President Barack Obama recently proposed giving millions of Americans a raise. This has obviously caused a lot of controversy and mixed emotions as to whether he can actually accomplish such a thing. Specifically, the President has proposed raising the salary amount a worker has to make before a company can deny their employee’s overtime pay. Currently, if a company pays their employee $23,660 dollars or more a year they can deny that worker overtime pay under certain conditions. The new law would raise the minimum threshold to $50,440. This means that anyone who makes less than this amount, annually, would be eligible for overtime pay for all hours worked in excess of 40 each week, regardless of job title or job duties. The White House has suggested that this proposal will result in an increase in “bring home pay” for approximately 5 million Americans.
There is no question that this proposal will result in many Americans making more money. However, depending on how some corporations react to this change in the law, it may not benefit as many people as the administration hopes. If an employee’s pay falls below the $50,440 minimum threshold four changes could occur:
The employee will 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.
The employee may 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. This is not all bad, since the employee would still make more money.
The company may decide to let you go home early with your current pay. 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 eight-hour day, rather than pay you extra. This has the potential for an added benefit in that your employer may hire an additional person to perform the extra work that you were doing. This allows the company to continue paying straight time without having to pay overtime to the new employee.
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 pay to offset any overtime you’ll be owed.
Consider this scenario. An assistant manager makes $40,000 a year or $770 a week and usually puts in about 50 hours a week. If she becomes eligible for overtime pay under the new rules, her employer may decide to reset her hourly rate so that her pay still won’t top $40,000, even with her 10 extra hours of work every week. The “cost-neutral” rate would come to $560 a week, or $14 an hour. Add to that $210 for 10 hours of overtime at $21 an hour and the employee’s paycheck for a 50-hour week is still $770. But there’s a big downside here. If she puts in fewer than 50 hours, she would essentially see a pay cut. That’s because, unlike an exempt employee, she will only be paid for the hours she works.
That may seen like unfair treatment of an employee and is 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.
Source: CNN Money
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