New overtime rules finalized this week by the U.S. Department of Labor (DOL) and signed by President Barak Obama could affect thousands of self-storage owners and managers. The rule will extend overtime eligibility to anyone earning less than $913 per week, or $47,476 per year, beginning on Dec. 1. Workers below the wage threshold who work more than 40 hours per week will earn time-and-a-half pay under the new regulation.
The move more than doubles the current salary threshold from $23,660 and is expected to make 4.2 million salaried workers eligible for overtime, according to the DOL. The rule could also benefit millions of other employees who don’t currently receive overtime pay even though they are technically eligible, according to a source.
The change is authorized under the Fair Labor Standards Act. Just 7 percent of salaried workers currently receive time and a half when they work more than 40 hours per week, which is down from more than 60 percent in 1975. The DOL last updated the regulations in 2004, when it set the weekly salary level at $455. "Our whole mission here is about strengthening and growing the middle class," Labor Secretary Tom Perez told NPR. "In order to do that, we need to ensure that middle-class jobs pay middle-class wages."
The salary threshold is less than the DOL’s original proposal of more than $50,000 per year but should still impact about 35 percent of salaried employees, according to Perez.
The new regulation has come under fire from some business owners and associations, particularly those in the restaurant and retail sectors. "What our members have told us—what many other employers have told us—is there's not a golden pot of money out there sitting in employers' pockets where they can all of a sudden pay a lot more overtime pay," David French, vice president of the National Retail Federation (NRF) told NPR. "Instead, they're going to make the rational change, and they're going to change jobs."
An NRF study estimates the new overtime rule could incentivize employers to move a third of salaried restaurant and retail workers to hourly pay, according to “The Wall Street Journal” (WSJ). The study also suggests one in 10 salaried employees, including managers, could see their work hours reduced. Employers could also try to skirt the rule by hiring more part-time or temporary staff.
Although employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level, a WSJ editorial speculates some employers will increase the salary level of some employees just enough to avoid paying overtime and wind up reducing their available benefits and bonuses.
The National Federation of Independent Business has noted that the DOL’s own analysis indicates the average pay rate of someone newly eligible for overtime is expected to decline by 5.3 percent in 2017, WSJ reported.
The new rule also establishes a mechanism to automatically update salary and compensation levels every three years to maintain the salary level at the 40th percentile in earnings of full-time salaried workers in the lowest-wage census region, which is currently the South. The mechanism is also intended to “provide useful and effective tests for exemption,” according to the DOL.
- Department of Labor: Final Rule: Overtime
- NPR: Millions to Be Eligible for Overtime Under New Obama Administration Rule
- The Wall Street Journal: Obamaâ€™s Overtime Chimera