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Are the New Overtime Rules About to Boost Your Paycheck?

May 9, 2016 / Media Coverage / U.S. News & World Report — Alison Green

A new regulation that's widely expected to become law later this year might result in you receiving more money in your paycheck.

The move stems from a change to the nation's overtime laws. To understand it, you need to know that the federal government divides all workers into one of two categories: exempt workers, who are not required to receive overtime pay, and nonexempt workers, who must receive overtime pay. (Overtime pay is one and a half times your normal hourly rate for all hours you work beyond 40 in any given week.) The exempt category is reserved for employees who perform relatively high-level executive or professional work, outside sales employees, and a few other narrowly defined categories. You also must earn at least $23,660 a year to be considered exempt.

If you think that $23,660 doesn't sound like a high enough salary to be exempt from earning overtime, you just spotted what the change is designed to address.

That salary threshold was last set in 2004, so over a decade has passed and it hasn't increased with inflation. As a result, an increasing number of workers with relatively low salaries are working long hours for no extra pay. Labor advocates argue that the overtime exemption was intended for relatively highly paid, skilled professionals, and that it was never intended to cover, say, a restaurant manager working long hours and earning $30,000 a year in today's money.

The Department of Labor has proposed raising that threshold to $50,440, more than double the current level. That means that if you earn less than $50,440, your employer would need to pay you overtime when you work more than 40 hours in a week – no exceptions.

In practice, employers are likely to respond to that in a few different ways. If you currently earn less than $50,440, your employer might decide to do some of the following things.

  • our employer may raise your salary to the new threshold of $50,440 in order to keep you exempt. This may be the most cost-effective option if you work significant amounts of overtime.
  •  Your employer may require you to start tracking your hours and limit you from working overtime (in order to avoid new costs of paying for that overtime).
  •  If you regularly work more than 40 hours a week, your employer might choose to reduce your base hourly wage to account for the overtime pay you'll need to receive, in order to ensure that your overall annual compensation stays about where it is now.

Additionally, the change may impact more than your hours and your pay. If you're used to having flexibility in your schedule and not having to carefully log your hours, you might need to adjust to life without those benefits. 

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Currently, businesses are still waiting to see exactly what the final rule will say and when it will go into effect. The Department of Labor is expected to issue a final rule any day now, and it's likely to have an effective date around Labor Day.

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