The Obama administration’s plan to require employers to pay overtime to people who work more than 40 hours a week will destroy jobs and hurt businesses, critics say.

Workers making as much as $970 a week, or $50,440 a year, would have to be paid overtime even if they’re classified as a manager or professional, according to the Obama plan. Current rules say that employees earning up to $455 a week, or $23,600 a year, are entitled to overtime.

“A hard day’s work deserves a fair day’s pay,” Obama wrote on the White House website. “That’s at the heart of what it means to be middle class in America.”

Business groups blasted the plan for its high costs that will drive down full-time employment in favor of part-timers.

“Making more employees eligible for overtime by severely restricting the exemptions will not guarantee more income,” Randy Johnson, vice president at the U.S. Chamber of Commerce, said in a statement, “but instead will negatively impact small businesses and drastically limit employment opportunities.”

The biggest association of industrial companies, whose labor force never recovered from the recession, also criticized the administration.

“The Department of Labor announced the demotion of at least 5 million Americans,” Joe Trauger, a spokesman for the National Association of Manufacturers, said in a statement. “This proposed regulation is another in a long list of regulatory roadblocks to healthy and robust economic growth and job creation.”

The president in a blog post said he will discuss the proposal on Thursday during a trip to La Crosse, Wisc. Last year, Obama said he ordered Labor Secretary Tom Perez to start work on revamping overtime rules.

The proposal, which would take effect in 2016, comes as growing income inequality among Americans becomes an issue in the run-up to the presidential election.

Supporters of the plan say it will help as many as 15 million workers.

“The new threshold will protect more workers from being taken advantage of by their employers, giving some higher pay for working overtime and others reduced hours without any reduction in pay,” Ross Eisenbrey, vice president of the Economic Policy Institute, a think tank that gets some funding from labor unions, said in a blog post.

The plan is intended to boost median household income, which fell to $54,600 in April from $56,207 in December 2007, when the last recession began, according to inflation-adjusted estimates from Sentier Research.

Effects on Job Market

That income decline occurred even as the labor market shows signs of healing with the unemployment rate falling to 5.6 percent in May from a peak of 10 percent in October 2009.

But there are also indications of stubborn weakness in the jobs market.

The number of full-time employees reached 121 million in May, less than the peak of 122 million reached in November 2007 before the recession, according to the Bureau of Labor Statistics. Meanwhile, the U.S. population has grown by 18 million people to 321 million during that period, census data show.

As a result, the labor-force participation rate, a measure of how much of the population is working, has plunged to a 37-year low of about 63 percent.

Full-time jobs may evaporate with the new overtime rules as employers boost their reliance on people working fewer than 30 to 35 hours a week, critics say.

The number of part-timers who can't find a full-time job was 6.7 million in May, compared with 4.6 million before the recession started.

The retail industry, a comparable bright spot of job creation during the recovery, will suffer under the overtime rules, according to the National Retail Federation.

Overtime expansion will “add to employers’ costs, undermine customer service, hinder productivity, generate more litigation opportunities for trial lawyers and ultimately harm job creation,” the business group said in a statement.

"This change is another example of the administration being completely divorced from reality and adding more burdens to employers and expecting them to just absorb the impact,” the chamber of commerce's Johnson said.


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