The changes may be extra hard on small and midsize businesses, said Martin Mucci, chief executive officer of Paychex Inc. The Rochester, N.Y.-based company provides payroll and human-resources services for almost 600,000 firms.

“We certainly want to make sure employees are paid fairly, but I think this is going to place a burden on a broad group of businesses,” Mucci said.

The 1938 New Deal-era law establishing the federal 40-hour workweek and requiring overtime for additional hours exempts professional, administrative and executive employees.

Labor Department regulations define those categories, in part, through a minimum salary level. The threshold, eroded by inflation, has only been raised once since 1975, a readjustment in 2004 under President George W. Bush that was criticized as too modest by labor unions and some Democrats.

The overtime cutoff covered 8 percent of salaried workers last year, compared with 65 percent in 1975, according to an analysis by Ross Eisenbrey, vice president of the Economic Policy Institute, a research group partly funded by labor unions.

The definition of a manager is ambiguous enough under current regulations that restaurant or retail workers who spend most of their time doing manual labor or serving customers can be deemed “executives” exempt from overtime, Eisenbrey said.

Under the Bush administration’s 2004 rules, exempt executives must supervise at least two employees and management must be their primary duty, though there is no requirement covering the amount of time they spend on management tasks.

The administration is considering tightening the definition of manager the Bush administration established, though the draft rule only includes questions for comment without proposing a new definition. In a conference call with reporters, Perez criticized the definition, hinting that the final regulation will make it harder to classify workers as managers even if they meet the salary threshold.

“In 2004 the rules governing overtime were changed to help employers and hurt workers by enabling employers to prevent too many workers from receiving the overtime protections the law intended,” Perez said.

Information for this article was contributed by Matt Townsend, Lindsey Rupp, Claire Boston and Lauren Thomas of Bloomberg News.

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