If you make less than $47,476 per year, you may be eligible for overtime pay starting in December.
Starting later this year, millions more workers will become eligible for overtime pay.
Under a new rule announced by the White House Tuesday, anybody making a salary of less than $47,476 ($913 a week) will automatically qualify for overtime pay when they work more than 40 hours a week.
That’s roughly double the $23,660 threshold (or $455 a week) that’s currently in place.
The change — which has been criticized as too drastic by many employers — will go into effect on Dec. 1, 2016. They are intended to expand access to overtime pay for otherwise low-salaried workers who log long hours but have been treated as exempt from overtime because they perform some managerial duties.
Vice President Joe Biden characterized the changes as “restoring and expanding access to the middle class.”
The percent of salaried workers automatically eligible for overtime has fallen to 7% from 62% in 1975. Under the new threshold, 35% of salaried workers will become automatically eligible, according to Labor Secretary Thomas Perez.
The new threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country. Based on wage growth projections, that means it could rise to $51,000 by 2020.
In figuring out whether salaried workers’ income qualifies them for overtime, employers will be allowed to count their bonuses and commissions up to 10% of the threshold. So, for instance, if someone makes $44,000 today and gets a $4,000 bonus, his total income ($48,000) will mean that he will remain exempt from overtime.
The Labor Department estimates the rule change could result in an additional $12 billion in pay for workers over the next decade.
The change is expected to affect the retail and restaurant industries the most. But it will also affect all private sector industries, as well as government offices and nonprofits, from social service organizations to universities.
The upshot for workers could be more pay or more free time or in some instances, neither.
Some will earn more because they will receive overtime pay or will simply get a raise to put them over the salary threshold.
Others may be restricted to just working an 8-hour day.
But some may still end up logging long hours for the same pay if their employers adjust their hourly rate lower to offset any overtime pay they’ll be owed.
For some companies, the thinking may well be “if 20% [of my expenses] is labor costs, after the overtime rule goes into effect, it’s still going to be 20%,” said Michael Lotito, a lawyer for Littler Mendelson, a firm that represents employers.
While Perez acknowledged that theoretically this could be a potential outcome for some low-salaried managers, he’s confident employers won’t take that route. “You don’t respond to any employee by lowering their wages. But it’s particularly imprudent to do so with folks who are running the place. It’s inconsistent with rational behavior.”
Thanks to a major change in federal rules, millions of employees around the country will now become eligible for overtime pay.
Everyone’s first assumption is that the rule change will mean bigger paychecks. But that may not necessarily be how it plays out for everyone.
Today, the only way you’re automatically eligible for time-and-a-half pay when you put in more than 40 hours a week is if you earn less than $23,660 a year ($455 a week). But effective Dec. 1, 2016, that threshold will rise to $47,476 ($913 a week).
One of four changes could occur if your pay falls between the old and the new threshold:
You’ll start getting overtime: Right now, if you’re a salaried worker who makes between $23,660 and $47,476 and have some managerial duties you are considered “exempt” from overtime pay. Under the new rules, such low-paid managers would be reclassified as “non-exempt.” That means, when they work more than 40 hours in a week they must be compensated at time and a half. It also means you and your employer will have to keep close track of their hours.
You’ll get a small raise. If you earn just under the new threshold, your employer may decide to just raise your base pay by a few thousand dollars to avoid having to pay you overtime, said Tammy McCutchen, a management-side lawyer with firm Littler Mendelson.
No more pay, but your hours could be limited. If you regularly work long hours but don’t get paid overtime today, and your status changes to “non-exempt” under the new rules, your boss might not let you work more than an 8-hour day to avoid having to pay you overtime.
No more pay, but you still work long hours. Even if you become eligible for overtime, you may still end up working long hours but not get paid a dime more, because your employer could lower your base hourly pay to offset any overtime you’ll be owed.
But there’s a big downside here: If you put in fewer than your normal 50 hours one week, you’ll essentially see a pay cut because you will only be paid for the hours you work.
That may feel all kinds of wrong. But it is not illegal.
The federal government can’t tell employers how much they should pay their employees so long as they’re paying at least minimum wage under federal and state laws.
That said, “it’s very hard for employers to lower someone’s pay when they’re not being demoted,” said Judy Conti, federal advocacy coordinator of the National Employment Law Project, which strongly supports an increase in the overtime threshold.
Still, Conti predicts, if employers choose that route “they’ll start seeing a lot of turnover.”
Potential effects on your benefits: Sometimes companies offer less generous benefits to non-exempt employees than they do to their exempt staffers.
So some workers who are reclassified as non-exempt under the new rules may find changes to their vacation accrual schedules and health benefits. Or they may no longer be entitled to bonuses or profit-sharing.