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Boosting overtime: Obama calls for broader coverage

A proposal from President Barack Obama and the Labor Department would more than double the threshold at which employers can avoid paying overtime, from the current $455 a week to $970 a week by next year.
A proposal from President Barack Obama and the Labor Department would more than double the threshold at which employers can avoid paying overtime, from the current $455 a week to $970 a week by next year. (Pablo Martinez Monsivais, AP)

WASHINGTON — They're called managers, and they sometimes work grueling schedules at fast-food chains and retail stores. But with no overtime eligibility, their pay may be lower per hour than that of many workers they supervise.

With those employees in mind, the Obama administration is proposing making up to 5 million more people eligible for overtime — its latest effort to boost pay for lower-income workers. These workers would benefit from rules requiring businesses to pay eligible employees 11/2 times their regular pay for any work beyond 40 hours a week.

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"We've got to keep making sure hard work is rewarded," President Barack Obama wrote in an op-ed published Monday in The Huffington Post. "That's how America should do business. In this country, a hard day's work deserves a fair day's pay."

Employers can often get around the rules: Any salaried employee who's paid more than $455 a week — or $23,660 a year — can be called a "manager," given limited supervisory duties and made ineligible for overtime.

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Yet that puts a family of four in poverty. Obama said that's too low and undercuts the intent of the overtime law. The threshold was last updated in 2004 and has been eroded by inflation. In 1975, overtime rules covered 65 percent of salaried workers. Today, it's just 8 percent, the White House said.

The long-awaited overtime rule from the Labor Department would more than double the threshold at which employers can avoid paying overtime, to $970 a week by next year. That would mean salaried employees earning less than $50,440 a year would be assured overtime if they work more than 40 hours per week.

Labor Secretary Thomas E. Perez said Tuesday that the change would add $1.2 billion to $1.3 billion in wages for many newly overtime-eligible workers. Others, Perez said, will benefit from employers reducing their hours. At the same time, he said, some employers may choose to hire new full-time or part-time workers to conduct the work salaried workers had once performed.

To keep up with future inflation and wage growth, the proposal will peg the salary threshold at the 40th percentile of income. The White House said 56 percent of those who would benefit in the first year are women, and 53 percent have a college degree.

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"I'm sure there's a lot of gnashing of teeth among owners of businesses about this, but most of us will figure out how to adjust and make money," said Oz Bengur, a Baltimore-based adviser to restaurant companies and owner of Papa John's franchises in Delaware and New Jersey.

Bengur said owners likely would try to save money in other places or pass on the cost to customers, as he said the importance of good managers couldn't be understated.

"The hardest things for companies to find are good managers, because if you don't have a good manager running your restaurant, it's not going to be successful," he said. "People who are good employees, we'll want to pay them a market rate to keep them."

Jeffrie Zellmer, the vice president of government relations and community affairs for the Maryland Retailers Association, said his group still was assessing the impact of the decision, but he said it could hit small businesses hard.

"It's harder when it falls on a small guy," he said. "You got a small, four-man shop or something, it's devastating."

The cost of either paying the managers overtime or hiring others to fill their hours comes when business owners are also grappling with higher minimum wages in some areas and increased competition, said Daraius Irani, chief economist at Towson University's Regional Economic and Studies Institute

"A lot of it would be discretionary to the owners whether to cut [hours] back to keep a handle on those costs," he said. "The owner could say, 'Look, you're working 40 hours, that's it.' I would suspect at some point, some restaurateurs may decide that running a restaurant may be more than it's worth. It's really squeezing those small retailers and those franchise operators."

The beneficiaries would be people like Brittany Swa, 30, a former manager of a Chipotle restaurant in Denver. As a management trainee, she started as an entry-level crew member in March 2010. After several months she began working as an "apprentice," which required a minimum 50-hour work week.

Yet her duties changed little. She had a key to the shop and could make bank deposits, but otherwise spent nearly all her time preparing orders and working the cash register. She frequently worked 60 hours a week but didn't get overtime because she earned $36,000.

The grueling hours continued after she was promoted to store manager in October 2010. She left two years later and now processes workers' compensation claims at Travelers. She makes $60,000 a year, "which is surprising, since I only work 40 hours a week," she says.

Swa has joined a class-action lawsuit against Chipotle that charges that apprentices shouldn't be classified as managers exempt from overtime. A spokesman for Chipotle declined to comment on the case.

Dawn Hughey, a former store manager for Dollar General in Flint, Mich., also would have benefited from a higher overtime threshold. Hughey worked 60 to 80 hours a week for about two years before being fired in 2011. She was paid $34,700.

"I missed a lot of family functions working like that," Hughey said. "It was just expected if you were a store manager."

She made about $45,000 a year as an hourly worker in a previous job at a Rite Aid in California, where she typically worked 48 hours a week and received overtime.

The White House's proposed changes will be open for public comment and finalized sometime next year.

They set up a populist economic argument that Democrats have been embracing in the run-up to the 2016 presidential election. Vermont Sen. Bernie Sanders, who is challenging Hillary Rodham Clinton for the Democratic nomination, said the proposal means businesses would no longer be able to shirk their responsibility to pay fair wages.

"This long overdue change in overtime rules is a step in the right direction and good news for workers," Sanders said.

The proposed changes will face opposition from the business community and many Republicans, who argue that they discourage hiring.

"Our research shows that … few workers would actually see more take-home pay," said David French, a senior vice president at the National Retail Federation. "There simply isn't any magic pot of money that lets employers pay more just because the government says so."

The NRF said its members would probably respond by converting many salaried workers to hourly status, which could cost them benefits such as paid vacation. Other salaried workers would have their hours cut and wouldn't receive higher pay, the group said.

Baltimore Sun reporter Carrie Wells and the Associated Press contributed to this article.

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