The Obama administration late Tuesday unveiled a final rule extending overtime pay to millions of workers.
The regulation makes anyone earning up to $47,476 a year, or roughly $913 a week, eligible for overtime pay.
{mosads}The rule is one of the most significant regulatory initiatives of President Obama’s second term, and has drawn fierce opposition from industry groups.
With the Republican Congress standing firm against a minimum wage increase and other economic proposals from Democrats, the president has exerted the power of the executive branch to try and burnish his legacy.
In a concession to business groups, the administration reduced the threshold for overtime pay by $3,000, down from the $50,440 cutoff initially proposed.
But the policy change created by the rule is still dramatic, as the cutoff for overtime pay now stands at $23,660 per year.
In a call with reporters, Secretary of Labor Tom Perez said the change is in response to the more than 27,000 public comments that his agency received. Industry groups had been pushing back against the maximum salary, as well as the annual adjustment rate for overtime wages and the deadline for businesses to comply.
In response, the threshold for overtime pay will be updated every three years, with those updates indexed to ensure the threshold remains at the 40th percentile of full-time salaried workers in the lowest income region of the country. Based on projections of wage growth, the Labor Department is expecting anyone making upwards of $51,000 to be eligible for overtime pay by January 1, 2020.
The department considered making changes to the “test” of primary executive, which are the administrative and professional duties an employee must perform to be exempt from earning overtime, but decided against it after employers expressed concerns that the test would become too difficult and costly to implement.
The administration also honored employers’ requests to count bonuses and commissions as part workers’ salaries when determining overtime eligibility. Under the rule, bonuses and incentive payments can count toward up to 10 percent of the new salary level.
“The middle class is getting clobbered, but I think we’re making some real progress here and it’s based on a simple premise that if you work overtime you should get paid for the hours you work,” Vice President Biden said Tuesday afternoon.
Under the rule, Perez said 4.2 million workers — more than half women — would be newly eligible for overtime pay. Workers will earn an additional $12 billion in wages over the next 10 years, he said.
The administration is giving employers more than six months to comply with the rule.
“Our goal is to facilitate 100 percent compliance,” Perez said. “We don’t go out with our ticket books trying to play the gotcha game. Our goal is to work with employers.”
The U.S. Chamber of Commerce said that if the administration had really listened to employers, it would have lowered the salary threshold for overtime well below $47,476.
“Despite the modifications, the dramatic escalation of the salary threshold, below which employees must be paid overtime for working more than 40 hours a week, will mean millions of employees who are salaried professionals will have to be reclassified to hourly wage workers,” Randy Johnson, the chamber’s senior vice president of Labor, Immigration, and Employee Benefits said in a statement.
“Small businesses, nonprofits, and public sector employers will be especially impacted as they will have the hardest time finding more income to cover the increased labor costs, even if they will have a longer time to implement the new requirement.”
And since the rule calls for an update every three years, Johnson argues that employers will be further burdened in the future.
“This will result in charities providing fewer services to those in need, local governments having to reduce services and raise taxes, and small businesses having to curtail operations or plans to expand,” he said. “The Department of Labor failed to accurately assess the impact this regulation would have on these, and other, employers.”
The National Retail Federation called the rule a “career killer.”
“Most of the people impacted by this change will not see any additional pay,” David French, NRF’s senior vice president for government relations, said in a statement. “Instead, this sudden and extraordinary increase will mean more red tape and fewer advancement opportunities for salaried professionals.”