Business owners have long taken comfort in not having to worry about paying overtime to salaried workers, because such employees typically earn too much to qualify for it.
President Barack Obama plans to change all that.
He signed a memorandum on Thursday directing Labor Secretary Thomas Perez to update the regulations—something the President has the power to do under the Fair Labor Standards Act of 1938.
Currently only 12 percent of salaried workers fall below the federal threshold that requires employers to pay overtime to white-collar workers who work full time and earn $455 or less per week, according to a White House fact sheet about federal overtime rules. That threshold was set in 2004.
While it’s not clear exactly what the Labor Department will do with the President’s directive, it will likely increase the threshold so that more salaried workers qualify for overtime pay. Obama also asked the department to simplify the rules so it’s easier for workers to know if they’re getting paid correctly and for employers to follow the rules.
“It doesn’t make sense that in some cases [current overtime rules] actually makes it possible for salaried workers to be paid less than the minimum wage,” Obama said in prepared remarks. “If you’re working hard, you’re barely making ends meet, you should be paid overtime. Period. Because working Americans have struggled through stagnant wages for too long.”
For small employers, the updated rules will likely spell higher costs, because they will have to pay overtime to salaried workers with higher salaries. If the Labor Department does indeed simplify the rules, it could also make it easier for employees to demand overtime pay when it’s due.
Already, some small-business owners are bracing for the new overtime rules.
Chad Brooks, who owns eight Pittsburgh area Qdoba Mexican Grill franchise restaurants, intends to cut back on his 17 managers’ hours in order to avoid having to pay them overtime.
"What we'll probably end up doing is putting all of those managers on hourly rates and then not allowing them to work over 40 hours [a week], which means they're going to take home less money," Brooks told The Wall Street Journal, adding that his managers currently work up to 50 hours per week and pull in between $30,000 and $45,000 a year.
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