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Will Obama’s new Overtime Rules Help Middle-Class or Kill Jobs?

— July 1, 2015


Photo courtesy of The Motley Fool
Photo courtesy of The Motley Fool

President Barack Obama will be speaking in La Crosse Wisconsin on Thursday to highlight a change in federal overtime law that he announced in a Monday night Op-Ed in the Huffington Post. Writing that, “In this country, a hard day’s work deserves a fair day’s pay,” the president announced that the rule change will allow salaried workers earning up to $50,440 time-and-a-half for each hour over 40 worked in a given week. The change would more than double the current threshold of $23,660, which has been updated one time since 1975, in 2004 although remaining heavily tied to the 1975 standard. The president said that the rules would affect roughly 5 million people, announcing that the new limit will go into effect as soon as 2016. The suggestions are based on a 2013 report by economists Jared Bernstein and Ross Eisenbray, who recommended changing the cap to match inflation from 1975 to present. Although liberals in congress recommended raising the cap to an even higher $54,000, the president pegged the cap based on the 40th percentile of U.S. household income while making that cap adjustable based on annual inflation. Congressional Republicans as well as business groups call the change “out of touch,” claiming that the rules will severely restrict job growth. The President responded to those critics in his op-ed, noting that currently, “those who are doing right by their employees are undercut by competitors who aren’t.”

In his column, the president asks, “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?” Unlike other efforts to improve the conditions of workers like raising the federal minimum wage and the Affordable Care Act (ACA), the rule change does not require congressional approval. Monday’s announcement fulfills an executive order that President Obama gave in March, 2014, when he gave the Department of Labor a directive to revise its standards, which included the suggested overtime rule change. The Fair Labor Standards Act requires that employees who work more than 40 hours be paid overtime, usually time-and-a-half; however exemptions are made for managers, executives, and other high-salary earners. During last year’s executive order announcement, the president noted that the 12 percent of salaried workers fall below the current threshold, compared to 18 percent in 2004 and 65 percent in 1975.

Although congress and other opponents cannot block the rule changes, the rule will be subjected to a 60-day commenting period in which stakeholders can suggest the best way to implement the rules. Specifically, it will allow precise definitions of which jobs and criteria exemptions to the rule should be permitted. Many business groups have already expressed outrage toward the changes, especially from the retail and restaurant sectors. The National Retail Federation’s senior vice-president for governmental relations, David French, responded by saying, “The administration seems to be under the distorted impression that they can build the middle class by government mandate. Turning managers into rank-and-file hourly workers takes away the career opportunities for a path to the middle class.” White Castle vice-president Jamie Richardson estimates the rule change would add between $8 million and $12 million in additional expenses for the company. Scott Gittrich, founder and president of Toppers Pizza said that the rule is “going to force more people into part-time work, and we’re already seeing that with Obamacare.”

The overtime cap change has brought ardor among Republicans inside and outside of Congress. Former Texas Governor and 2016 presidential candidate, Rick Perry, believes the change is unrealistic, saying that “unlike the federal government, employers don’t have the luxury of living beyond their means.” The chair of the Senate’s Labor Committee, Lamar Alexander (R-TN), agreed with Gittrich about the change leading to more part time employment, saying “What Washington owes these workers is policies that create better opportunities.” Democratic 2016 presidential candidate Hilary Clinton tweeted that the change was “a win for our economy and workers nationwide,” and another, Vermont Senator Bernie Sanders, called the change long overdue. Washington Post contributor, Paul Waldman, notes that it is unlikely that Republicans would actually rollback the cap even if or when they had the authority to do so. Waldman writes, “Try to imagine a President Rubio or Walker announcing that he was taking overtime pay away from millions of lower-middle-class U.S. workers. It won’t happen. They may argue against the rule when it is proposed, but once it’s in place, undoing it becomes politically impossible.”



Huffington Post – Barack Obama

NPR – Scott Horsley and Yuki Noguchi

Time – Tanya Basu

Wall Street Journal –Melanie Trottman

Washington Post (blog) – Paul Waldman






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