More overtime on the way? Obama prepares to make more workers eligible for time-and-a-half pay

Economic Indicators Associated Press

They're called managers, and they sometimes 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.

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With those employees in mind, the Obama administration is proposing making up to 5 million more people eligible for overtime — its latest effort to boost pay for lower-income workers. These workers would benefit from rules requiring businesses to pay eligible employees 1½ times their regular pay for any work beyond 40 hours a week.

"We've got to keep making sure hard work is rewarded," President Barack Obama wrote in an op-ed published Monday in The Huffington Post. "That's how America should do business. In this country, a hard day's work deserves a fair day's pay."

Employers can now often get around the rules: Any salaried employee who's paid more than $455 a week — or $23,660 a year — can be called a "manager," given limited supervisory duties and made ineligible for overtime.

Yet that would put a family of four in poverty territory. Obama says that the level is too low and undercuts the intent of the overtime law. The threshold was last updated in 2004 and has been eroded by inflation.

The long-awaited overtime rule from the Labor Department would more than double the threshold at which employers can avoid paying overtime, to $970 a week by next year. That would mean salaried employees earning less than $50,440 a year would be assured overtime if they work more than 40 hours per week.

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

With the higher threshold, many more Americans — from fast food and retail supervisors to bank branch managers and insurance claims adjusters — would become eligible for overtime. Other changes the administration may propose could lead more white-collar workers to claim overtime.

A threshold of $984 a week would cover 15 million people, according to the liberal Economic Policy Institute. In 1975, overtime rules covered 65 percent of salaried workers. Today, it's just 12 percent.

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 now processes workers' compensation claims at Travelers. She makes $60,000 a year, "which is surprising, since I only work 40 hours a week," she says.

Swa has joined a class-action lawsuit against Chipotle, which charges that apprentices shouldn't be classified as managers exempt from overtime. A spokesman for Chipotle declined to comment on the case.

Dawn Hughey, a former store manager for Dollar General in Flint, Michigan, would have also benefited from a higher overtime threshold. Hughey worked 60 to 80 hours a week for about two years before being fired in 2011. She was paid $34,700.

"I missed a lot of family functions working like that," Hughey said. "It was just expected if you were a store manager."

She made about $45,000 a year as an hourly worker in a previous job at a Rite Aid in California, where she typically worked 48 hours a week and received overtime.

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.

Yet the proposals won't necessarily produce a big raise for people like Swa and Hughey. The National Retail Federation, a business group, says its members would probably respond by converting many salaried workers to hourly status, which could cost them benefits such as paid vacation. Other salaried workers would have their hours cut and wouldn't receive higher pay.

Businesses might hire additional workers to avoid paying overtime or extend the hours they give part-timers. Yet supporters of extending overtime coverage say they would welcome those changes.

"It's a job creation measure," said Daniel Hamermesh, an economist at the University of Texas, Austin. "Employers will substitute workers for hours, when the hours get more expensive."

The administration's proposal may make other changes. Right now, employees who earn more than the salary threshold can still receive overtime — unless they have managerial duties or are professionals with some discretion over their work and hours.

That exemption, however, is granted mainly at an employer's discretion. If a company says an employee's primary duty is, for example, supervising others, the employer can disqualify that person from overtime.

Obama, in his op-ed, argued the exemption was intended for highly paid, white-collar employees but now punishes lower-income workers because the government has failed to update the regulations. He said the proposal would be good not only for workers but also for employers that pay their employees what they deserve, because they will no longer be undercut by competitors who pay their workers less.

"Will we accept an economy where only a few of us do exceptionally well? Or will we push for an economy where every American who works hard can contribute to and benefit from our success?" Obama said, setting up a populist argument that Democrats are likely to embrace in the run-up to the 2016 presidential election.

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Associated Press writers Josh Lederman and Jim Kuhnhenn contributed to this report.