WASHINGTON — The Obama administration’s push to expand the number of white collar workers eligible for overtime pay could have significant unintended and adverse consequences for businesses and workers, according to a new study released Tuesday by the National Retail Federation. The Department of Labor, under direction from President Obama, has sent a proposed change to overtime rules to the Office of Management and Budget for review and plans to make its proposed rule change public soon.
But the NRF, which includes members such as Macy’s Inc., J.C. Penney Co. Inc. and Wal-Mart Stores Inc., is going on the offensive with the report conducted by Oxford Economics, an independent global advisory and forecasting firm originally established in conjunction with Oxford University’s business college.
“The consequences of this rule would be real, in terms of higher costs for businesses and less opportunity for employees to move up the career ladder from associate to manager,” said David French, senior vice president of government relations at the NRF. “The overtime rules would hollow out middle-management careers and middle-class opportunities for millions of workers.”
Under the Fair Labor Standards Act, hourly wage workers are generally paid time and a half for more than 40 hours a week if they earn below a certain salary, but a white collar exemption prevents many salaried executives, managers, supervisors and administrators from receiving overtime, according to the administration. The threshold for overtime eligibility was set at $455 a week, or about $23,660 a year, in 2004. The administration said the threshold is below today’s poverty line for a worker supporting a family of four.
Obama aims to change that by bypassing Congress and using his executive authority — a lightning rod for Republicans in control of the House and Senate — to lift the floor on overtime eligibility.
“If your salary is even a dollar above the current threshold, you may not be guaranteed overtime,” Obama said last year when he issued a memorandum directing the Labor Department to update and simplify the rules. “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, and I think that’s wrong. It doesn’t make sense that in some cases this rule actually makes it possible for salaried workers to be paid less than the minimum wage.”
Oxford studied three scenarios of modified overtime rules in its report for the NRF, assessing the impact of new salary thresholds of $610, $808 and $984 a week. Under the current $455 a week threshold, about 3.3 million salaried workers across all U.S. retail and restaurant industries are exempt from overtime pay eligibility, according to the report.
Under the scenario the NRF believes is most likely, if the threshold is raised to $808 a week, or $42,016 a year, about 1.7 million workers who are currently exempt from overtime could be affected. Of those affected, 97,000 workers could have their salaries raised by an estimated $1,700, but they could also see an equal reduction in bonuses and benefits. About 351,000 would be converted from exempt salary to nonexempt hourly and earn nearly $3.6 billion, or $10,200 a worker, but employers will likely modify their base wages so each worker would not see any real income gain, the report concluded. The potential cost to U.S. retailers and restaurants could be $5.2 billion a year, under the assumption that businesses make no changes to offset increased costs.
The report found that it is “highly unlikely” that employers would absorb the additional costs without making “significant adjustments in the structure of their workplaces.”
Oxford analyzed academic research and interviewed retail and restaurant industry experts and found they could lower hourly rates of pay, cut bonuses and benefits to increase base salaries above the new threshold, and reduce some workers’ hours to fewer than 40 a week to avoid paying overtime.
“The net results of these changes would be an accelerated hollowing-out of low-level professional and administrative functions, as firms centralize their management structures to rely on a smaller number of genuine managers and professionals,” the report said. “Workplaces would become more hierarchical, and inequality would increase. Lower-level employees currently covered by overtime law would find it harder to rise into the professional ranks as the number of mid-level salaried positions contract.”
Richard Trumka, president of the AFL-CIO, said recently, “Raising wages is the issue of our time. And President Obama has a tremendous chance to raise the wages of millions of Americans out there. We’re urging him to go bold and to not dilute the overtime regulation that’s about to come out.”
Trumka has said the minimum threshold for overtime eligibility should be $51,168. “Give America a raise, Mr. President. We need it. We deserve it. We have to have it.”
The bottom line, according to the report, “Some employees may gain from this change, but an offsetting number will see compensation reduced.”