A Closer Look At Obama's Overtime Plan

President Barack Obama has proposed a change in overtime regulations that could make an additional 5 million Americans eligible for overtime pay. Join Chicago Tonight for a conversation with Kristen Prinz, founder and managing partner of The Prinz Law Firm, about who this will affect, when the proposed change might go through, and where the rules stand currently.

What is the Fair Labor Standards Act (FLSA) and what does it cover? Read our summary below.

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The Fair Labor Standards Act is a federal law, signed into action in 1938, that defines the 40-hour work week, outlaws child labor, and establishes standards regarding minimum wage and overtime pay.

More than 130 million workers — full-time and part-time, throughout the private and public sectors — are affected by the standards set out by the FLSA. The Act states that these employees must receive compensation for any hours worked beyond the 40-hour limit in a given work week. Employers must compensate overtime hours at a rate of no less than 1.5 times an employee’s regular pay rate. For example, if an employee regularly receives $10 per hour, they must be paid at least $15 per hour for each hour of overtime that they work.

The FLSA also outlines certain employees that are exempt from the federal minimum wage and/or overtime compensation. These exemptions are determined based on a combination of factors, including an employee’s annual salary and job responsibilities.

Right now, certain professionals and managers that perform specific duties and earn more than $455 per week or $23,660 per year are exempt from receiving overtime pay, meaning that even when these employees work beyond the 40-hour limit, they are not compensated for the additional work. This is called a “white-collar exemption.”

A fact sheet from the Department of Labor, which administers the FLSA, states that “the rules that establish which workers are exempt from overtime pay haven’t kept up with the cost of living.” In 1975, 62 percent of full-time, salaried workers earned less than the threshold salary, making them eligible to receive overtime pay. Today, only 8 percent of full-time, salaried workers fall below the established threshold and can therefore receive overtime compensation.

These standards were originally intended to exempt highly-compensated executives and administrators. However, these standards are now affecting workers whose salaries don’t even meet the poverty line for a family of four, which stands at $24,008 per year.

In late June, President Obama announced a proposal to double the annual salary threshold to $970 per week or $50,440 per year, which would extend overtime coverage to about 5 million more workers. The percentage of full-time, salaried employees eligible for overtime pay would expand from 8 percent to about 40 percent.

The proposed change would put a lot more money in workers’ pockets, but will also be costly to employers.

Kristen Prinz, founder and managing partner of The Prinz Law Firm, worries that companies might try to circumvent the new rules, should they be approved.

“Maybe people would’ve been paid $40,000 a year, but now they’ll be paid less because businesses will calculate overtime pay into it,” she said. “Some companies will use these workarounds and say, ‘We’re following the letter of the law but paying lower wages.’ The question is, will they still get the same level of employee then?”

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