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Overtime Rules Set for a Change

If overtime rules apply to more workers, will that put jobs in jeopardy or create new jobs?  Will it cause an increase or decrease in wages?  These questions are at the heart of debate over last week’s executive order from President Obama directing the Labor Department to revise federal overtime pay rules.

Current federal regulations allow salaried workers who are categorized as “professional, administrative, executive or outside sales” to be denied overtime under what’s commonly referred to as the “white-collar exemption”.   Also, employers are only officially required to pay time-and-a-half overtime pay to workers who make less than $455 per week. Overtime with windup clock

The President says his order is a response to a “crisis of economic inequality” evidenced in recent years by soaring corporate profits, but worker wage decline to all-time lows.  The President’s order seeks a raise in the minimum weekly exemption salary level to $1,000 per week and a revision of the description of the kind of work that allows an employer to exempt workers from overtime pay.

For example, a report from the Economic Policy Institute explains under current rules an employer may declare a worker’s responsibility is ‘executive’ in nature because that worker supervisors other employees.  Even if a worker spends a majority of time performing tasks, if that worker manages even one other employee or vendor, that worker could be exempted from receiving overtime pay.

Reports predict changing the overtime exemption rules could affect five million workers.  Employees have been putting in longer workweeks in recent years and it’s now estimated it adds up to an average of 30 overtime hours a month or 360 extra hours per year.  That can be a major source of extra income if the worker is not exempted from overtime pay.

The rules changes also address workers with supervisory ‘management’ jobs, such as fast-food managers, who work long hours doing tasks and also manage a team of workers, but receive a salary.

Small business associations have already been lobbying hard against a push to increase the minimum wage.  Now the overtime order is causing additional concern.  They fear overtime changes would mostly harm small businesses by increasing the cost of doing business, while having little effect on major corporations and their highly paid executives, boards and shareholders which are supposed to be the target of political pressure.

They also point out that the Bureau of Labor Statistics shows that only 4.7% of hourly workers receive minimum wage and more than 20% of that number were 16 to 19 years of age.  They say that shows that the issue that affects generally the least experienced part-time worker has been blown out of proportion.

Opponents claim overtime changes would result in fewer jobs, because small businesses would no longer achieve profitable production levels and would be forced to close their doors.  They also fear businesses would simply cut back worker hours, causing an overall decrease in income.  

Proponents say qualifying more workers for overtime would lead businesses to hire more workers to cover daily production to escape overtime costs.  They also claim businesses would hire more workers at higher wages to avoid the higher overtime hourly pay threshold.

In Missouri, the minimum wage is $7.50 per hour and overtime is mandated at a minimum 1.5 times that rate to $11.25 per hour.  In Kansas, the minimum wage is $7.25 per hour and overtime is set at $10.88 an hour.  Neither Missouri nor Kansas has a daily overtime limit.

Already, the President has issued an executive order requiring an increase in the minimum wage paid to federal workers be raised to $10.10 and requesting companies that do business with the federal government raise their minimum wage.

The Labor Department must go through a public comments process on the new overtime regulations.  Typically, that process takes at least six months to complete depending upon how controversial the requested change may be.

For more information on how the regulation changes may affect you or your business, contact us a McRuer CPAs.


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