The Trump administration today unveiled a final rule to extend overtime pay eligibility to an estimated 1.3 million workers, replacing a stalled Obama-era initiative that would have covered four times as many employees.
The department’s new rule lifts the annual salary threshold below which workers qualify for overtime wages to $35,568 from the current level of roughly $23,600. The regulation would require employers starting Jan. 1 to pay time-and-a-half rates to workers making less than the threshold amount for all hours beyond 40 per week.
The move is expected to draw a legal challenge from worker advocates who have urged the department to try to salvage an Obama administration regulation, which was blocked by a federal judge in Texas in 2016. That rule would have doubled the salary threshold to $47,500 and automatically updated it every three years to keep pace with cost-of-living increases. The new rule doesn’t include automatic updates, which the business community has railed against since the administration signaled that it would revisit overtime pay requirements.
“For the first time in over 15 years, America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” said Acting Labor Secretary Patrick Pizzella. “This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”
The regulation fulfills a top White House labor priority, updating overtime standards that have been in place since 2004. It also enjoys strong support from the business community and Republican lawmakers who argued the Obama version of the rule was too aggressive and would lead to job cuts.
The rule is likely to have its largest impact in retail and restaurants in rural areas, where assistant managers commonly work long hours without receiving the overtime premium. Many employers will be forced to choose between offering raises to maintain employees’ overtime exemption or closely tracking their hours to control payroll costs.
“This is a reasonable compromise that will work in every state and every economy, large companies and small, urban communities and rural areas,” said Tammy McCutchen, who was DOL’s Wage and Hour Administrator when the current overtime threshold was set in 2004 and now represents businesses as an attorney with Littler Mendelson. “It will result in more employees getting more overtime, without ruining those small businesses, local governments, and nonprofit businesses that could not have handled the Obama-era $48,000.”
Highly Paid Workers, Bonuses
The rule also raises the salary cutoff for “highly compensated employees” to receive overtime eligibility to $107,432 per year from $100,000. This marks a significant decline from the March proposed rule’s boost for highly compensated workers to $147,000, which ruffled feathers in the business community.
Highly compensated employees are automatically exempt from overtime pay requirements under federal law. Employees who make more than the minimum salary threshold for overtime eligibility and less than the threshold for “highly compensated” status are still eligible for overtime pay if their job duties aren’t considered supervisory.
The DOL didn’t make any revisions to the separate duties test, which exempts workers from overtime if their primary duties involve supervisory functions or require advanced knowledge, provided they also earn more than the minimum salary level.
Employers also will be able to satisfy up to 10 percent of the $35,568 minimum standard salary level via bonuses and commissions that are paid at least once per year.
The department considered about 200,000 public comments on that proposal to inform the final rule issued today.
Next Phase: Litigation
Democrats and worker advocates have been waiting to mount a legal challenge.
“With this rule, the Trump administration continues to undermine the economic security of working families, forgoing overtime protections for millions of workers who were covered by the Obama administration’s rule,” said Tanya Goldman, a senior wage and hour policy adviser in the Obama administration who’s now an attorney at the Center for Law and Social Policy. “The white-collar overtime salary level has become so out-of-date, that people are working long hours away from their families, without needed overtime pay, losing out on time and money.”
Worker rights’ organizations have been strategizing for months about the appropriate avenue to file an Administrative Procedure Act claim seeking to invalidate the Trump overtime rule. Its release will enable these informal discussions to begin in earnest.
“People are talking but no final decisions have been made until you see the rule,” said Patricia Smith, a senior counsel at the National Employment Law Project who was the labor solicitor during Obama’s presidency. “I don’t know why you would anticipate that there would be only one lawsuit.”