More than 4 million salaried employees will be eligible for overtime pay after the Department of Labor announced a major overhaul to regulations. The ruling will have far-reaching implications for people who work more than 40 hours a week, and impact business owners across a wide expanse of industries.
With the federal minimum wage stagnant at $7.25 an hour, the move is part of the Obama administration's push for better protections for workers at many businesses, big and small.
The finalized rule announced Tuesday doubles the eligible salary threshold for overtime from $23,660 per year to $47,476 annually. Businesses will have until December to comply.
The rules include mechanisms to raise the threshold. The rules call for the Labor Department to adjust the maximum pay every three years. The Obama administration says the move will increase wages by $1.2 billion annually or $12 billion in the next decade.
Some sectors like retail already object to the new overtime mandate. And Main Street business owners and advocates have mixed feelings on the ruling. The White House, meanwhile, says the ruling will "boost our economy across the board, as these families spend their hard-earned wages."
Critics of the overtime ruling say the retail and hospitality businesses will be among the hardest hit. The National Retail Federation, the industry's largest trade group, called the rules a "career killer," demoting millions of workers.
The NRF argues the change in wage levels could bring many store managers or assistant managers under overtime rules, and take away their ability to use their own discretion in deciding whether to put in the extra hours.
On the flip side, wage proponent groups including the National Employment Law Project are hailing the new rules. The group argues the overtime rules will restore the intent of the current Fair Labor Standards Act's guarantee of a 40-hour work week, a protection that steadily has declined since the late 1970s.
The new overtime rules also close a gap in which some employers readily doled out manager titles and responsibilities — but with no pay increase, or avenue to earn overtime.
"Current regulations give employers a major loophole for avoiding overtime pay, allowing them to classify workers earning as little as $23,440 as managers, though they have scant supervisory or managerial duties, and then require them to put in excessive hours, without any pay at all for their overtime hours," law project Executive Director Christine Owens said in a statement.
But mandated pay changes are a contentious issue with plenty of opinions among small-business owners.
Rodney Kloha, president of Circle K Service in Midland, Michigan, said the new overtime rules are troubling. Kloha has 19 employees at his company, which services emergency vehicles and trucks.
Kloha has been in business for 39 years, and he now has five salaried workers. Under the new rule, two of those workers will be eligible for overtime. He's now reviewing the total compensation package for each worker.
"I have to look at how I pay them — this isn't just in the realm of giving them raises," Kloha said. "These are management positions in our region, and with this rule the [Department of Labor] is trying to do a one-size-fits-all, and unfortunately it doesn't fit for a lot of small businesses," he said, adding "$30,000 to $40,000 a year is a good income here."
His other option is to move his workers to hourly positions, which he says will "interfere with his relationship with employees," Kloha says.
According to the Department of Labor, the general overtime rate is time-and-a-half for any hours worked over 40 hours per week, and generally hourly employees are guaranteed overtime. Managers and executives are often exempt.
But the way Kloha sees it, the government is mandating a pay model that doesn't work for every business and is interfering with his relationships with his workers.
"I work on trust here," he said. "And I trust they will be here working, and they trust me to pay them and look out for their benefits."
Correction: This story was revised to clarify that the new overtime regulations affect 4 million additional workers.
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