Boosting overtime: Obama calls for broader coverage

WASHINGTON -- They're called managers, and they sometimes work grueling schedules at fast food chains and retail stores. But with no overtime eligibility, their pay may be lower per hour than many workers they supervise.

With those employees in mind, the Obama administration is proposing making up to 5 million more people eligible for overtime - its latest effort to boost pay for lower-income workers. These workers would benefit from rules requiring businesses to pay eligible employees 1 times their regular pay for any work beyond 40 hours a week.

"We've got to keep making sure hard work is rewarded," President Barack Obama wrote in an op-ed published Monday in The Huffington Post. "That's how America should do business. In this country, a hard day's work deserves a fair day's pay."

Employers can now often get around the rules: Any salaried employee who's paid more than $455 a week - or $23,660 a year - can be called a "manager," given limited supervisory duties and made ineligible for overtime.

Yet that would put a family of four in poverty. Obama says that the level is too low and undercuts the intent of the overtime law. The threshold was last updated in 2004 and has been eroded by inflation.

The long-awaited overtime rule from the Labor Department would more than double the threshold at which employers can avoid paying overtime, to $970 a week by next year. That would mean salaried employees earning less than $50,440 a year would be assured overtime if they work more than 40 hours per week.

Labor Secretary Tom Perez said Tuesday that the change would add $1.2 billion to $1.3 billion in wages for many newly overtime-eligible workers. Others, Perez said, will benefit from having additional hours. At the same time, he said, some employers may choose to hire new full-time or part-time workers to conduct the work salaried workers had once performed.

To keep up with future inflation and wage growth, the proposal will peg the salary threshold at the 40th percentile of income. The White House said 56 percent of those who would benefit in the first year are women, and 53 percent have a college degree.

With the higher threshold, many more Americans - from fast-food and retail supervisors to bank branch managers and insurance claims adjusters - would become eligible for overtime.

A threshold of $984 a week would affect 15 million people, according to the liberal Economic Policy Institute. In 1975, overtime rules covered 65 percent of salaried workers. Today, it's just 8 percent, the White House says.

The beneficiaries would be people like Brittany Swa, 30, a former manager of a Chipotle restaurant in Denver. As a management trainee, she started as an entry-level crew member in March 2010. After several months she began working as an "apprentice," which required a minimum 50-hour work week.

Yet her duties changed little. She had a key to the shop and could make bank deposits, but otherwise spent nearly all her time preparing orders and working the cash register. She frequently worked 60 hours a week but didn't get overtime because she earned $36,000.

The grueling hours continued after she was promoted to store manager in October 2010. She left two years later and now processes workers' compensation claims at Travelers. She makes $60,000 a year, "which is surprising, since I only work 40 hours a week," she says.

Swa has joined a class-action lawsuit against Chipotle, which charges that apprentices shouldn't be classified as managers exempt from overtime. A spokesman for Chipotle declined to comment on the case.

Dawn Hughey, a former store manager for Dollar General in Flint, Michigan, would have also benefited from a higher overtime threshold. Hughey worked 60 to 80 hours a week for about two years before being fired in 2011. She was paid $34,700.

"I missed a lot of family functions working like that," Hughey said. "It was just expected if you were a store manager."

She made about $45,000 a year as an hourly worker in a previous job at a Rite Aid in California, where she typically worked 48 hours a week and received overtime.

The White House's proposed changes will be open for public comment and finalized sometime next year.

They set up a populist economic argument that Democrats have already been embracing in the run-up to the 2016 presidential election. Vermont Sen. Bernie Sanders, who is challenging Hillary Rodham Clinton for the Democratic nomination, said the proposal means businesses would no longer be able to shirk their responsibility to pay fair wages.

"This long overdue change in overtime rules is a step in the right direction and good news for workers," Sanders said.

Yet the proposals won't necessarily produce a big raise for people like Swa and Hughey. The National Retail Federation, a business group, says its members would probably respond by converting many salaried workers to hourly status, which could cost them benefits such as paid vacation. Other salaried workers would have their hours cut and wouldn't receive higher pay.

Businesses might hire additional workers to avoid paying overtime or extend the hours they give part-timers.

"It's a job creation measure," said Daniel Hamermesh, an economist at the University of Texas, Austin. "Employers will substitute workers for hours, when the hours get more expensive."

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Associated Press writers Josh Lederman and Jim Kuhnhenn contributed to this report