President Obama is continuing his promised “year of action” with plans to expand overtime pay requirements.
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The president will order the Department of Labor to require businesses to pay more overtime to millions of workers that log more than 40 hours a week. The move was first reported Tuesday by the New York Times and confirmed by Fox News.
The overtime pay hike will impact millions of workers who are currently classified as “executive or professional employees,” under the 1938 Fair Labor Standards Act (FLSA). Under the FLSA, businesses can’t deny overtime to salaried workers who make less than $455 a week. The president wants to raise the salary threshold, although it is unclear by how much. The official plan will reportedly be announced Thursday at the White House, Fox News reports.
While the move will likely make low-wage workers happy in the short term, Brookings Institution labor expert Gary Burtless says creating a larger population of workers classified as “executive or professional” will hurt workers in the long run.
“The problem will be if supervisors or candidates are getting overtime pay, and employers know that too, there will be tougher negotiations over standards of pay,” Burtless says. “Someone who is a manager of a fast food restaurant might not be that well paid, and because they are currently supervisors they don’t get paid for working more than 40 hours a week. If they start getting paid time and a half, the company can arrange to have that pay lessened.”
The expansion of overtime could force companies to hold back on hiring, or slice their workers’ hours to remain under the full-time threshold and 30 hours a week, critics maintain.
And with the Affordable Care Act lingering over business’s heads, its possible more companies would look to cut costs, Burtless says. Under the ACA, every business with at least 50 or more full-time workers has to offer its employees insurance or it will face a fine of $2,000 per worker, per year, for failing to comply beginning in 2015. Businesses under the 50-worker threshold are exempt, and those with between 50 and 99 workers have until 2016 to comply.
The president’s move could also result in fewer raises. “In effect, the company and worker may end up the same—the worker will get the same total compensation, because part of the change is redefining how that worker is paid,” Burtless says.
Last month, President Obama signed an executive order raising the federal minimum wage to $10.10 an hour for new federal contract workers and has been pushing for a federal rate hike. He even stopped at a New York City Gap (NYSE:GPS) store on Tuesday to commend the retailer for raising its workers’ pay.
“The main thing the administration is trying to do is put its thumb on the scale for workers who have a weak bargaining position and are not paid well,” Burtless says. “People look at the FLSA and say they believe workers should receive time and a half for working more than 40 hours a week, period. This changes things for employers who want to do what the law requires, but the firms that want to evade responsibilities will find pathways to do it.”