Administration Unveils Costly New Overtime Rules

Date: May 18, 2016 Last Edit: May 20, 2016

Final Rule Raises Maximum Overtime Eligibility To $47,476

The Labor Department has unveiled its final rule on overtime pay. The Obama Administration more than doubled the annual salary threshold for eligible workers from the current $23,660 to $47,476. However, its initial rule had proposed a cap of $50,440. Still, the Los Angeles Times points out that now, “more than 4 million Americans could get pay hikes” as a result of Obama’s action, which the Times describes as his “best and last opportunity … to boost wages without congressional action.” According to the Washington Post, about 35% of full-time salaried workers “will be eligible for time and a half” in hourly pay, which is up “significantly” from the 7% who qualify “under the current threshold.” The Washington Post cites small-business owners, nonprofit groups, and universities as saying “they may have to switch some salaried workers to hourly positions to afford the new threshold,” and that rather than getting bigger paychecks, some salaried employees “may be assigned fewer hours.” David French, the National Retail Federation’s senior vice president of government relations, said: “For many of these types of employees, they’re going to be viewing it as a demotion. … They’re going to have to clock in and clock out. They’re no longer going to have flexibility at work.” The Wall Street Journal quotes French as saying, “Just because there’s an overtime rule does not mean there’s going to be overtime pay.”

What Happens Next

The final rule doesn’t take effect right away. However, it takes effect by the end of the year, on December 1, leaving employers with little time for what is certain to be a major restructuring of staffing for many businesses.

What This Means For Small Businesses

The new overtime rule will have devastating consequences for many small businesses, who will be unable to afford to maintain current workforce structures. USA Today quoted NFIB President and CEO Juanita Duggan as warning that the new rule would mean that “entry-level management positions are going to disappear and those employees will fall back into hourly jobs.” In a separate USA Today article quoted NFIB Senior Manager of Regulatory Policy Dan Bosch as saying that “many small businesses can’t absorb the added cost and will instruct employees to work no more than 40 hours a week, bringing on part-time workers to pick up the slack.”

Additional Reading

Politico and the New York Times are among the additional outlets covering the new overtime rule.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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