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

Here’s why updating the nation’s overtime laws isn’t such a bad idea – despite what some business groups say.

Mar 16, 2014 at 11:37AM

Obama

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.

Bush

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. 

G

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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Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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