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New overtime rules could mean big impact on your paycheck

Posted at 2:32 PM, Jun 30, 2015
and last updated 2015-06-30 19:41:46-04

RICHMOND, Va.  -- By 2016, 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.

Currently, salaried employees who earn more than $23,660 a year ($455 a week) are inelligible for overtime even if they work more than 40 hours a week.

This week the Department of Labor and President Obama will propose raising the threshold to $50,440 ($970 a week).

At Belly Timber in Richmond's Fan District, Johnny Landis is a manager expected to benefit from the increase.

"I'll do anywhere between 40 and 50 hours a week depending on how busy it has been," Landis said.

Landis says he gets nothing for those extra hours.

"I do feel that a lot of people on salary take a small cut," Landis added.

Landis says he expects the change to result in a pay increase and perhaps "a new car" he told CBS 6 reporter Joe St. George.

But other buisness leaders are skeptical -- at time furious.

"We're really disappointed with the decision," Nicole Riley with the National Federation of Independent Businesses said.

"It's going to increase the cost of labor. If you are a small business owner it's going to cost you more to have a manager," Riley added.

Paul Logan with the Virginia Chamber of Commerce issued this statement:

"This appears to be a proposal that would make it more difficult for young people to enter the workforce and would harm the small businesses that drive most of our job creation in Virginia."

According to the White House, the President does not need Congressional Approval to make the change.

CNN Money has broken down the changes, and how it is likely to impact you in four ways.

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.

Besides more free time for you, there is a potential upside for someone looking for a job. Your employer may choose to hire a new part-time worker to cover the extra hours you used to work.

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 hourly 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 drop her hourly rate so that her pay still won't top $40,000, even with her 10 extra hours of work every week.

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.

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.