We all like to feel we’re getting paid fairly for our work, especially if we’re trying new ways to be productive, and working long hours to accomplish everything on our to-do lists. In many cases, middle-income workers haven’t seen all of those returns, as they have traditionally been exempt from overtime pay. However, a new law passed in May 2016 will make about 4.2 million more people eligible for overtime starting in December 2016.
Though this has been a major goal for the Obama administration, several employer advocacy groups say the new law will hurt businesses, without employees actually seeing a pay raise. Among those is the U.S. Chamber of Commerce, which condemned the new law as bad for business. “While the Department of Labor made some important changes in the final regulation, the revised overtime regulation issued today still represents another regrettable burden being piled on employers as they attempt to grow in a tepid economy,” the chamber said in a statement.
Though every company will likely take a slightly different approach to the new laws, what are the chances this change to overtime pay actually hurts workers, as some employer groups claim it might? In most cases, it depends on whether you view the glass as half-empty, or half-full.
Who is eligible for overtime?
Under the new law, the U.S. Department of Labor estimates more than 4 million workers will now have a right to overtime pay, who weren’t eligible before. If a person earns less than $47,476 per year (about $913 per week), they will be eligible to collect overtime pay if they work more than 40 hours per week — regardless of their job duties or whether they were originally a salaried or hourly worker.
According to CNN Money, this would significantly raise the percentage of employees eligible for overtime pay in the United States. In 1975, about 62% of workers could earn time and a half pay if they worked more than 40 hours per week. By this year, that percentage has dropped to just 7% of workers, following several laws that exempted employees from being eligible for overtime. Under the new regulations, about 35% of workers will be eligible for overtime starting in December 2016.
Companies could cut hours
According to a report from Fast Company, employers will have three options for meeting the new requirements. One, they could raise salaries of employees near the $47,476 threshold, to avoid needing to pay them overtime. If you’re near that mark already, this law could be a good thing, because it will equal a small bump in pay — though you won’t get extra money for working your typical 50 hours per week. Two, employers could bite the bullet and pay their employees time and a half every time they exceed 40 hours per week. And third, companies could keep all pay levels the same, but cut hours to ensure their employees don’t reach the overtime threshold.
Here’s where the glass half full or empty starts to come into play. If you’re currently a salaried employee working 60 hours a week, your boss might choose to keep your pay the same, but avoid paying you overtime by cutting your hours and hiring another part-time employee. Though cutting hours initially sounds bad, this could lead to new jobs, and a greater work-life balance that many employees seek today, the AFL-CIO stated in a blog post.
You could be converted from a salary to hourly wage
One of the biggest changes, employers warn, is that numerous employees could be changed from a salaried to an hourly status. The National Retail Federation called this a “career killer,” because it could essentially demote assistant managers and other employees with similar supervisory roles who were already salaried. On the flip side, however, some experts don’t think mass demotions are likely. Employers might assign supervisory roles more sparingly in the future, but demoting numerous employees in one fell swoop now would be an issue “because of the morale problem” it could cause, Cathy Ruckelshaus, an attorney at the nonprofit National Employment Law Project, told The New Yorker.
Here’s why that conversion could be an issue: To account for predicted overtime hours, employers could cut your base pay to allow for the same overall paycheck, overtime requirements and all. It would be a scummy thing to do, but as long as you’re making at least minimum wage, the government can’t regulate what you’re paid. If you continue to work your typical 45 or 50 hours, you won’t see an issue. But if you miss a few hours because of a doctor’s appointment or take a field trip with your child for half a day, you’ll essentially be taking a pay cut, because you only get paid for the hours you work.
You could miss out on traditional benefits
Employees could also see a change in their benefits during this change, the National Retail Federation warns and CNN Money points out. The NRF predicts that about 5% of workers will see benefits reduced in some way, either with a loss of paid vacation days, loss of bonus pay, or less generous health coverage. They may no longer be eligible for profit-sharing, CNN Money also reports.
It’s too soon to say which actions will be most popular for employers, meaning it’s also too soon to say if this will be a win for workers overall. However, on a large-scale basis, it certainly seems like this is a step in the right direction. The middle class has struggled with stagnant wages for decades, and in some cities is even struggling to survive. Employers will do what they can to keep this new law from affecting their bottom line, but in all likelihood this will be a larger benefit than a hindrance.