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New overtime rule would set salary limit at $35,308

Published on April 1st, 2019 by Triton Benefits & HR Solutions

On March 7, 2019, the U.S. Department of Labor announced a proposed rule that would extend overtime pay eligibility to over one million American workers. However, critics immediately took issue with the rule for not expanding overtime pay to the 4 million workers that would have been eligible for OT pay under a more generous 2014 rule.

Due to the current salary threshold that has been in place since 2004, employees exempt from overtime pay must make at least $23,660 a year, or $455 a week. The government's new proposal would boost the standard salary level to $35,308 per year, or $679 per week, making 1.2 million more workers eligible to receive overtime pay.

New rule significantly more modest than failed 2014 proposal

Under current federal law, with a few exceptions, only workers who make less than $23,660 a year can earn overtime wages, defined as 50 percent extra hourly pay for employees who clock more than 40 hours in a workweek.

In 2014, President Barack Obama's administration attempted to double the salary threshold to $47,000, arguing that the massive increase was needed because the government had not previously raised the salary limit to keep pace with inflation. The administration cited the fact that the $8,060 salary limit set in 1975 was equivalent to $50,440 in 2014, which was more than double the current salary limit.

But the effort to expand overtime wages to 4 million new workers in 2014 proved highly controversial. At the time, the U.S. Chamber of Commerce argued that such an action would hurt more workers than it helped by forcing many employers, especially small and midsize businesses, to take on increased labor and litigation costs that would force them to cut hours, health care and retirement benefits for many of their employees.

An expansion to the overtime salary limit could lead to higher wages for many employees. An expansion to the overtime salary limit could lead to higher wages for many employees.

Labor unions generally supported the proposal, citing the same inflation figures pointed to by the Obama administration.

After being proposed in 2014, the rule was finalized in December 2016, prompting 21 Republican-controlled states to immediately sue. Those states won in 2017, when a federal judge in Texas invalidated the regulation, ruling that such a drastic change required congressional approval.

Employers likely to be more amenable to Trump administration's overtime regulations

Rather than appealing that court ruling, President Donald Trump's labor secretary, Alexander Acosta, has said that he would push for a more modest increase in the salary threshold. The roughly $12,000 increase that Acosta ultimately proposed in early March was harshly criticized by those who felt the Obama administration's rule was fairer to workers, as it extended overtime protections to 4 million more workers, as opposed to the 1.2 million made eligible by the less aggressive expansion.

While some employers likely will still be hurt by this increase in overtime pay, it's uncertain whether they will again take to the courts in an effort to block the rule from ever taking effect. The new increase may not seem as egregious to opponents this time around, considering the smaller number of employees affected and the fact that many employers have already increased their pay levels due to a combination of mandated minimum wage increases in certain states and cities, rising inflation and a tight labor market created by low unemployment.

It should also be noted that the Department of Labor's proposed rule specifies that there will be "no changes to the job duties test." Under current regulations, some employees are exempt from overtime wages because they meet both the "salary test" and the "duties test," meaning they earn at least the threshold level of pay and perform duties that are primarily executive, administrative or professional in nature. 

Stakeholders now have until May 21 to comment on the proposed rule, which the Department of Labor is hoping to finalize early next year, according to HR Dive. 

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