(Bloomberg) -- The Obama administration plans to raise the wagesof millions of Americans who work more than 40 hours a week byrequiring employers to pay them overtime.

Workers who earn as much as $970 a week would have to be paidovertime even if they’re classified as a manager or professional,according to a plan outlined by the Department of Labor on Tuesday.The White House said 4.7 million workers nationwide would beaffected within the first year of the rules being put in place.

Many employees now receiving as little as $455 a week, or$23,660 a year -- below the federal poverty line for a family offour -- aren’t entitled to overtime pay because they are classifiedas managers.

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“A hard day’s work deserves a fair day’s pay,” Obama wrote in ablog published by the Huffington Post. “That’s at the heart of whatit means to be middle class in America.”

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Labor Secretary Thomas Perez said the new overtime rules shouldraise overall wages paid to U.S. workers by between $1.2 billionand $1.3 billion annually. In some cases employers may reduceovertime work that is currently uncompensated, he said.

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The regulations would take effect in 2016 and extend overtimepay to 420,000 workers in California, 400,000 in Texas, and 290,000in New York, according to a state-by-state breakdown from the WhiteHouse. Workers in retail stores and restaurants are among thosemost likely to be affected.

Indexed threshold

The overtime salary threshold will be indexed to prevent futureerosion due to inflation, though the administration hasn’t yetdecided what measure to use to adjust it, Perez said. Theadministration chose a salary level that is at the 40th percentileof weekly earnings for full-time, salaried workers, he said. Thethreshold may be tied to either the consumer price index or a fixedpercentile level.

Obama has been stymied by Republicans in his attempts to getCongress to raise the federal minimum wage at a time when incomeinequality is emerging as an issue in the 2016 presidentialcampaign.

The new rules would be the broadest action by the administrationto bolster middle- and lower-income workers, whose wages havestagnated since the recession. Obama is scheduled to discuss theeconomy during a trip to La Crosse, Wisconsin, on Thursday.

Middle class

“You would be hard pressed to find a rule change or an executiveorder that would reach more middle class workers than this one,”said Jared Bernstein, a former economic adviser to Vice PresidentJoe Biden who is now a senior fellow at the Center for Budget andPolicy Priorities.

The median U.S. household income of $54,600 in April was $1,600short of the amount at the start of the recession in December 2007,according to inflation-adjusted estimates from SentierResearch.

Business lobbyists, including the National Retail Federation,argue that changing the rules might prompt employers to reconsidertheir supervisory structures, reducing flexibility for managers todirectly serve customers and cutting entry-level managementjobs.

“The administration seems to be under the distorted impressionthat they can build the middle class by government mandate,” DavidFrench, the National Retail Federation’s senior vice president forgovernment relations, said in a statement. “There simply isn’t anymagic pot of money that lets employers pay more just because thegovernment says so.”

‘Increase costs’

Cory Fritz, a spokesman for Republican House Speaker JohnBoehner of Ohio said the draft overtime rule would “limitopportunities and increase costs. America’s workers and smallbusinesses deserve better.”

AFL-CIO President Richard Trumka applauded the new rule, sayingit will “provide a much needed boost to our entire economy.”

“Millions of America’s workers are one step closer to earningthe overtime pay they rightfully deserve but have beensystematically denied,” Trumka said.

The 1938 New Deal-era law establishing the federal 40-hourworkweek and requiring overtime for additional hours exemptsprofessional, administrative and executive employees.

Defining categories

Labor Department regulations define those categories, in part,through a minimum salary level. The threshold, eroded by inflation,has only been raised once since 1975, a readjustment in 2004 underPresident George W. Bush that was criticized as too modest by laborunions and some Democrats.

The overtime cutoff covered 8 percent of salaried workers lastyear, compared with 65 percent in 1975, according to an analysis byRoss Eisenbrey, vice president of the Economic Policy Institute, aresearch group partly funded by labor unions.

The definition of a manager is ambiguous enough under currentregulations that restaurant or retail workers who spend most oftheir time doing manual labor or serving customers can be deemed“executives” exempt from overtime, Eisenbrey said.

Under the Bush administration’s 2004 rules, exempt executivesmust supervise at least two employees and management must be theirprimary duty, though there is no requirement covering the amount oftime they spend on management tasks. California state regulations,by contrast, require more than half of an employee’s time be spenton management duties to be exempt from overtime pay.

The administration is considering tightening the definition ofmanager the Bush administration established, though the draft ruleonly includes questions for comment without proposing a newdefinition. In a conference call with reporters, Perez criticizedthe definition, hinting that the final regulation will make itharder to classify workers as managers even if they meet the salarythreshold.

“In 2004 the rules governing overtime were changed to helpemployers and hurt workers by enabling employers to prevent toomany workers from receiving the overtime protections the lawintended,” Perez said.

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