WASHINGTON — The Obama Administration has portrayed its proposal to expand the number of people covered by federal overtime rules as a means to bring extra pay to low-wage workers. But a new analysis conducted for the National Retail Federation shows that a far broader range of higher-ranking management and professional workers could be covered in some states, particularly in rural areas where income and the cost of living are lower than the national average.
Under the proposal, most individuals making up to $970 a week anywhere in the country would automatically receive overtime pay at time-and-a-half when working more than 40 hours a week, up from the current $455. The Labor Department chose $970 under a formula intended to give overtime to the lowest-paid 40 percent of full-time workers nationwide who currently receive a fixed salary.
But in 10 states – Alabama, Georgia, Hawaii, Idaho, Kentucky, Nevada, North Dakota, South Carolina, South Dakota and Texas – that dollar figure would bring at least 45 percent of full-time salaried workers under overtime rules. Another eight states – Arkansas, Florida, Louisiana, Mississippi, North Carolina, Oklahoma, Tennessee and West Virginia – would see at least 50 percent covered. The figure works out to the intended 40 percent in only one state, Maine. (See report for state-by-state numbers.)
The salary threshold would also be indexed, raising it to $1,400 by 2017 under one option proposed by the Labor Department. Within three years, only 22 percent of current salaried workers would remain exempt from overtime.
“This proposal has been spun as a way to raise the income of struggling workers but there are places where bankers or stockbrokers could be turned into hourly workers,” NRF Senior Vice President for Government Relations David French said. “The Labor Department has ignored the fact that the cost-of-living varies throughout the country.”
“In smaller towns and cities, $50,000 a year is a very comfortable income and individuals making that much might well be in prominent positions in their communities,” French said. “It isn’t an hourly wage – it’s a salaried, professional position that comes with health care, retirement plans, bonuses and other benefits that could be lost if reduced to an hourly ‘job.’ A one-size-fits-all approach means the benefits of overtime could go to people who don’t need the help while driving up payroll costs that could be better spent on job creation for those who need to get a foot in the door.”
In examples cited by the report, it takes only about $785 in Louisiana, Mississippi or Oklahoma to have the same buying power as $970 a week nationally. In Arkansas and North Carolina, $800 buys as much as the national average.
Under federal law, managers and highly trained professionals can be declared exempt from overtime if they meet certain job duties tests, but in most cases the exemption applies only if they make above the salary threshold.
“The majority of retail managers don’t want this proposal to become law,” French said. “They like the stability and flexibility of a weekly salary, and they don’t want to be told to go home after 40 hours when they’re willing to do the work needed to make their stores a success. The key to success is building a career, not punching a time clock.”
The new analysis was conducted by research firm Oxford Economics as an addition to an earlier study for NRF that found fully implementing the overtime proposal could cost retailers and restaurants alone $8.4 billion a year in added wages. But the report said many employers would offset most of the cost by reducing hours or benefits or using more part-time workers. Nonetheless, employers would see an estimated $745 million in added administrative costs even if workers saw no increase in take-home pay.