The White House on Tuesday issued a new rule on overtime that could raise the pay for nearly 5 million workers, signaling a sharp left turn from President Obama on economic issues.
Following a bruising battle with the Democratic Party over trade, Obama’s embrace of the overtime issue suggests a renewed emphasis on tackling income inequality — an issue getting play from candidates in both parties running for the White House.
{mosads}“This proposed overtime rule goes to the heart of what it means to be middle class in America,” Labor Secretary Thomas Perez told reporters on Tuesday.
It also bonded the president with organized labor and liberal Democrats who had battled the White House over its push for fast-track trade authority, even as it drew opposition from business groups who backed Obama’s trade agenda.
“President Obama just demoted at least 5 million people,” said Joe Trauger, vice president of human resources policy at the National Association of Manufacturers.
The long-awaited rule would make all salaried workers who earn less than $50,440 per year automatically eligible to earn time-and-a-half pay if they work more than 40 hours a week. The cutoff under existing rules is around $23,660 per year.
That could raise affected workers’ pay by between $1.2 billion and $1.3 billion per year, Perez said.
The proposed rule, which is being issued by the Department of Labor, will be subject to a public comment period once it is finalized and could take effect as soon as 2016.
Obama will tout the proposal during an event Thursday in La Crosse, Wis., the home state of likely GOP presidential candidate Gov. Scott Walker.
The president began 2015 signaling an interest in tackling income inequality in his final two years in office. A White House economic report sent earlier this year to Obama said reduced taxes on the middle class and higher taxes on the wealthy, as well as increased government spending on infrastructure and education, could lead to economic growth that might shrink the income gap.
It also prescribed free trade, including completion of the Trans-Pacific Partnership deal with 11 other countries that Obama may more easily be able to negotiate with fast-track authority.
Liberal groups argued fast-track and the trade deal would worsen income inequality, but they cheered Obama’s decision on overtime rule.
“Working people called on President Obama to go bold, and his response will provide a much needed boost to our entire economy,” AFL-CIO President Richard Trumka said in a statement. “The labor movement is committed to ensuring workers’ voices are heard, ensuring that this proposal is strengthened and fully implemented.”
Obama faced pressure from Capitol Hill Democrats to increase the threshold even higher, to $54,000. But the Labor Department’s limit is also more than the $42,000 cutoff some Democrats feared it would choose.
All three Democratic presidential candidates backed the rule, including Hillary Clinton, who had walked a tightrope during the trade fight even as a challenger, Sen. Bernie Sanders (I-Vt.), pressured her to oppose fast-track.
Former Texas Gov. Rick Perry, a GOP presidential contender, slammed the rule, saying “government shouldn’t be in the business of mandating how much employers pay, or the level of benefits they provide.”
Business groups said the new rule could lead employers to cut workers’ hours to skirt the overtime requirements. As a result, they argued the rules would hurt the economy.
“This is going to be especially difficult for small businesses in small markets where wages are commensurate with the cost of living,” said Beth Milito, senior legal counsel for the National Federation of Independent Business. “Employers will be forced to limit hours for their workers and eliminate management positions.”
Tammy McCutchen, who oversaw the last overhaul of the overtime regulations when she was administrator of the Labor Department’s Wage and Hour Division under former President George W. Bush, said businesses are unlikely to pay workers overtime. Instead, she suggested they will look to cut hours.
“Where’s that money going to come from?” asked McCutchen, who will write comments about the overtime rule on behalf of the U.S. Chamber of Commerce. “My mom always told me money doesn’t grow on trees.”
Perez downplayed the concerns from business groups.
“Every time we have a conversation about leveling the playing field for workers, we hear that the sky is falling, the sky falling,” said Perez.
The proposal comes more than a year after the president first announced his intention to overhaul federal overtime rules, in March 2014.
The rules were due in February, but the Labor Department missed its deadline.