Obama to propose raising salary cap for overtime, extending OT pay to 5 million more workers

Economic Indicators Associated Press

The Obama administration will propose requiring overtime pay for workers who earn nearly $1,000 per week, three individuals familiar with the plan said Monday, more than doubling the current threshold and extending overtime protection to about 5 million workers.

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Currently, salaried employees who are paid more than $455 a week — or $23,660 a year — can be exempted from overtime pay if their employer deems them to be "managers," even if they have little in the way of supervisory duties. The Labor Department's long-awaited proposal will raise the threshold to $970 a week — $50,440 a year — by 2016.

To keep up with future inflation and wage growth, the proposal will peg the salary threshold at the 40th percentile of income, said the individuals, who requested anonymity to discuss the proposal ahead of the official announcement.

President Barack Obama was to announce the proposal Tuesday morning in an op-ed in The Huffington Post, said one of the individuals. The White House declined to comment.

The Labor Department's estimates suggest the proposal would raise wages for 5 million people, but other estimates are far higher. The Economic Policy Institute, a liberal think tank, recently estimated that a threshold of $984 a week would cover 15 million people.

"This is by definition middle-class people. This reverses decades of neglect," said EPI President Larry Mishel, adding that the proposal would also likely create jobs for hourly workers.

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Under the current threshold of $455 per week, only about 8 percent of salaried workers are eligible for 1½ times their regular pay when they work more than 40 hours per week. The EPI estimates that doubling the salary level would make up to 40 percent of salaried workers eligible.

Obama's proposal aims to narrow a loophole that the president has long said is exploited by some employers to avoid paying overtime.

Employees who make above the salary threshold can be denied overtime if they are deemed managers. Some work grueling schedules at fast food chains and retail stores, but with no overtime eligibility, their pay may be lower per hour than many workers they supervise.

The existing salary cap, established in 2004 under President George W. Bush, has been eroded by inflation and now relegates a family of four making just above the cap into poverty territory. Obama has long charged that the level is too low and undercuts the intent of the overtime law.

"If you're making $23,000, typically, you're not high in management," Obama said when he first proposed the change last year.

Yet many Republicans have opposed Obama's plans to increase the threshold, arguing that doing so would discourage companies from creating jobs and dampen economic growth. Sen. Lamar Alexander of Tennessee, who chairs the Senate's labor panel, has derided the idea as designed "to make it as unappealing as possible" for companies to create jobs.

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

The beneficiaries would be people like Brittany Swa, 30, a former manager of a Chipotle restaurant in Denver. As a management trainee, she started as an entry-level crew member in March 2010. After several months she began working as an "apprentice," which required a minimum 50-hour work week.

Yet her duties changed little. She had a key to the shop and could make bank deposits, but otherwise spent nearly all her time preparing orders and working the cash register. She frequently worked 60 hours a week but didn't get overtime because she earned $36,000.

The grueling hours continued after she was promoted to store manager in October 2010. She left two years later and has joined a class-action lawsuit against Chipotle, charging that apprentices shouldn't be classified as managers exempt from overtime. A spokesman for Chipotle declined to comment on the case.

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Associated Press writer Jim Kuhnhenn contributed to this report.