Obama Plans to Expand Overtime Eligibility for Millions

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The Obama administration plans to raise the wages of millions of Americans who work more than 40 hours a week by requiring their employers to pay them overtime.

Workers who earn as much as $970 a week would have to be paid overtime even if they’re classified as a manager or professional, based on draft rules to be announced as soon as Tuesday, said an administration official.

Many employees now receiving as little as $455 a week, or $23,660 a year -- below the federal poverty line for a family of four -- aren’t entitled to overtime pay because they are classified as managers exempt from overtime pay.

The regulations, from the Labor Department, would take effect in 2016, said the official, who asked for anonymity because the plan hasn’t been announced. Workers in retail stores and restaurants are among most likely to be affected.

President Barack Obama has been stymied by Republicans in his attempts to get Congress to raise the federal minimum wage at a time when income inequality is emerging as an issue in the 2016 presidential campaign.

The new Labor Department rules would be the broadest action by the administration to bolster middle- and lower-income workers, whose wages have stagnated since the recession. Obama is scheduled to discuss the economy during a trip to La Crosse, Wisconsin, on Thursday.

Broad Reach

“You would be hard pressed to find a rule change or an executive order that would reach more middle class workers than this one,” said Jared Bernstein, a former economic adviser to Vice President Joe Biden who is now a senior fellow at the Center for Budget and Policy Priorities.

The median U.S. household income of $54,600 in April was $1,600 short of the amount at the start of the recession in December 2007, according to inflation-adjusted estimates from Sentier Research.

Ross Eisenbrey, vice president of the Economic Policy Institute, a research group partly funded by labor unions, has estimated that the higher salary threshold would expand overtime to as many as 15 million additional workers.

Business lobbyists, including the National Retail Federation, argue that changing the rules might prompt employers to reconsider their supervisory structures, reducing flexibility for managers to directly serve customers and cutting entry-level management jobs.

The 1938 New Deal-era law establishing the federal 40-hour workweek and requiring overtime for additional hours exempts professional, administrative and executive employees.

Defining Categories

Labor Department regulations define those categories, in part, through a minimum salary level. The threshold, eroded by inflation, has only been raised once since 1975, a readjustment in 2004 under President George W. Bush that was criticized as too modest by labor unions and some Democrats.

The overtime cutoff covered 8 percent of salaried workers last year, compared with 65 percent in 1975, according to an analysis by Eisenbrey.

The definition of a manager is ambiguous enough under current regulations that restaurant or retail workers who spend most of their time doing manual labor or serving customers can be deemed “executives” exempt from overtime, Eisenbrey said.

The administration official didn’t disclose whether any changes will be proposed to the regulatory definition of a manager, though the Labor Department also is considering tightening that standard.

Under the Bush administration’s 2004 rules, exempt executives must supervise at least two employees and management must be their primary duty, though there is no requirement covering the amount of time they spend on management tasks. California state regulations, by contrast, require more than half of an employee’s time be spent on management duties to be exempt from overtime pay.

The rule change has been long anticipated and under attack from Republicans and some business representatives.

Lamar Alexander, the Tennessee Republican who is chairman of the Senate Labor Committee, previously condemned Obama’s plan to act on overtime as part of an economic strategy seemingly “engineered to make it as unappealing as possible to be an employer creating jobs in this country.”

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