A new Department of Labor rule designed to make more American workers eligible for overtime pay stands to add costs and slow hiring at community banks while speeding the replacement of human workers with technology, according to industry members.

Under the Fair Labor Standards Act, employees nationwide qualify for time-and-a-half overtime pay when they work more than 40 hours a week, unless they are salaried workers making at least $23,660. The new rule, released Wednesday, will double the salary level at which employees are considered exempt from overtime pay, to $47.476.

Labor Department officials and the White House are selling the rule as a way to boost the earnings of an estimated 4.2 million salaried workers across the United States, who will now be eligible for overtime. That increase will in turn benefit the broader economy, proponents argue.

This argument assumes, of course, that employers are willing to shell out for overtime, said Cristeena Naser, vice president and senior counsel at the American Bankers Association. Bank managers could send employees home before they hit the 40-hour mark, or they could cut benefits such as 401(k) matching to make up for the increase in pay.

"Just because you're eligible for overtime doesn't mean you're going to get paid overtime," Naser said.

Some employees whose salaries are close to the new threshold, however, could receive slight raises in order to keep them exempt.

But, Naser said: "Management has a lot of discretion. This whole idea that somehow employers are either going to pay the overtime or they're going to hire new employers so you're spreading work around, it's certainly possible, but it's not the only option that employers have. And many, many employers have said they're going to do a combination of other things."

The new rule may bring additional compliance costs as well. Like other businesses nationwide, banks will now have to carefully track the hours of employees who were formerly ineligible for overtime, notes Chris Cole, the executive vice president and senior regulatory counsel for Independent Community Bankers of America.

Cole said some community bankers have told him that they will have to track an additional 85 to 90 employees.

There are those in the banking industry who support raising the overtime threshold for salaried workers.

Keith Mestrich, the president and chief executive of the $3.9 billion-asset Amalgamated Bank in New York, acknowledges that the updated rule will lay on additional costs but nevertheless called it "the right thing to do." Amalgamated, which has 410 employees, has long stood apart from many of its fellow community banks on issues of wages and income inequality. Last August, the union-owned bank raised its minimum wage to $15 an hour, which, however, is still well below the new overtime-exemption threshold.

This update to the Fair Labor Standards Act, Mestrich said, is "a bold move by the Labor Department and the president to address severely neglected overtime rules."

But Rusty Cloutier, president and CEO of the $1.9 billion-asset MidSouth Bancorp in Lafayette, La., said the government isn't doing workers any favors with the new rule. He argued that younger, salaried employees could find themselves forced to stop working at 40 hours when they might otherwise be putting in the extra hours to try to advance their careers.

"It kills all opportunity for young people. Just slaughters them," he said. "The happiest day of my life was when I got off the clock. And this makes it very difficult for young people to get off the clock."

Cloutier isn't concerned about an increase in costs, which he expects to be minimal. Nor does he plan to let go any of MidSouth's 600 employees. But he doesn't intend to let them work overtime, either, which means that employees will not only miss out on the ostensible wage-boosting benefits of the new rule but will be unable to distinguish themselves by going the extra mile.

Cloutier said the new rule may also discourage him from making new hires and could nudge the bank to replace workers with, say, video tellers. "Will it encourage us to do a little more electronically? Yeah, I think it does every day," he said.

The rule change is just the latest example of the White House acting on its own to create public policy. In his second term, facing a Congress unwilling to implement his agenda, President Obama has increasingly turned to executive orders, agency regulations and other unilateral actions on a host of issues ranging from immigration to the environment.

Another unintended consequence of the overtime rule change could be to knock some workers off their benefit plans. Banks tend to have generous benefits packages, but often they are available only for overtime-exempt employees, Naser said. Consequently, some workers who have enjoyed those plans may not be eligible after Dec. 1.

"When you increase costs in one area, it's going to have an impact in another area," the ICBA's Cole said. "People who think this is all roses are misunderstanding and are getting swept up in the politics of it."

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