What Do the New Overtime Pay Rules Really Mean?

On the surface it looks great. The Obama Administration recently announced an amendment to the overtime regulations by raising the current overtime salary threshold from $23,660 ($455 per week) to $47,476 ($913 per week) for full-time salaried employees (FTEs).

Effective Dec. 1, employees working more than 40 hours a week and earning below the threshold would be eligible for overtime pay equivalent to 1.5 times their normal rate. (Certain professionals, such as doctors and lawyers are excluded.) The rule also makes it mandatory to upgrade income thresholds every three years to make sure it stays at the 40^th percentile of FTEs in the lowest income region of the country. The threshold is expected to reach $51,000 by 2020.

The impact however, has both good and bad results. On the good side, the new rule would qualify around 35 percent of FTEs for overtime pay, significantly above the current proportion of about 7 percent. This is anticipated to boost the pay of about 4.2 million additional workers within the first year of implementation, aiding low- and middle-income workers who rarely have seen salary hikes in recent years.

The ruling is expected to impact retail and restaurant sectors the most. And companies that do not want to distribute overtime pay will have to increase their workers’ wages to income threshold levels or scale back the weekly work hours to 40, allowing workers to maintain a good work-life balance.

On the other side, however, there are repercussions. In the near term additional labor costs are likely to hold off new hiring, reduce workers’ hours and cause reductions in pay, bonuses and other benefits. Businesses that would struggle to afford hikes in labor costs and timekeeping systems associated with the new overtime regulation may shift their FTEs to hourly positions, which of course, work against the core objective of the amendment.

The ruling also might take away flexibility at work as companies will have to revert to employees clocking in and out, limiting flexible work schedules. The possibility still exists that by reducing the hourly rate, employers can offset the overtime pay, leaving workers to serve long hours for the same pay. And, at institutions like universities, the added costs may be passed on to students or result in the cutting of certain services.

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