More Workers Will Be Eligible For Overtime Pay Under New Rules
May 18--About 4 million more American workers are likely to be eligible to claim overtime under new regulations issued today by the U.S. Department of Labor.
The revisions raise from $23,660 a year to $47,476 a year the compensation amount under which employees are eligible for time-and-a-half pay when they work more than 40 hours a week, regardless of job title or duties.
In other words, the law will provide overtime protection to employees who earn less than the new threshold, even if they are called exempt, or salaried, workers.
The labor department estimates that about 85,000 workers in Missouri and about 40,000 in Kansas could be affected by the changes.
The revisions, effective Dec. 1, 2016, will put a new burden on the affected workers and their employers to keep track of hours on the job in order to substantiate overtime claims.
But experts also note that the effect of the federal Fair Labor Standards Act overhaul could be lessened by the fact that some employers have reduced employee hours to under 30 hours a week in order to avoid health care insurance coverage mandates.
It's also possible that some employers could decide that it's cheaper to give some workers near the new threshold -- who would be due lots of overtime --a bump in base pay to put them above the overtime-protection line.
"There will be unseen consequence, a ripple effect," said Kansas City attorney Dan Boatright. "And if you bump up some above the threshold, do you need to move salaries up for everyone else? Fortunately, there's a six-month implementation window, so employers can take steps now to start tracking hours worked by impacted employees."
President Barack Obama had requested an update of the nation's overtime rules in March 2014. It's taken until now to work through months of public comment and labor department reviews.
The last time sweeping changes were made to the nation's overtime pay rules was in 2004.
Even before publication of the new rules, some employer groups issued strong statements in opposition. The National Retail Federation called overtime expansion "a career killer" that will deprive workers of flexibility as salaried employees.
The retail federation said "the rules will force employers to limit hours or cut base pay in order to make up for the added payroll costs of overtime expansion, leaving most workers with no increase in take-home pay despite added administrative costs."
Other groups unhappy with new standards include the American Bankers Association; WorldatWork, an organization of human resource professionals; the Society for Human Resource Management; the Republican-led U.S. House Small Business Committee, and the International Franchise Association.
But the revisions also sparked happiness in other quarters. Positive responses poured out from the National Employment Law Project; the AFL-CIO; the Economic Policy Institute; the Institute for Women's Policy Research, and MomsRising.org.
In general, employer-focused groups said doubling the salary threshold places unrealistic expectations on payroll management and could lead to job cuts and less flexibility for workers who have been considered managers but now will be punching time clocks.
Conversely, employee-focused groups generally applauded the new threshold on the grounds that many workers effectively have been misclassified as salaried managers and haven't been fairly paid for the overtime hours they work.
In Kansas City, employment law attorney Patrick Hulla said reclassifications from salaried to hourly are most likely to quickly affect mid-level managers "at the margin," those earning within a few thousand dollars of the new threshold.
"They may get a pay bump to put them abovr the threshold," Hulla said. "But the bigger impact may be for those making $30,000 to about $42,500 a year. It will be a culture change."
Another regulatory change is getting less public attention but is important for payroll planners. The new rules set a mechanism for automatically updating the exempt threshold every three years.
The mechanism is based on the 40th percentile of earnings of full-time salaried workers in the lowest-wage U.S. Census region, which currently is the South. That figure is what set the exact $47,476 annual threshold now.
Some analysts fear that in three years, that figure could rise well into the $50,000s and perhaps into the $70,000s, largely because the new threshold eliminates so many lower-paid workers from the salaried-worker calculation.
The update mechanism also sets the total annual compensation requirement for highly compensated employees -- those who are subject to a "duties test" to qualify as salaried -- to the annual equivalent of the 90th percentile of full-time salaried workers nationally. That figure currently is about $134,000.
"Most people may not care about workers in the top 10 percent of incomes," Hulla said. "But it will have effect in some industries, such as workers in the petrochemical field who work incredibly long hours, if it makes many of them ineligible for overtime."
There already are bills in the U.S. House (H.R. 4773) and Senate (S.2707) that, if passed, would require the labor department to reconsider the revised rules.
Diane Stafford: 816-234-4359, @kcstarstafford
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