Labor Department Poised to Boost Overtime Threshold to $35,000

Workers who make less than about $35,000 a year will be eligible for overtime pay under a long-awaited proposal the Labor Department is set to unveil soon, sources familiar with the situation tell Bloomberg Law.

The department is close to proposing a new regulation to update time-and-a-half pay requirements for all hours worked beyond 40 a week. The rule would raise the salary threshold under which workers are automatically entitled to overtime wages from about $24,000, but wouldn’t go to the $47,000 mark pushed by the Obama administration. A federal judge in Texas blocked that proposal before it took effect.

The new rule would significantly expand the number of workers eligible for overtime pay. It may be challenged in court, however, by worker advocates who say it doesn’t go far enough and by business groups worried about new payroll costs.

The Trump administration’s approach to the overtime question has been watched closely by businesses in a wide range of industries. CBS Television Studios recently agreed to pay nearly $10 million to settle a class action for unpaid overtime. Bank of America Corp., Chipotle, and T-Mobile US Inc. are among other companies recently entangled in similar suits.

The DOL also plans to announce that it’s considering ways to periodically increase the salary threshold for overtime eligibility, based on inflation and other factors. The department is opting to tackle that question separately so that any legal disputes don’t stall the overtime regulation.

“The proposed rule may lay out ideas for periodic updates, but it will not propose a specific one,” a department official told Bloomberg Law.

The department sent the proposal to the White House Office of Management and Budget Jan. 16. Regulators want to get the rule finalized before the 2020 election so it will be harder to undo if a Democrat wins the White House.

The proposed rule’s rollout has been frequently delayed since the department first said it was eyeing a July 2017 released date. Sources say pressure from the White House finally forced DOL officials to move a handful of long-awaited rules. That includes a proposal to limit businesses’ shared “joint employer” responsibility for paying minimum wages and overtime and an update of “regular rates” of pay for overtime calculation purposes.

Sources spoke with Bloomberg Law on the condition of anonymity because the rule has not yet been made public.

Court Battles Likely

Worker advocates who want the DOL to fight to save the Obama-era proposal say the department hasn’t done the analysis to justify backing away from the proposed rule.

The new rule would be the first update to federal overtime pay requirements in 15 years. Critics say that delay and a loosened “duties test” have narrowed the pool of employees who get time-and-a-half pay. The test is used to determine whether workers making more than the salary threshold are supervisors, not entitled to overtime wages.

“If true, $35,000 is wholly insufficient if they’re not going to touch the duties test,” Judy Conti, a lobbyist for the National Employment Law Project, told Bloomberg Law. “They should expect a legal challenge.”

Meanwhile, small businesses and employers in areas where the cost of living is lower already have complained that boosting overtime requirements will force them to cut jobs to meet payroll costs. Some management-side lawyers also have questioned whether the department has the authority to use salary to determine overtime eligibility. Others say DOL should have to go through the formal notice and comment rulemaking process every time regulators want to tinker with the overtime requirements.

“I can tell you here today that if the DOL somehow ignores us, they will be sued again by the business community to challenge their authority to do that,” Littler Mendelson attorney Tammy McCutchen told a group of management lawyers Feb. 5 about possible automatic salary threshold increases. “And guess what? We’ll bring it in Texas again.”

Business advocates and a group of Republican state attorneys general in 2017 convinced a federal judge to block the Obama overtime proposal, which they labeled a job killer. Judge Amos Mazzant, in a ruling still on appeal, said the department focused too heavily on the amount of money workers make, instead of their job duties. That decision has left uncertain how much the department can rely on salary levels in the new rule.

The new salary threshold is on the higher end of what Labor Department observers have been expecting since DOL announced in 2017 that it was working on a new rule. The threshold figure has been a moving target at DOL, sources told Bloomberg Law.

Labor Secretary Alexander Acosta was directly involved in drafting the proposal and frequently changed his mind on the threshold figure, according to sources. That figure, which generally ranged from $33,000 to $38,000, wasn’t finalized until shortly before the department sent the proposal to OMB.