New rule broadens overtime eligibility

The Labor Department announced Tuesday that it had finalized a rule expanding overtime pay eligibility to up to 1.3 million workers.

Under the new rule, most salaried workers who earn less than about $35,500 per year will be eligible for time-and-a-half overtime pay, up from the current threshold of about $23,700, for any work over 40 hours a week.

The rule is scheduled to take effect Jan. 1.

President Barack Obama’s administration raised the threshold considerably higher in 2016 in an effort to cover millions more workers, but it never took effect. A federal judge in Texas halted that rule’s implementation in response to lawsuits filed by the Chamber of Commerce and other business groups. A group of Republican attorneys general also attempted to block the Obama administration proposal.

President Donald Trump’s administration had appealed the decision that struck down the Obama rule but asked the court to suspend its appeal while it worked on a replacement. The current salary limit was set by the George W. Bush administration in 2004.

“This rule brings a common-sense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers,” Patrick Pizzella, the acting labor secretary, said in a statement.

Christine Owens, executive director of the National Employment Law Project, criticized the new rule for not including a provision to regularly increase the threshold. Obama’s proposal would have indexed the level to wage growth and adjusted the threshold every three years.

“The Trump Labor Department’s rule says that if you make more than $35,568 a year, you’re a highly paid executive, administrator, or professional who doesn’t need overtime pay,” Owens said.

Critics point out how far the United States has departed from historical norms. In 1975, the salary threshold covered 60% of salaried employees, while the current $23,600 standard represents about 7%, according to data from the liberal-leaning Economic Policy Institute. The Obama proposal would have have raised that percentage to 33%, while the Trump administration’s rule will represent 15%.

The U.S. Chamber of Commerce praised the rule, arguing that it provides more flexibility for employers in managing their staffs.

“The new overtime salary threshold is a balanced and responsible update to the standard that has been in place for 15 years,” said Marc Freedman, vice president of workplace policy at the chamber.

The new rule was opposed by a group of 23 Democratic senators, including all of the 2020 candidates from that chamber: Bernie Sanders, Amy Klobuchar, Elizabeth Warren, Cory Booker and Kamala Harris.

Many employers and business groups had supported an increase in the limit but argued that the Obama threshold of about $47,500 was too high. They warned that it would require businesses to suddenly pay out hundreds of millions of dollars in overtime compensation or raises intended to move workers above the new threshold.

“Had the Obama administration adopted a number that had ‘3’ in front of it, they would not have been sued,” said Tammy McCutchen, one of the authors of the Bush increase who is now a lawyer at the management-side firm Littler Mendelson.

The Obama administration had argued that its rule was in line with historical increases.

Liberal economists, Democratic officials, and worker advocates had all opposed the new threshold.

“What we saw today was not unexpected,” Heidi Shierholz, the director of policy at the Economic Policy Institute and a former chief economist at the Department of Labor under Obama. “It is a doubling down of this administration siding with corporate executives instead of workers.”

The new rules are only the second update to the threshold since 1975, after the 2004 change.

Judy Conti, a director at the National Employment Law Project, said she believed that the Department of Labor had failed to act in the interests of workers.

“The Trump administration is trying to portray this as some great gift to workers, but in fact it’s a rollback,” she said. “Nobody should be fooled into thinking this is pro-worker. What this does is it locks in a low threshold at the behest of the business community.”

Salaried workers who make more than the legal threshold also can be eligible for overtime pay if they lack substantial decision-making authority. But the Obama administration argued that employers had either ignored this so-called duties test or circumvented it by giving low-level workers loftier titles, which made the salary threshold the standard.

Trump’s first nominee for labor secretary, Andrew Puzder, strongly opposed a significant increase in overtime eligibility. But Alexander Acosta, who replaced Puzder after his nomination collapsed, took a more conciliatory tack. Acosta endorsed a threshold in the low $30,000s during his 2017 confirmation hearings.

Acosta resigned as labor secretary in July after criticism of his handling of a sexcrimes case against financier Jeffrey Epstein when Acosta was a federal prosecutor in Florida. On Tuesday, a Senate committee voted to advance the nomination of Acosta’s proposed successor, Eugene Scalia. The full Senate could vote within days on Scalia, a son of Supreme Court Justice Antonin Scalia, who died in 2016.

The Trump administration has felt a sense of urgency about the proposed rule.

Congress can reject a rule within a mandated review period. Many in the business community did not want to risk giving a future Democratic Congress and president a chance to replace the Trump rule with a higher salary limit if Republicans lose power in next year’s elections. With the rule now completed, the congressional review window will close within a few months.

The rule could nonetheless become a campaign issue given the president’s stated commitment to protect workers. “Through this rule, the Trump administration is breaking its promise to hardworking Americans,” Sen. Sherrod Brown, D-Ohio, said in a statement. “By failing to stand up for workers and expanding the overtime rule, the president is failing to put workers first and is driving down the value of work.”