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Understanding the Upcoming Proposal Changes to Overtime Pay

In an effort to help restore the middle class to its former state, U.S. President Barack Obama recently announced new rules regarding overtime pay. According to his new proposal, the threshold for time-and-a-half overtime pay will be increased for salaried workers from the current benchmark of $23,660 to $50,440.

Per the new rule, salaried workers who accumulate more than 40 hours per week, and who fall in between the current and newly proposed thresholds, will be given a pay raise.  Although the new rule is expected to take place in 2016, industry experts predict that the proposal will be contested.

Jared Bernstein, an ex-White House economist, underlined President Obama’s stance on overtime pay. He said: “The president said he wanted to go big here and he did. I can’t think of any other rule change or executive order that would lift more middle-class workers.”

This isn’t the first time President Obama has gone after overtime pay. In March 2014, he ordered a vast overhaul of federal overtime standards, which ultimately led to interest in an overtime expansion plan. Although it’s taken over a year for the expansion to come to fruition, it is finally seeing the light of day.

However, there are some potential drawbacks of the new proposal. For instance, some employers may be prompted to minimize scheduling throughout their workforce, ultimately leading to decreased work hours across the board. Moreover, employers may start offering their new recruits a lower starting salary. Such a move could effectively negate any changes introduced through President Obama’s latest proposal.

Opponents of the proposed rule change also cite lost jobs, increased overhead costs and reduced productivity as potential drawbacks. The National Retail Federation, a highly prolific advocacy group, has already announced their disdain for the proposal.

Despite the potential downsides, White House officials predict that the new change could directly affect the wages of approximately five million workers across the U.S. today. Even more individuals, such as those graduating college and those who are entering the workforce for the first time, would also see the effects of the rule over the course of the coming years.

President Barack Obama reiterated the importance of the U.S.’s middle class through a recent blog post, where he said: “As president, my top priority is to strengthen the middle class, expand opportunity and grow the economy. That’s why I believe in middle-class economics – the idea that our country does best when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules. It’s driven me from day one. It’s fueled our American comeback. And it’s at the heart of the fundamental choice our country faces today.”

Finally, the proposed wage threshold would also be adjusted over time, thereby allowing officials to evolve and adapt the threshold according to current market and industry-specific trends. While a specific criterion for these adjustments has yet to be publicized, they are expected to be based on inflation in some form or another.

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