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Business Groups, Republicans Say Obama Overtime Extension Will "Limit Opportunities and Increase Costs"

Labor advocates, however, praised the move as the first step toward restoring worker protections that have been whittled away over the past 40 years.
Pablo Martinez Monsivais/AP Photo

President Obama announced a proposal today to extend overtime pay to some 5 million higher-paid workers in the United States, which would mark only the second time that overtime has been raised since 1970.

The Department of Labor's new rule proposal would extend overtime pay laws to workers who earn up to $50,440. The current threshold is $23,660. The rule, if passed, would force employers to compensate workers for any additional hours over 40 per week.

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The White House estimated the increase in the threshold would affect nearly 5 million workers, many of whom are currently asked to put in more than 40 hours a week at their jobs without overtime compensation because their salaries deem them exempt.

The announcement cited examples of convenience store managers or fast food assistant managers who have supervisory titles and salaries that have, under current rules, exempted them from overtime, though their actual duties remain much the same as those not in supervisory roles. Under new rules, they too will be eligible for 1.5 times their normal hourly rate for overtime.

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The proposal also includes an automatic increase based on inflation, so the threshold will continue to increase without future action by a president or labor secretary. The rule will be published in the Federal Register and opened to a comment period before the Department of Labor announces the final rule in 2016.

"Right now, too many Americans are working long days for less pay than they deserve," Obama wrote in an op-ed on the Huffington Post Tuesday, noting that he would travel to Wisconsin to tout the new overtime plan Tuesday.

"As president, my top priority is to strengthen the middle class, expand opportunity and grow the economy. That's why I believe in middle-class economics — the idea that our country does best when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules," he wrote.

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Business groups and Republicans have criticized the rule, with the latter criticizing the President's use of executive authority to push the change through.

"While we are still reviewing the Department of Labor's proposed overtime regulations, at first sign, it seems as if these proposed rules have the potential to radically change industry standards and negatively impact our workforce," Angelo Amador, senior vice president of labor and workforce policy at the National Restaurant Association, told VICE News in a statement.

Amador warned that the rule could backfire, limiting upward mobility for low-level employees who want to be promoted to managerial positions.

"As with previous policies put forth by this Administration, we are deeply concerned with the outcome this process will have on the employer community and our employees," she wrote.

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Cory Fritz, a spokesman for House Speaker John Boehner, R-Ohio, told USA Today, the Obama administration is "proposing a new executive order that will limit opportunities and increase costs…instead of working in a bipartisan way to streamline and modernize regulations."

Labor advocates, however, including those from the National Employment Law Project, Economic Policy Institute, American Federation of Labor, and Center for American Progress Action Fund, praised the new rule on a call this morning.

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"We're so excited about the proposal to more than double the salary threshold," Christine Owens, Director of the NELP, said on the call. "What we've seen around nation was example after example of relatively low wage workers being misclassified, doing work that was largely the same as the work being done before they received a somewhat fancier title, and then having lots of hours added to their schedule with absolutely no compensation at all."

Anna Chu, vice president of the CAP Action Fund, said that even though Americans are working harder than ever, and are more productive than ever, they are still finding it hard to get ahead.

"A lot of basic standards and protections for workers, including overtime protections, have been whittled away," she said.

Damon Silvers, Director of Policy and Special Counsel at the American Federation of Labor, said that Obama's proposal was the most "dramatic and wide-reaching effort" the administration has taken to raise wages for American workers.

"It is an important step but it is not enough," Silvers said. "We know that when the overtime rules are working properly, the threshold was much a higher portion of salary workforce, around 60 percent."

The threshold will now cover about 40 percent of workers, he said.

"This goes to a fundamental point about what's wrong with our economy: wage stagnation and falling wages are a reality of the labor market," Silvers said.

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Still other economists saw the rule as having a net-zero effect on employees and employers. Jeffrey Morin, director of economic studies at the libertarian Cato Institute, said that as the rule shakes out over the next three to five years, the market will adjust, and employers will lower base wages or reduce hours of workers to avoid having to pay more money.

"Over time they're going to try to make adjustments and respond to avoid extra costs, whether that's hiring more people and keeping the number of hours below 40, or saying to employee we're not going to pay you ten dollars an hour anymore, we're going to pay you eight an hour," Morin told VICE News. "So there's an amount they can get to that the employer is giving the same amount, the employee gets the same amount, it's just the paycheck is different. Nothing has fundamentally changed. Markets do end up operating that way."

"It's feel-good economics," he said. "It sounds like it's great. People doing whatever they were doing are getting paid more money. How could anybody be opposed that? Only a heartless libertarian could be opposed. But if it sounds too good to be true, it usually is. That money has to come from somewhere."

Ross Eisenbrey, vice president of the Economic Policy Institute, disagreed, saying there was no historical evidence to suggest that employers would cut base wages or health benefits to accommodate the new rules.

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Dean Baker, co-director of the Center for Economic and Policy Research in Washington, told VICE News that the rules, if followed, will certainly help workers; but employers may not follow them.

"There's a big question of enforcement, because in a lot of cases they already should be getting overtime, but weren't," he said. "For someone who works 44 hours, that person doesn't have a punch clock, they're salaried, so their employer says I didn't ask you to work 44, I asked you to work 40. So we could still have situations where workers work overtime but don't get paid."

Follow Colleen Curry on Twitter: @currycolleen

Watch the VICE News documentary, "The Worst Internship Ever: Japan's Labor Pains."