After months of anticipation, the Obama Administration announced the final details of its overtime pay expansion late Tuesday, granting time-and-a half pay to all salaried workers earning less than $47,476 a year.
The new rules go into effect Dec. 1.
The threshold announced Tuesday is more than double the current cutoff of $23,600, which was set in 2004, but less than the $50,400 originally proposed last year. While the lower threshold comes as welcome news to ad agencies scrambling to find room in their already stretched budgets, the new laws are still expected to hit Madison Avenue hard.
However, for the industry’s youngest and lowest-paid workers, the new rules could mean a significant raise in salary, or a welcome reduction in working hours.
"The middle class is getting clobbered," Vice President Joseph R. Biden told reporters on Tuesday. "If you work overtime, you should actually get paid for working overtime." Biden will formally announce the new rules today in Columbus, Ohio.
Nancy Hill, president and chief executive of the American Association of Advertising Agencies, said the new rules appear less burdensome for agencies than many had feared.
"The new rules are more manageable than we expected and, carry a six month window for commencement, which we had been pushing for," she said. "The rules also give employers some additional tools for meeting the threshold, such as bonuses, that we had also urged the DOL to consider. '
'All in all, while the new rules are still going to be an initial burden to the industry, they are much less draconian than originally envisioned," she said.
Although the new regulations require no approval from Congress to take effect, business groups and Republicans have sworn to overturn them through legislation.
The new threshold will be updated every three years, ensuring it stays at the 40th percentile of full-time salaries in the lowest income regions of the country. Based on wage growth projections, that means it could rise to $51,000 by 2020.
As Campaign US reported in March, agencies across the country have spent months devising strategies to accommodate the new regulations. Based on interviews at the time, agencies are expected to deal with the changes in a variety of ways. While some have been planning to simply pay the required overtime, others expect to lift all, or some, staff salaries above the new threshold. Some plan to reduce their lowest salaries so the overall pay their junior workers take home remains the same.
Perhaps the biggest question facing all agencies is whether clients will pay the increased staff costs, or expect the agencies to absorb the cost themselves, putting yet more pressure on an already strained business model.
The 4A's began warning its members of the coming changes in November with a bulletin that noted the new rules would affect "approximately 30% of 4A’s members’ employees." The lower threshold presumably reduces that number, though by how much was not immediately clear.
The 4A’s had been working with the Partnership to Protect Workplace Opportunity, a coalition of pro-business groups including the US Chamber of Commerce, to ease the impact of the regulations, either by reducing the threshold or phasing it in over a number of years.
"We understand the underlying policy thrust of this, which is wage equality, an effort by government to create better wage structures and treatment for a variety of workers," said Peter Kosmala, SVP for government relations at the 4A’s, in March. "That's something we can all certainly applaud and work together on. We just have a serious problem with how they're deciding to go about it, and the sort of unilateral way they're doing it."