Twenty-one states filed a lawsuit today challenging the Obama administration’s overtime rule, set to take effect December 1. The rule essentially doubles the income threshold under which employers have to pay workers overtime, from $23,660 to $47,500. States, as well as a number of business groups, argue the new rule will drive employers to cut full-time jobs and turn salaried workers into hourly ones.
Nevada relies on tourism, and it’s just now recovering from the recession. So Lawrence VanDyke, the state’s solicitor general, said to have the new overtime rules piled on now could have devastating effects, in both the private and public sectors.
"Now the money has to come out of something," he said. "What services are going be taken from? Are we going to have to raise taxes to cover this?"
Nevada led the charge of states challenging the Labor Department’s new rule, which says that employees who earn less than $913 a week are eligible for overtime. One big worry is a provision that the government will revisit the salary level cutoff every three years. VanDyke said what if there’s another recession then? Until now, he said, "all of the affected entities, states would say we don’t have the money to do this. Please, please, please don’t do this."
But he said the threshold reviews put that on autopilot, so there’s no way to fight it. Karen Harned, executive director of the Small Business Legal Center with the National Federation of Independent Business, said businesses operating on thin margins —and their employees — will feel the pinch.
"They’re going to limit the hours to 40, and they’re going to convert these people to hourly," she said.
But Jesse Rothstein, who teaches economics at UC Berkeley and is director of the Institute for Research on Labor and Employment, said the new rules don’t necessarily mean a financial blow to employers. Workers can factor in overtime.
"If they know that they’re going to be getting overtime, then they can agree to accept a job at a lower base wage than they would’ve been willing to if they were just going to be expected to work those hours without compensation," he said.
As for the automatic reviews, Rothstein said the threshold has been allowed to erode due to inflation for decades. This just keeps us caught up.