Last summer, President Barack Obama announced plans to raise the overtime salary threshold, a move that promised to make millions more Americans eligible for overtime pay. Those plans went into effect last month, when the White House revealed the details of the new overtime threshold rules the President had set forth.
The measure is the strongest yet from the President to fight income inequality—although it could have a significant impact on businesses and employers across the United States and in its territories.
Under previous rules, professional, executive and administrative employees were exempt from mandatory overtime pay if they made more than $23,660 per year. The new rules nearly double that threshold, bumping it up to $47,476. Initial research indicates that this would make approximately 4.2 million workers eligible to make time-and-a-half wages for every hour they put in above 40 hours in a single workweek.
Currently, there are only 7 percent of people in the United States who qualify for overtime pay, a number that had been as high as 62 percent in 1975. The new rule would make 35 percent of workers in the United States eligible for overtime pay.
President Obama has also voiced his support for an increase in the federal minimum wage to more than $10 an hour from its current rate of $7.25. However, efforts to increase the minimum wage have not to date gained traction in the U.S. Congress.
How will these new rules affect companies?
It remains to be seen how the majority of businesses in the United States will respond to these changes. Some companies could begin switching salaried employees to hourly and expect them to track their own hours, but it’s an act that could be damaging to workplace morale. Others will probably increase the salaries of their employees to avoid having to pay overtime.
The impact will be seen the most in small businesses, which often are not able to afford paying overtime pay to employees. They will likely implement rules to prevent employees from working more than 40 hours per week—or begin relying more on part-time workers who can take on extra work if needed.
The good news for employees is that either way, they do not lose. They either begin making overtime pay that they had previously been denied, or they are given more free time to enjoy themselves outside of work as companies try to limit hours to no more than 40 per week.
To get a better sense of how these new overtime rules could affect your business, meet with a knowledgeable labor and employment attorney.
Ravinder S. Nagi is Chair of the Labor and Employment Practice Group at BoltNagi PC, a well-established and respected labor law firm proudly serving businesses and organizations throughout the U.S. Virgin Islands.