In what some are defining as the most monumental wage-related government intervention of the decade, the U.S. Labor Department could propose a rule this week that doubles the income threshold required to receive overtime pay.
In Connecticut, over 20,000 people could see raises if his plan succeeds.
“They won’t raise minimum wage, because Congress would never agree to that, but this is definitely the next best thing,” Lori Pelletier, executive secretary-treasurer of AFL-CIO, said
With the proposed threshold, individuals with incomes as high as $984 per week would be able to qualify for overtime pay.
Under current law, any salaried worker who earns below a threshold set by the Labor Department can receive overtime pay, or a rate of one and one-half of their regular pay for every hour worked over 40 in a workweek. The present ruling, which has remained unchanged from when it was instituted in 1975, sets the threshold at a low $23,660, an amount lower than the country’s poverty line for a family of four.
The Obama administration, likely in response to Congress’s refusal to raise the national minimum wage, wants to raise that threshold to between $45,000 and $52,000. According to a report released by the Economic Policy Institute last March, this would extend the overtime benefits to between five and 10 million Americans.
“If your salary is even a dollar above the current threshold, you may not be guaranteed overtime,” President Obama said in March. “It doesn’t matter if what you do is mostly physical work like stocking shelves; it doesn’t matter if you’re working 50 or 60 or 70 hours a week — your employer doesn’t have to pay you a single extra dime.”
In Connecticut, this ruling would likely see the biggest effect in Ansonia, Bridgeport, East Hartford, Hartford, New Britain, New Haven, New London, North Canaan, Putnam, Torrington, and Windham — towns whose median household incomes all currently exceed $23,660, but fall below $52,000.
“This is one of those things that has potentially far-reaching effects, because it would pertain to many industries and wage levels,” said Nick Perna, an economist and adviser to Webster Bank. “A lot of people talk about minimum wage, but that only affects a certain portion. When you change the overtime regulations, it’s a much bigger slice of the workforce.”
However, according to a report issued by the National Retail Federation and Oxford Economics, the effects of the potential expansion may not be as grandiose as they may seem.
The report, which bases its research on three potential thresholds of expansion, suggests that businesses would do whatever it takes to offset the billions of dollars lost.
This includes cutting bonuses and benefits in order to increase base salaries above the new threshold, reducing some hours to fewer than 40 per week in order to avoid paying overtime, and lowering hourly rate of pay overall.
“On paper, the types of workers most affected by these regulations would be first-line salaried supervisors, such as assistant and department managers, store managers, office clerks, and administrative assistants,” the report states. “In reality, however, it is unlikely that many of these workers would see their take-home pay improve . . . [as] employers would likely use a variety of strategies to reduce the additional labor costs in order to remain competitive.”
The report goes on to state that the expansion may result in the “hollowing out of the mid-level professional ranks and an increase in inequality within companies.”
Many, however, continue to make the argument that regardless of the possibilities of businesses laying off workers or decreasing their pay rate, raising salaries will ultimately create more jobs.
“This is the age-old question,” Pelletier said. “Every time the government comes in to try and protect workers, whether it’s in health and safety or overtime pay, businesses immediately try to avoid the extra costs. They say that this is going to cost jobs. And what we’ve seen, especially with the minimum wage, is that it provides more jobs because there’s more money in the economy.”
Today, just 11 percent of salaried workers qualify for overtime pay. The white collar exemption rules exclude “executive, administration, and professional employees” from overtime benefits.
Employers routinely use this loophole to avoid paying overtime to lower-wage workers such as store managers or shift supervisors by allotting them menial responsibilities and qualifying them as managerial staff.
The impending rule is expected to “tighten up” this definition, resulting in thousands of Connecticut citizens in such positions being able to qualify for overtime pay.
“The idea that someone making $23,000 is a manager is ridiculous,” Pelletier said.
Supporters of the proposed rule change maintain hope that the Obama administration, which does not need Congress’s approval to move forward with it, will raise the threshold before the President leaves office.
The House Education and the Workforce subcommittee will spend much of a scheduled hearing today discussing the federal wage and hour standards to the overtime rule, even if it isn’t yet released.