The Obama administration has proposed a rule that would substantially increase the salary limit for employees considered exempt from federal overtime law.
The proposal would raise the minimum annual salary to qualify for overtime pay from the current $23,660 ($445 a week) threshold for management employees to $50,440 ($970 a week). These numbers would be raised each year based on the 40th percentile of weekly earnings for full-time salaried workers. The minimum salary level would ratchet up annually based on the 40th percentile of weekly earnings for full-time salaried workers nationwide.
The proposed rule also would affect the salary level exemption for “highly compensated” employees. The current threshold is an annual salary of $100,000. Under the proposal the new one would be based on the annualized value of a percentile of weekly earnings of full-time salaried employees.
The rule would set the salary level of highly-compensated employees at the 90th percentile – $122,148 a year in 2013 – but will be higher by the time of the rule becomes final. The proposed rule also calls for the threshold to be re-adjusted every year based on the 90th percentile formula.
The Labor Department has put off dealing with possible changes regarding duty exemptions for employees who perform mainly administrative and supervisory duties. At present these exemptions have no limit on the amount of time an employee has to devote to nonexempt duties before losing the exemption. DOL is seeking additional public input on this issue during the rule’s comment period, which ends September 1.
President Obama and Secretary of Labor Thomas Perez claim the change will strengthen the middle class by substantially increasing pay for up to five million workers. “In this country, a hard day’s work deserves a fair day’s pay,” Obama declared. Perez has claimed that the new rules could add up to $1.3 billion to the wages of U.S. workers.
The U.S. Chamber of Commerce charged that the proposal will actually do the opposite. Randy Johnson, senior vice president of labor, immigration and employee benefits, said, “Making more employees eligible for overtime by severely restricting the exemptions will not guarantee more income, but instead will negatively impact small businesses and drastically limit employment opportunities.”
In addition, he pointed out, “Many reclassified employees will lose benefits, flexibility, status and opportunities for advancement. This change is another example of the Administration being completely divorced from reality and adding more burdens to employers and expecting them to just absorb the impact.”
Among the employers who would be the hardest hit are retailers and restaurant operators.
David French, senior vice president for government relations at the National Retail Federation, said, “The Administration seems to be under the distorted impression that they can build the middle class by government mandate. There simply isn’t any magic pot of money that lets employers pay more just because the government says so. Turning managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and job creators that are the true path to middle-class success.”
Rob Green, executive director of the National Council of Chain Restaurants, was equally critical. “If allowed to stand, the one-size-fits-all proposal will harm chain restaurant managers’ career advancement, eliminate key management positions and have a negative impact on customer service and workplace morale,” he said. “On the heels of a recession and high unemployment, we shouldn’t be stifling opportunities for career growth.”
Critics also say employers will find ways of getting around the new rules by, among other things, cutting back severely on promotions and slashing hours and wages. Labor lawyers have already begun developing hourly, weekly and monthly pay formulas for employers to use that will reduce their potential costs.