WASHINGTON -- President Barack Obama's administration unveiled a new rule Wednesday that will make millions of middle-income workers eligible for overtime pay.
The regulations, which were last updated more than a decade ago, would let full-time salaried employees earn overtime if they make up to $47,476 per year, more than double the current threshold of $23,660 per year. The Labor Department estimates that the rule would boost the pay of 4.2 million additional workers.
The change is scheduled to take effect Dec. 1.
Vice President Joe Biden formally announced the rule Wednesday in Ohio after discussing the plan in a conference call with reporters Tuesday night.
"All of this goes back into the economy and grows the economy overall," Biden said at an ice cream shop in Columbus. "It has a rippling effect."
Obama, writing in a White House blog post, said the move would "strengthen and secure the middle class by raising Americans' wages."
The move caps a long-running effort by the Obama administration to aid low- and middle-income workers whose paychecks have not budged much in the past few decades, even as the top earners in the U.S. have seen their compensation soar. The last update to the rules came in 2004, and Wednesday's announcement is the third update to the salary threshold for overtime regulations in 40 years.
"The salary threshold is woefully out of date," Secretary of Labor Tom Perez said at the Ohio event with Biden. Had it been indexed in 1975, he said, "the threshold would be over $57,000 a year."
About 35 percent of full-time salaried employees will be eligible for time and a half when they work extra hours under the new rule, up significantly from the 7 percent who qualify under the current threshold, according to the Labor Department.
In the fast-food and retail industries in particular, many employees are deemed managers and work long hours but are paid a flat salary that barely exceeds the income of the hourly workers they supervise who receive overtime pay.
The new rule is intended to boost earnings for middle- and lower-income workers, Perez said, which have been stagnant since the late 1990s. Overtime pay hasn't received as much attention as nationwide efforts to increase the minimum wage, but it could have a broad effect.
Obama first announced his plans to update the rules two years ago, but some consumer groups say they have been pushing him to alter the rules since he took office. During Tuesday's conference call, Biden said the move matched the president's other efforts to bolster the middle class.
"The middle class is getting clobbered, although I think we're making some progress here," Biden said. He added that the administration has also called for equal pay and for raising the federal minimum wage.
The Labor Department estimates the change will boost workers' wages by $12 billion over the next 10 years. And since the new rule calls for the income threshold to be updated every three years based on inflation, the department projects the threshold could rise to more than $51,000 by 2020.
Reaction Mixed
Labor unions said they were pleased, calling the change long overdue.
"It will be the single biggest policy change in terms of impact on working peoples' wages that we have seen in decades," Damon Silvers, policy director for the AFL-CIO, said in an email.
Other labor groups cited that many people putting in 50 to 60 hours per week without overtime are actually earning less than the minimum wage when all of their hours are taken into account.
"The current level isn't even enough to keep a family of four out of poverty," said Judy Conti, federal advocacy coordinator for the National Employment Law Project, a nonprofit organization that advocates for workers. "It is not at all reflective of somebody who is an executive or a professional."
But the shift was swiftly criticized by business groups, small-business owners, nonprofit groups and universities that say they may have to switch some salaried workers to hourly positions to afford the new threshold.
And instead of seeing bigger paychecks, some salaried workers may be assigned fewer hours, they said.
"For many of these types of employees they're going to be viewing it as a demotion," said David French, senior vice president of government relations for the National Retail Federation. "They're going to have to clock in and clock out. They're no longer going to have flexibility at work."
Tammy McCutchen, a lawyer who represents employers, contended that that workers converted to hourly pay from salaried status will likely have less flexible schedules.
An hourly worker "who takes an afternoon off to attend a parent-teacher conference will not be paid for that time, but an employee [who is exempt from overtime] will be paid her full guaranteed salary," McCutchen said in congressional testimony last week.
Mara Fortin, the chief executive officer of seven cake bakeries in San Diego, said she might give raises to her "superstar" managers to lift their pay above the overtime threshold. But she said she'd have to reduce end-of-year bonuses she frequently pays to offset the cost.
Fortin has 14 salaried managers and assistant managers among her 110-member staff. The new rule will create problems for managers, some of them newer hires, who take longer to get their work done, she said. She might have to cut their base pay, meaning they would earn about the same income they do now, even including overtime.
"We can't pay you time and a half because you're slow," she said. "This is extremely frustrating for me."
Lawmakers weigh in
Congressional Republicans said they would fight the rule.
"This regulation hurts the very people it alleges to help," House Speaker Paul Ryan, a Wisconsin Republican, said in a statement. "By mandating overtime pay at a much higher salary threshold, many small businesses and non-profits will be unable to afford skilled workers and be forced to eliminate salaried positions, complete with benefits, altogether."
Senate Majority Leader Mitch McConnell, R-Ky., blasted the rule as "more red tape" for businesses.
The White House said it had considered the perspective of business while drafting the regulation. In a concession to employers, the administration said companies will be able to count bonuses and commissions toward as much as 10 percent of the salary threshold. And officials said they did not implement changes to the so-called duties test that would have further expanded overtime because businesses said it would be too burdensome.
"There's an awful lot of free hours companies pick up instead of workers earning extra pay or spending time with their families or going back to school," Biden said, describing the rule as part of an effort to restore and expand the middle class.
"It's not just about fairness," he said. "It's about stability, social and political stability."
Ohio, the setting for the vice president's announcement, has clear political implications as a swing state.
Democratic presidential candidate Hillary Clinton praised the move in a statement on Wednesday, saying it would "lift up workers nationwide and help get incomes rising again for working families."
Her opponent, Bernie Sanders, applauded the move on Twitter. "It's time hard-working Americans got the pay they deserve," he said. Overtime rules have long been a priority for the senator from Vermont, who last year asked the administration to set the salary threshold at $57,000.
Donald Trump, the presumptive Republican nominee, has not weighed in directly on the rule, although many Republicans have argued the change will slow hiring. But Trump has frequently bucked Republican economic orthodoxy, indicating some willingness to increase taxes on the wealthy, roll back free-trade agreements, and boost the minimum wage as he builds a populist following.
Information for this article was contributed by Jonnelle Marte of The Washington Post; by Mike Dorning, Mark Niquette and Justin Sink of Bloomberg News; and by Christopher S. Rugaber and Julie Carr Smyth of The Associated Press.
A Section on 05/19/2016