The new rules on overtime pay for eligible workers announced on Tuesday by President Barack Obama will have a major impact on the economy, according to a labor expert.
Under the new rule, salaried workers earning an annual income of $47,476 or less will get paid time and a half if they work more than the standard 40 hours a week. Previously, only people who made about half of that yearly amount were automatically eligible for overtime pay. The rule will go into effect in December and is expected to affect about 4.2 million workers.
"It's expected to have a significant impact on the economy overall," said Marick F. Masters, director of a labor institute at Wayne State University, where he teaches business and political science. "It's anticipated that it will generate about $1.2 billion in additional income into the paychecks of people who are affected."
The move is also expected to have an impact on job growth. Goldman Sachs and others estimate that it could result in about an increase of 120,000 new jobs throughout the country as business owners look to avoid paying overtime wages and workers spend more money that will be collecting in their pockets.
The new rule, however, doesn't cover hourly workers. Masters said it's targeted to help mid-level managers in the service and retail industries who might be earning relatively low salaries, but working well beyond 40 hours a week.
The rule change received a mixed reception from the business community -- many are excited that it will boost wages for the working and middle classes, but fast food and retail businesses have argued the plan could backfire and force employers to slash worker hours.
"I think it's always going to be a concern, and it's an expected reaction from the business community," said Masters. "But I think it's also important that they look at their staffing practices, that they look at rationalizing their workforce, and that you can't expect to demand an interminable amount of hours from employees and not pay for them.".
Other critics have said that the move will only lead employers to find other cost-cutting measures, like scaling back benefits or significantly decreasing starting salaries.
"You can always take that low road approach. But I think the way to look at it would be more positively and say that we can find a way to make this work," he said.
Masters added, "And when you talk about cutting back on things, that has all kinds of negative consequences that telegraph a whole lot about your philosophy of management that can have really serious implications for morale and productivity."