By William L. Watts, CBS.MarketWatch.com
Aug. 23, 2004

WASHINGTON (CBS.MW) -- New rules governing overtime pay kicked in Monday, spurring a politically charged debate over the impact of the new regulations on American workers' time cards and paychecks.

Democrats, including vice presidential nominee John Edwards, portrayed the new regulations as an effort by the Bush administration to deny strapped families extra pay for extra work, latching onto figures from a liberal think tank that estimate as many as 6 million workers could lose their right to extra compensation for hours worked beyond a 40-hour week.

Republicans accused Democrats of scare-mongering, using different figures to argue that only a few hundred thousand Americans, many already earning six-figure incomes, would lose overtime eligibility, while 1.3 million more white-collar workers, currently under salary, will be able to claim overtime pay.

Democrats see the rules as more ammo for their effort to portray the Bush administration's economic policies as the cause of a "middle-class squeeze" that has seen working families struggle to make ends meet as wealthier Americans benefit from tax cuts tilted toward the top of the income scale.

"Today, 6 million Americans across the country could get a pay cut from this administration. This is only the latest insult to America's middle class who are paying a higher tax burden, while at the same time wages are declining and families are paying skyrocketing costs for health care, energy and college tuition," Democratic presidential challenger John Kerry said Monday.

Meanwhile, several hundred union members protested the rule changes at a rally sponsored by the AFL-CIO outside the U.S. Labor Department. The new rules won't impact workers guaranteed overtime under union contracts, but labor officials have argued the regulations will put them at a disadvantage in future negotiations.

The Kerry campaign released a report that estimated the new rules could cause a police lieutenant to see his paycheck decrease by $10,000, while a computer programmer could lose $9,000 a year.

The Bush campaign issued its own fact sheet, contending that the changes would mean more money in the pockets of some workers, including an additional $15,600 a year for a restaurant manager working 50 hours a week, or an additional $18,000 for a department store manager.

Republicans say Democrats are using the new rules to scare voters.

At issue are new Labor Department rules finalized in April that govern eligibility for overtime pay.

The Bush administration and business groups say the new rules are a needed update to outmoded and often confusing regulations that haven't been changed in decades.

"Under the new rules, workers will know their overtime rights, employers will know their responsibilities and the department can more vigorously enforce these protections," said Labor Secretary Elaine Chao.

Proponents of the changes say clearer regulations will also eliminate a costly source of litigation. A number of companies, including retail giant Wal-Mart (WMT: news, chart, profile), have faced lawsuits alleging illegal denial of overtime pay.

The regulations include overtime pay guarantees for all workers earning $23,660 annually or less, thus covering more workers than the $22,100 salary bar initially proposed by the Bush administration last year. Currently, the Fair Labor Standards Act guarantees overtime for those earning $8,060 or less.

The new rules also exempt from overtime pay all employees earning $100,000 or more, if they meet certain tests.

The Labor Department says around 107,000 Americans could lose their right to overtime pay, but around 1.3 million will gain eligibility.

A report by the Economic Policy Institute, a liberal think tank, estimated that nearly 2 million workers who are "team leaders" will be ineligible for overtime pay under the new rules, along with about 920,000 workers without college degrees who will be reclassified as "learned professionals." See full story.

Among the additional workers who will become ineligible are some who earn more than $100,000 a year, as well as some teachers, computer programmers and supervisors, the report said.

Proponents of the rules say EPI has drastically overestimated the impact of the regulations. Responding to Edwards on Saturday, the Bush-Cheney campaign said the EPI study included part-time workers who are not affected by the regulations.

Most of the workers that EPI argues would lose overtime eligibility currently don't receive overtime because of existing exemptions for executive, administrative and professional workers, according to Kirk Johnson, an analyst with the conservative Heritage Foundation.

Johnson said the EPI report also ignored or discounted new rules that favor employees and will make it more difficult for employers to deny overtime protections.

The Labor Department revised its initial rules proposal after congressional Democrats unsuccessfully tried to block new regulations and called attention to provisions they said could deny overtime eligibility to police officers, firefighters and others.

The final rules, for example, were altered to ensure public safety officers remained eligible for overtime, but some critics contend that senior officials could still be denied overtime pay.

While some white-collar workers previously eligible for overtime may be ineligible under the new classifications, surveys indicate employers aren't likely to reclassify those employees in the near future, according to John Challenger, chief executive of Chicago-based outplacement firm Challenger, Gray and Christmas.

"Surveys now seem to suggest that many are not going to do that or may move to a different kind of structure, either upping the salaries of people who were before receiving overtime or changing to more performance-based bonuses," Challenger said. "That hasn't been decided. That's going to play out over the next couple years," See the Challenger interview.

Sears (S: news, chart, profile) said Monday afternoon that under the new overtime rules, less than 1 percent of its 190,000 workers will be reclassified for overtime pay. The retailer said no Sears associate is losing eligibility for overtime due to the new regulations.

The company said it issued the statement in response to erroneous comments regarding the impact of the new rules on its workers made at the AFL-CIO rally on Monday.

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