Today’s decision by the US Department of Labor to authorize overtime payments for certain workers to boost their net take home pay is good news for financial planners.
Under the new rules, almost all workers earning salaries beneath the “overtime salary threshold” of $23,660 are entitled to time-and-a-half pay whenever they work more than 40 hours in a week.
Soon, the White House will be doubling that number to $47,476 that will guarantee overtime rights for salaried workers earning less than that.
The new overtime rules will cover some 4.2 million workers who are currently excluded, according to the White House. The rule will also clarify eligibility for another 8.9 million workers who may or may not have overtime protections under the current rules, officials said.
Not paying overtime to some categories of workers who were deemed “managers” is used by some employers to avoid paying extra wages for over 40 hours of work. Under these arbitrary job categorizations, employers worked people 60, 70 or 80 hours a week at a flat pay scale. But their take home pay was in the range of $30,000. This effectively made these workers members of the working poor.
More Disposable Income Should Benefit Financial Advisors
Given numerous studies that show that if workers had more disposable income they would direct it towards retirement planning, the new DOL rules should be seen as a new marketing opportunity for financial advisors.
More disposable income will also boost the overall economy since it will help raise the stagnant wage situation that has existed since the Reagan administration.
One study from the Retirement Research Consortium found that the “lack of wage growth, the disappearance of pensions, and the decline in 401(k) coverage among private sector workers, especially low- and middle-income households, contribute to the problem for younger Americans.” The new rules address the lack of wage growth for some workers, but the good news is that the new overtime rules affect all ages of workers.
Another study from the Economic Policy Institute found that “ever since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline. This is despite real GDP growth of 149 percent and net productivity growth of 64 percent over this period.”
The new overtime rules also are another victory for the DOL, which succeeded after a decade of opposition to pass the new fiduciary standard last month.