New federal overtime-pay rule to expand 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.

The rule is scheduled to take effect on Jan. 1.

The Obama administration raised the threshold considerably higher in 2016 in an effort to cover nearly 5 million more workers, but a federal judge first suspended and later invalidated the rule, which never took effect. The threshold hasn't been increased since 2004 during the George W. Bush administration.

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, a lawyer who was one of the authors of the Bush increase.

The Obama administration had argued that its rule was in line with historical increases. And in the 1970s, more than 60% of workers were eligible for overtime pay, said Heidi Shierholz, a former Labor Department chief economist who helped develop the Obama rule and now is an economist at the left-leaning Economic Policy Institute. That figure fell to just 7% in 2016.

"While the (Trump) administration may be trumpeting this rule as a good thing for workers, that is a ruse," Shierholz said.

The Trump 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.

In an analysis of the rule that the Labor Department proposed in March, which closely resembles the final version announced Tuesday, Shierholz estimated that the Trump rule would yield workers $300 million to $600 million per year in wage increases over the next decade. That amount was more than $1 billion per year less, on average, than the wage gains that the Obama rule would have produced, according to her estimates.

Salaried workers who make more than the legal threshold can be eligible for overtime pay if they lack substantial decisionmaking 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 de facto standard.

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 window for congressional review will close in 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," Democratic Sen. Sherrod Brown of 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."

In its 2016 rule, the Obama administration sought to adjust the salary limit automatically every three years to keep up with rising wages, an approach the new rule abandons in favor of urging the department to update the limit "more regularly." Mccutchen said there was nothing in the law underlying the rule to justify automatic increases.