U.S. Markets closed

4 things workers need to know about the new overtime rules

Millions of workers will receive an early Christmas present this December — overtime pay. Under new rules announced by the Obama administration Wednesday, 4.2 million workers will become eligible for overtime pay in a move meant to correct a decades-long trend of declining overtime pay for American workers. Employers have until Dec. 1 to start complying.

Since 1975, the share of workers who qualify for overtime pay has plummeted from 62% to 7%, according to the U.S. Department of Labor.  With the new rules, 35% of workers will be eligible.

Here’s everything you should know about the new rules — and what it might mean for your paycheck:  

The salary cap for overtime pay will be doubled.

The new regulations double the current salary threshold for salaried employees who are guaranteed overtime pay — from $23,660 (or $455 per week) to $47,476 (or $913 per week). This is the first increase since 2004. That threshold will be adjusted every three years to ensure that it keeps pace with the rate of inflation. The changes could boost wages for workers by $12 billion over the next 10 years, the Department of Labor estimates. Overtime pay applies when workers are on the clock for more than 40 hours a week and requires employers to pay them 1.5 times their normal pay.

Expect many workers to get a nice raise.

Employers are going to react to the new regulations in one of two ways, legal experts say. They could give employees a big enough salary bump to push them over the new floor of $44,476, rendering them ineligible for overtime pay. Or they could convert salaried employees into hourly workers and make sure they aren’t clocking more than 40 hours per week. Such a change could have other implications as well, as hourly workers don’t always qualify for the same benefits — health care, 401(k), vacation time — as full-time salaried workers. Companies will likely look closely at how they classify workers and many may choose whichever route is the least costly, says California-based employment law attorney Andrew Livingston.

But don't be surprised if companies respond by cutting hours.

There’s a risk that these new rules would incentivize employers to cut back workers’ hours, which could actually hurt workers who could use the extra wages. We saw this occur following the implementation of the Affordable Care Act, which required many employers to provide healthcare for people who work more than 35 hours per week. Some companies responded by hiring more part-timers or blocking workers from working more than 30 hours a week. "With the stroke of a pen, the Labor Department is demoting millions of workers," David French, a senior vice president for the National Retail Federation, said in a statement. "Most of the people impacted by this change will not see any additional pay."

The new regulations don’t solve all workers’ overtime problems.

Livingston points out that the new regulations only increase the salary threshold for overtime-eligible workers. But there’s another key component that determines whether workers are overtime-eligible that has nothing to do with their salary — it’s their job duties and how their employer classifies them.

If employers determine that workers’ primary job responsibilities are considered “executive, administrative or professional” (EAP) duties, current labor laws allow employers to deny them overtime pay. This can especially hurt high-ranking workers in industries like retail and food services, where managers often work long hours and do tasks outside of the scope of their designated duties. Disgruntled workers at a slew of chain retailers — Walmart, CVS, Chipotle, Dollar General and Starbucks, to name a few — have sued their employers for these practices.


Mandi Woodruff is a reporter for Yahoo Finance and host of Brown Ambition, a weekly podcast about career, life and money.

Read more:

There are 5 things you should always negotiate

How this New Jersey teen scored $500,000 in college scholarships

This family proves just how expensive it is to be poor.