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Why 5 million workers may newly qualify for overtime pay

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Pablo Martinez Monsivais/AP

(Read caption) President Obama speaks in the Rose Garden of the White House in Washington, Friday. The Obama administration will propose requiring overtime pay for workers who earn nearly $1,000 per week, three individuals familiar with the plan said Monday.

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The Obama administration is opening a new front in its fight to increase pay for lower-income workers, now turning its attention to the struggles of managers at fast food chains and retail stores.

While these workers can often make more than the federal minimum wage, they also often work extensive hours without being eligible for overtime. Their pay may ultimately be lower per hour than some of the workers they supervise.

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President Obama has called for an increase in the federal minimum wage from $7.25 to $10.10 an hour, touting its ability to help grow the economy for everyone by giving more Americans more money to spend.

A loophole in the Labor Department’s overtime law has meant that any employee who is paid more than $455 a week be called a “manager,” meaning they are given limited supervisory duties and ineligible for overtime. Yet that salary – amounting to as little as $23,660 a year – would put a family of four close to the poverty line.

“We’ve got to keep making sure hard work is rewarded,” Mr. Obama wrote in a column published Monday in The Huffington Post. “Right now, too many Americans are working long days for less pay than they deserve.”

Obama wants to extend the overtime rule to almost 5 million more workers in 2016. The rule hasn’t been updated since 2004 and has been eroded by inflation, and the revamped rule would more than double the limit at which employees become ineligible for overtime. That threshold would rise to $970 a week, or up to about $50,400 a year, by 2016.

The president said he will discuss the plan more when he travels to Wisconsin this week.

“In this country, a hard day’s work deserves a fair day’s pay,” said Obama. 

One of the retailers often criticized for underpaying their workers, Wal-Mart, has already moved to increase pay for its managers. This spring the company began increasing wages for store managers to $13 an hour, part of a general wage increase for all workers intended to make the stores “a better place to shop.”

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Obama’s proposed changes can be enacted through regulation, meaning they won’t require the green light from the Republican-led Congress. It will be open for public comment and could still take months to finalize.

The National Retail Federation, the world’s largest retail trade association, told the Associated Press its members could still find various ways to cover the hours without paying overtime. This could include hiring more workers cutting the hours of salaried workers, or extending the hours of part-timers.

Still, supporters of expanding overtime coverage said these responses could also benefit workers and the economy.

“Employers will substitute workers for hours, when the hours get more expensive,” said Daniel Hamermesh, an economist at the University of Texas, Austin, in an interview with the AP. “It’s a job creation measure.”