By Jordan Fabian – 06/30/15 11:24 AM EDT
The White House is issuing new rules that would make all salaried workers who earn up to $50,000 annually eligible for overtime pay, triggering a massive economic fight with business groups.
The new rules could raise pay for nearly 5 million American workers and represents one of President Obama’s most far-reaching moves to reduce income inequality. Obama will tout the proposal during an event Thursday in La Crosse, Wis.
“This proposed overtime rule goes to the heart of what it means to be middle class in America,” Labor Secretary Thomas Perez told reporters on Tuesday.The rule sets up a confrontation with business groups and Republicans in Congress, who believe it will cost jobs and slow the economy.
“It seems as if these proposed rules have the potential to radically change industry standards and negatively impact our workforce,” the National Restaurant Association said in a statement. “We are deeply concerned with the outcome this process will have on the employer community and our employees.”
The long-awaited rule would make all salaried workers who earn less than $50,440 per year automatically eligible to earn time-and-a-half pay if they work more than 40 hours a week. The cutoff under existing rules is around $23,660 per year.
The proposed rule, which is being issued by the Department of Labor, will be subject to a public comment period once it is finalized and could take effect as soon as 2016.
The proposal comes more than a year after the president first announced his intention to overhaul federal overtime rules in March 2014. The rules were due in February, but the Labor Department missed its deadline.
Opponents of the rule could file a lawsuit challenging it in court or try and pass legislation to block it from taking effect, but White House Domestic Policy Council Director Cecilia Muñoz brushed aside concerns.
“This is a rule that is totally within this department’s authority,” she said. “Support for this action will be strong, and we are looking forward to the rule going final.”
Some observers believe the rules will lead businesses to cut workers’ hours to skirt the overtime requirements. But White House officials said that might spur businesses to hire more workers to fill the lost hours.
“There will be new workers and new hours that have to be taken up to compensate for the fact that so many managers have essentially been working for free,” said Perez.
The rule will have the backing of Democrats and labor unions, who have urged the administration to raise the overtime threshold as high as it can.
As such, it puts Obama on the same side as organized labor and liberals in the House and the Senate, with whom he’s been feuding for much of the last two months over his free-trade agenda.
AFL-CIO President Richard Trumka praised the new rule, but he said labor will push for it to be strengthened further during the public comment and review process.
“Working people called on President Obama to go bold, and his response will provide a much needed boost to our entire economy,” he said in a statement. “The labor movement is committed to ensuring workers’ voices are heard, ensuring that this proposal is strengthened and fully implemented.”
The rule does not yet contain language indexing the overtime threshold to price or wage levels, a provision that labor unions have demanded. Perez said the indexing measure will be decided after the public comment period has concluded.
The proposal would restore the salary threshold to qualify for overtime roughly where it was in the 1975, adjusting for inflation. The new rule would make close to 40 percent of salaried workers become eligible for overtime pay.
Under current rules, employees who make more than $455 a week, or $23,660 per year, and work more than 40 hours a week are considered management and are not eligible for overtime.
The existing threshold falls below the poverty line for a family of four, and only 8 percent of full-time salaried employees qualify, the White House said.
In the 1970s, the last time the rules were updated, just over 60 percent of salaried workers qualified.
The gap is the result of a so-called “white-collar exemption,” which was intended to prevent executives and management from collecting overtime pay. But over time, employers used the exemption to withhold overtime for many low-wage workers.
The rule does not change the “duties test,” which is used to determine whether a worker falls under the white-collar exemption. But Perez said his department would solicit ideas to revise the test during the comment period.