On Tuesday, June 30th, the Department of Labor announced the Obama administration’s proposed rule to raise the cap for salaried workers owed overtime pay from $23,660 to $50,440.

The rule would impact an estimated five million Americans who currently aren’t eligible to receive overtime pay. The announcement released by the DOL aims to update the salary threshold in order to protect the types of workers the regulations were originally developed to cover.

“Failure to update the overtime regulations has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year.”

The announcement goes on to list professionals like convenience store managers, fast food assistant managers, and office workers as the types of white-collar workers the rule aims to protect. While the rule does not need congressional approval to be passed, it will be subject to a comments period and there are expected to be legal challenges.

Potential benefits

The proposed rule’s slogan, “Fair Day’s Pay for Fair Day’s Work” succinctly states the rule’s intention to help hard-working Americans make a decent living wage by providing overtime pay.

Because the overtime salary threshold has not been updated since 1975 (four decades), many, many Americans have been working without overtime pay. The regulation as it exists today does not pay overtime pay to professionals and managers who a) make more than $23,660 annually and b) perform specific duties.

The current salary cap of $23,660 is below the poverty threshold for a family of four. There can be no doubt that the salary threshold has not been updated to keep up with the current cost of living. What’s more, according to The New York Times, a 2015 salary of $50,440 would approximately match the buying power of a 1975 salary of $23,660. With these numbers on hand, the benefit of implementing this new rule seems hard to refute.

However, there are potential consequences to implementing a new overtime rule with a higher salaried threshold.

Potential pitfalls

While the rule is intended to raise pay for many hard-working salaried Americans, according to some, the rule could actually have the opposite effect. Employers subject to the newly increased overtime costs (time-and-a-half) looking to their expenses could limit employee hours, lower hourly compensation, and keep hourly employees from being promoted.

According to National Retail Federation Senior Vice President David French, “Any potential lift in take-home pay would be a mirage, but 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. The overtime rules would hollow out middle-management careers and middle-class opportunities for millions of workers.”

With a dramatically higher salary cap, employers looking to protect their bottom line could result in worsened conditions for employees.

How this affects you

While the new overtime rule is meant to lighten the strain of long hours on middle-class workers and their families, the higher salary cap could hurt businesses and jeopardize employee opportunities as a result.

While there is no way to tell how the rule will take effect across the board, ideally the increase will be significant enough to help workers make a fair living wage, while being minimal enough to keep employer budgets intact. For the time being, there is no reason for you to change your overtime policy.

However, if the new rule is passed, FingerCheck can help you keep your payroll operating in full compliance with legal requirements. Using our customizable time and attendance software you can build a custom overtime policy and establish the rules around which your policy should operate and the specific conditions of your overtime policy.

To learn how to build a new policy or tweak your existing policy you can consult our help desk for setup instructions, and/or call 1-800-610-9501 or email info@fingercheck.com for help. We’ll be sure to keep you updated on any changes regarding the new proposed overtime rule.

Let us know your thoughts in the comments below.

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