In the coming months, millions of employees around the country could become newly eligible for overtime pay due to a change in federal rules.
Everyone’s first assumption is that the rule change will mean bigger paychecks. But that may not be how it plays out for some or even many.
Today, the only way you’re automatically guaranteed time-and-a-half pay after logging 40 hours a week is if you earn less than $23,660 a year ($455 a week).
This week the Department of Labor will propose raising the threshold to $50,440 ($970 a week).
One of four changes could occur if your pay falls below the new threshold:
1. You’ll start getting overtime: Right now, workers who make a little more than $23,660 and are given some managerial duties are considered “exempt” from overtime pay. Under the new rules, such low-paid managers would be reclassified as “non-exempt,” so when they work more than 40 hours they would be compensated at time and a half.
2. You’ll get a small raise. If you earn just under the new threshold, an 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.
3. No more pay, but your hours could be limited. If you regularly work long hours but don’t get paid overtime because you’re exempt, you might be able to start heading home earlier. Your boss might just prefer to send you home after an 8-hour day, rather than pay you extra.
4. You could see no change in hours or pay. 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 pay to offset any overtime you’ll be owed.
Say an assistant manager makes $40,000 a year or $770 a week. And say she usually puts in about 50 hours a week.
If she becomes eligible for overtime pay under the new rules, her employer may decide to reset her hourly rate so that her pay still won’t top $40,000, even with her 10 extra hours of work every week.
The “cost-neutral” rate would come to $560 a week, or $14 an hour, according to McCutchen, who used to run the DOL’s Wage and Labor Division.
Add to that $210 for 10 hours of overtime at $21 an hour and the employee’s paycheck for a 50-hour week is still $770.
But there’s a big downside here: If she puts in fewer than 50 hours, she’d essentially see a pay cut because, unlike an exempt employee, she will only be paid for the hours she works.
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, said McCutchen, who will draft public comments on the new rules for the U.S. Chamber of Commerce.
But if employers opt to for the “cost neutral” approach, many workers may feel devalued enough to jump ship, said Judy Conti, federal advocacy coordinator of the National Employment Law Project.
Other potential effects: Sometimes companies offer less generous benefits to non-exempt employees than 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.