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Obama Will Seek Broad Expansion of Overtime Pay

President Obama this week will seek to force American businesses to pay more overtime to millions of workers, the latest move by his administration to confront corporations that have had soaring profits even as wages have stagnated.

On Thursday, the president will direct the Labor Department to revamp its regulations to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as "executive or professional" employees to avoid paying them overtime, according to White House officials briefed on the announcement.

Mr. Obama's decision to use his executive authority to change the nation's overtime rules is likely to be seen as a challenge to Republicans in Congress, who have already blocked most of the president's economic agenda and have said they intend to fight his proposal to raise the federal minimum wage to $10.10 per hour from $7.25.

(Read more: Obamacare ha-ha: So Obama walks into an interview with Galifianakis)

Mr. Obama's action is certain to anger the business lobby in Washington, which has long fought for maximum flexibility for companies in paying overtime.

President Barack Obama repeats his message from his State of the Union address to raise the minimum wage at a Costco Store in Lanham, Md.
Getty Images
President Barack Obama repeats his message from his State of the Union address to raise the minimum wage at a Costco Store in Lanham, Md.

In 2004, business groups persuaded President George W. Bush's administration to allow them greater latitude on exempting salaried white-collar workers from overtime pay, even as organized labor objected.

Conservatives criticized Mr. Obama's impending action. "There's no such thing as a free lunch," said Daniel Mitchell, a senior fellow with the Cato Institute, who warned that employers might cut pay or use fewer workers. "If they push through something to make a certain class of workers more expensive, something will happen to adjust."

Marc Freedman, the executive director of labor law policy for the U.S. Chamber of Commerce, said the nation's overtime regulations "affect a very wide cross section of employers and our members."

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"I expect this is an area we will be very much engaged in," Mr. Freedman said.

Mr. Obama's authority to act comes from his ability as president to revise the rules that carry out the Fair Labor Standards Act, which Congress originally passed in 1938. Mr. Bush and previous presidents used similar tactics at times to work around opponents in Congress.

The proposed new regulations would increase the number of people who qualify for overtime and continue Mr. Obama's fight against what he says is a crisis of economic inequality in the country. Changes to the regulations will be subject to public comment before final approval by the Labor Department, and it is possible that strong opposition could cause Mr. Obama to scale back his proposal.

Cecilia Muñoz, the director of the White House Domestic Policy Council, said the effort was part of Mr. Obama's pledge to help workers thrive. "We need to fix the system so folks working hard are getting compensated fairly," she said on Tuesday evening. "That's why we are jump-starting this effort."

The overtime action by Mr. Obama is part of a broader election-year effort by the White House to try to convince voters that Democrats are looking out for the middle class. White House officials hope the focus on lifting workers' pay will translate into support for Democratic congressional candidates this fall.

(Read more: Obama to sign order on federal minimum wage hike Wednesday)

Since the mid-1980s, corporate profits have soared, reaching a post-World War II record as a share of economic output. The profits of the companies in the Standard & Poor's 500 have doubled since the recession ended in June 2009, but wages have stagnated for a vast majority of workers in the same period. Recently, workers' wages fell close to an all-time low as a share of the economy.

In 2012, the share of the gross domestic income that went to workers fell to 42.6 percent, the lowest on record.

Under current federal regulations, workers who are deemed executive, administrative or professional employees can be denied overtime pay under a so-called white-collar exemption.

Under the new rules that Mr. Obama is seeking, fewer salaried employees could be blocked from receiving overtime, a move that would potentially shift billions of dollars' worth of corporate income into the pockets of workers. Currently, employers are prohibited from denying time-and-a-half overtime pay to any salaried worker who makes less than $455 per week. Mr. Obama's directive would significantly increase that salary level.

In addition, Mr. Obama will try to change rules that allow employers to define which workers are exempt from receiving overtime based on the kind of work they perform. Under current rules, if an employer declares that an employee's primary responsibility is executive, such as overseeing a cleanup crew, then that worker can be exempted from overtime.

White House officials said those rules were sometimes abused by employers in an attempt to avoid paying overtime. The new rules could require that employees perform a minimum percentage of "executive" work before they can be exempted from qualifying for overtime pay.

(Read more: $10.10 minimum wage could hit total employment: CBO)

"Under current rules, it literally means that you can spend 95 percent of the time sweeping floors and stocking shelves, and if you're responsible for supervising people 5 percent of the time, you can then be considered executive and be exempt," said Ross Eisenbrey, a vice president of the Economic Policy Institute, a liberal research organization in Washington.

Jared Bernstein, the former chief economic adviser to Vice President Joseph R. Biden Jr., and the former executive director of the White House Task Force on the Middle Class, embraced Mr. Obama's move.

"I think the intent of the rule change is to make sure that people working overtime are fairly treated," he said. "I think a potential side effect is that you may see more hiring in order to avoid overtime costs, which would be an awfully good thing right about now."

Mr. Bernstein, now a senior fellow at the Center for Budget and Policy Priorities, a liberal research group, and Mr. Eisenbrey wrote a paper last year urging the administration to raise the salary threshold for overtime to $984 a week. Their study estimated that in any given week, five million workers earning more than the current threshold of $455 a week and less than $1,000 a week are likely to be exempted from overtime. President Bush raised the threshold to $455 in 2004.

Mr. Bernstein said, "Remember, inflation has eroded this threshold a great deal over the years, so it's hard to see why it's unfair to make that adjustment."

White House officials said that in California an employer cannot deny overtime pay to a salaried worker who makes less than $640 a week. In New York, the threshold is $600 a week. Under recently passed laws, the California threshold is set to rise to $800 per week in 2016, and the New York threshold to $675.

If the changes to the overtime regulations are made, it will fall to the Labor Department's wage and hour administrator to put them into effect. That position has been vacant since Mr. Obama took office. David Weil, a professor at the Boston University School of Management, is the latest nominee for the post. He is awaiting confirmation.

By Michael D. Shear and Steven Greenhouse of The New York Times

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