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President Obama's New Plan to Change Overtime Pay for Workers

Speaking at the White House this week, President Barack Obama directed Secretary of Labor Tom Perez to overhaul the nation's laws regarding overtime, summing up the workplace concept as, "If you have to work more, you should get paid more."

Do overtime laws really need tweaking? Obama obviously thinks so, but some business interests disagree. Expanding the scope of employees who would be eligible for overtime compensation would upset workplaces in all sorts of ways, they claim, and increase the cost of doing business.

But, it's been 10 years since the last facelift to the overtime provisions of the Fair Labor Standards Act, and I would argue another update is long overdue.

Revisions needed
When President George Bush revised these same laws in 2004, the salary cut-off point above which employers were not required to pay overtime wages was set at $455 per week, up from the $155 at which it had stagnated since the mid-1970s. At the same time, however, changes were put into effect that gave employers the ability to more easily classify workers as managers in order to avoid paying them time-and-a-half for hours worked in excess of 40.

As Obama noted in his speech, this language, originally meant to exempt highly paid white collar workers from collecting overtime, is unfairly affecting workers who barely earn poverty-level wages – currently, $23,850 annually for a family of four. An employee making $456 per week can conceivably be denied overtime wages, even if his or her job is predominately non-managerial in nature.

So, what's wrong with making the laws more equitable? According to the head of labor law policy at the Chamber of Commerce, the government would do more good by lighting a fire under the economy, and creating more jobs. On the other hand, a representative from a law firm that represents employers says overtime reform won't help current workers, because companies will respond by hiring more people. 

Those that protest too much
Not surprisingly, many of the businesses complaining are the very ones embroiled in lawsuits regarding overtime issues. In his speech, Obama specifically mentioned fast food workers; on Thursday, it was announced McDonald's Corp. faces lawsuits in three states, filed by workers who accuse the company and its franchises of illegally holding back pay for hours worked – including overtime pay.

The National Retail Federation, comprised of grocers, retailers and chain restaurants, has called the proposal "job-killing." Both grocery stores and restaurants such as IHOP have been forced to pay out back wages in scores of enforcement actions since 2000, and Wal-Mart has lost several such lawsuits over the past 10 years, including one in 2012. That case, involving more than 4,500 employees, cost the company more than $5 million in back pay and penalties.

With approximately 10 million employees being affected by the change, it's almost certain employers will have to pony up more in wage expenses. But that many workers making more money will also be spending more, which should benefit the very companies worrying right now. Spending will also boost the economy, something these businesses say is a priority. As the saying goes, sometimes, you have to spend money to make money.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 16, 2014, at 11:08 PM, chly000579 wrote:

    You tired? Go on home now darling. We'll get someone in here that won't mind the extra hours.

  • Report this Comment On March 17, 2014, at 9:30 AM, tceperry wrote:

    Salaries work differently than hourly rates. I have worked MANY salaried jobs, usually involving a lot of "off hour" work, i.e traveling, setting up meetings, etc. In EVERY case, the salary covered between 45 and 50 hours per week (if calculated hourly, with time and a half). I did not have to punch a timeclock, because it was totally impractical; a good portion of my time was spent off-site. I did not have to work all of those hours every week, either. I might go for two weeks at 40ish hours, and then be called out of town, where I needed to travel and be in meetings, and sometimes have 12-14 hour days. I did not have a huge salary, certainly not anywhere near high enough to warrant being called Upper Class.

    If Obama ever actually worked in a real job like the vast majority of Americans, he might have the tools necessary to understand how business works. Academia, community work, and politics have not provided him the foundation necessary to actually understand the things to which he so greatly wants to dictate policy.

  • Report this Comment On March 17, 2014, at 1:14 PM, rosetrey wrote:

    I have never agreed with any of Obamas policies, politics or his leadership skills as the president of our country. I do however, believe he finally got it right with this executive order concerning Salaried OverTime Revisions. I have been in the restaurant industry all my life, hourly and salary, and know for a fact the advantage business's take on salaried employees by making them work way over 40 hours a week and when you calculate the time worked, they are actually making far less than the current minimum wage. This type of practice is prevalent throughout different industries and justified by the title of "Manager", big whoopie!!,

    Well, its time to start paying salaried workers for all their time worked and quit sweeping all those extra hours under the management rug.

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Amanda Alix

Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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