Business groups and corporate lawyers assailed a White House plan to expand overtime eligibility to millions more workers, saying the move could hurt job growth, worker productivity and the economy.
"We understand the administration is looking for ways to put more money in people's pockets, but the only way to do this is to grow the economy and create more jobs," says Marc Freedman, executive director of labor law policy for the Chamber of Commerce. "Adding more burdens to employers will not accomplish that goal."
President Obama on Thursday plans to order the Labor Department to revamp rules that allow businesses to avoid paying overtime to fast-food and retail managers, among others, administration officials said. Currently, such salaried workers are exempt from the time-and-a-half overtime pay mandate if they earn more than $455 a week and are classified as executive, administrative or professional employees.
"What we're going to be doing is, in the weeks and months to come, looking deeply at this problem and making sure that the overtime provisions are working as well as they should in today's economy," said Betsey Stevenson, a member of the president's Council of Economic Advisers.
Obama's order would substantially increase the pay threshold, which was last changed in 2004, and amounts to $23,600 a year. "Right now, it's ridiculously low," says Catherine Ruckelshaus, legal co-director of the National Employment Law Project.
Also, fast-food managers or assistant managers may be classified as executives even if they spend most of their days running cash registers and cleaning tables, as long as management is considered their "primary" duty. New rules would set a minimum amount of executive work employees must perform in order to meet the classification, making millions of workers newly eligible for overtime.
The overtime expansion is part of a multi-pronged Administration effort to increase wages for low- and middle-income Americans which have largely stagnated in recent years. Obama is supporting an increase in the federalminimum wage to $10.10 an hour from $7.25.
But the chamber and other business groups say that employers hit with higher overtime charges likely will reduce hiring and take other steps to offset those costs, such as outsourcing certain tasks.
"We are concerned that, at the levels being discussed, this would have a severe impact on employment and the economy," says Mike Aitken, vice president of government affairs for the Society for Human Resource Management.
Richard Alfred, chairman of Seyfarth Shaw's national wage-and-hour practice, which represents employers in lawsuits, is equally concerned but predicts the opposite effect. Most employers, he says, will respond to the new directive by limiting the hours of existing workers to avoid paying costly overtime.
"This won't necessarily translate into more pay in the pockets of those workers," Alfred says. Instead, he says, companies will hire more workers.
Jared Bernstein, a former member of Obama's economic team, says brisker job growth would be a positive outcome as well. "That scratches another big issue in our economy right now, which is weak job creation."
Alfred, however, says many companies will likely hire contractors or temporary workers to meet spot needs for specific projects. Such workers typically don't enjoy the stability or benefits of full -time employees. And he says the higher costs will force businesses to raise prices, crimping consumer spending and the economy.
Some firms could take a different approach, reducing the basic wages of management workers to account for the new overtime expenses and leaving employees no better off, says Dan Yager, president and general counsel of the HR Policy Association.
The administration notes that two states already have significantly higher weekly salary thresholds for exempting mangers from overtime requirements, with New York at $600 and California at $640. In 2016, New York's threshold will rise to $675 and California's to $800.
A lack of clarity in the current federal rules has helped spawn a record number of lawsuits. For example, many employees sue for overtime pay, arguing that their "primary" duty can't be managing if they spend most of their time on menial tasks. But Alfred says the planned rules change will likely lead to even more suits.
Betsey Stevenson, a member of the president's Council of Economic Advisers, says the goal is "modernize" the overtime rules.
"We're going to be taking a look at the labor market, taking a look at workers, and figuring out how we can make this rule work best for businesses," she said.