the U.S. Department of Labor announced a final rule that will make 1.3 million American workers newly eligible for overtime pay under the Fair Labor Standards Act.
Under the new rule, which goes into effect on January 1, 2020, the standard salary level will be raised from $455 to $684 a week, a move will make all employees who earn less than $35,568 annually eligible for overtime pay of at least time-and-a-half.
The current threshold of $23,700 was set by the George W. Bush administration in 2004. Prior to that, it had been $8,060 since 1975.
“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 U.S. Secretary of Labor Patrick Pizzella in a statement. “This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.” In 2016, the Obama Administration attempted to raise the threshold to $47,000 a year, an increase that would have extended mandatory overtime pay to four million workers. But a federal judge in Texas ruled that $47,000 was too high a salary limit and blocked it in 2017.
“Today’s rule is a thoughtful product informed by public comment, listening sessions, and long-standing calculations,” said Wage and Hour Division Administrator Cheryl Stanton in a statement. “The Wage and Hour Division now turns to help employers comply and ensure that workers will be receiving their overtime pay.” This rule will certainly have an impact on employees, but how will it affect employers?
Allan Bloom, a partner in Proskauer’s labor and employment practice and the head of the firm’s wage and hour practice group, says the rule, while expected, is a compromise. “It’s a major let down for workers who were anticipating much higher increases in salary under the Obama rule,” he says. “It is going to put some additional wages into workers’ hands, but not nearly the economic hit to businesses that would have been implemented if the Obama administration’s rule had gone into effect.”
The rule, says Bloom, is a win for employers. “Businesses are breathing a sigh of relief that the Obama administration’s rule didn't go into effect,” he says. “If it did, they’d be paying 33% more per week to workers who are at this minimum salary for exemption.” While there will be an economic impact, it’s likely to be limited to industries such as manufacturing and retail, where many workers make less than $35,568 a year, as well as states where the minimum wage is closer to the federal $7.25 an hour, which equates to an annual compensation of just $15,080.
Until then, employers whose workers make less than $35,568 annually must make a decision: give their employees a raise, or pay them overtime.