(Bloomberg) — President Barack Obama is preparing to do what the U.S. economic recovery has been slow to accomplish: raise the wages of millions of Americans.
His administration is drafting new rules on who qualifies for overtime compensation, forcing more businesses to pay time-and-a-half after 40 hours of work. Many employees now earning as little as $23,660 a year — below the federal poverty line for a family of four — aren’t entitled to overtime pay because they are considered managers.
While Republicans in Congress have blocked proposals to raise the minimum wage, Obama can change the overtime rules through executive authority. Some officials at the Department of Labor are urging the president to lift the threshold as high as $51,000 before someone could be called an executive exempt from overtime. A group of 26 Democratic senators has asked him to push it even higher, to $56,680.
“This is absolutely one of the best practical ways to give people the on-ramp to the middle class,” said one of the lawmakers, Sherrod Brown of Ohio. “When you strip people of their overtime pay, which is what’s happened over the years, they really don’t have a chance to get ahead: They’re working harder and harder and not seeing real pay increases.”
Opponents argue that pushing the level too high could force fast-food restaurants, retailers and other enterprises to cut employment or even go out of business.
Lamar Alexander, the Tennessee Republican who chairs the Senate Labor Committee, has condemned Obama’s anticipated move as part of an economic strategy seemingly “engineered to make it as unappealing as possible to be an employer creating jobs in this country.”
Obama is acting amid concern over the stagnation of middle-class income, which six years into the economic recovery still hasn’t rebounded to pre-recession levels. The median U.S. household income of $54,500 in February remained $1,500 short of the December 2007 level, at the start of the recession, according to inflation-adjusted estimates from Sentier Research.
When the latest personal income statistics are released next week, economists surveyed by Bloomberg predict they will show the smallest gain in six months, continuing a sluggish trend even as unemployment has dropped and the stock market has soared.
Gassan Marzuq, a 58-year-old Kuwaiti immigrant who used to be a manager at a Dunkin’ Donuts franchise in Kingston, Massachusetts, is typical of the kind of worker who would be affected by Obama’s order, though the regulatory change would come three years too late for him.
Marzuq said he often had to work as many as 75 hours a week covering other employees’ shifts without any pay above his $42,900-a-year salary, regularly missing holidays, his children’s birthdays and even his son’s high school graduation.
“I worked my butt off for them,” he said. “I ruined my life with my family because I never saw my kids growing up.”
The franchise owner, Cadete Enterprises, dismissed Marzuq after he complained — he says in retaliation, the company says because he violated a state law that prohibits managers from sharing in employee tip pools. Nicholas Carter, an attorney for Cadete, said the company encourages managers to hire enough staff to avoid working overtime; Marzuq disputed that.
A federal judge ruled that Marzuq wasn’t entitled to overtime pay because he was a “bona fide executive” under existing regulations, even though the judge found he may have spent 90 percent of his time serving customers.
Business lobbyists argue that changing the rules might actually hurt people like Marzuq, prompting employers to rethink their supervisory structures, reducing flexibility for managers to directly serve customers and cutting entry-level management jobs.
“It’s likely you would see fewer managers and assistant managers and more hourly workers,” said David French, senior vice president of government relations for the National Retail Federation. “Fewer slots for restaurant managers would limit career advancement.”