The U.S. Department of Labor has announced its long-awaited proposal to make more workers eligible for overtime pay.
Under the proposal, workers who make less than about $35,000 per year would be automatically eligible for time-and-a-half pay for all hours worked beyond 40 a week. That’s up from the current threshold of $24,000, but not as high as the $47,000 mark proposed by the Obama administration in a stalled regulation.
More than one million workers will become eligible for overtime under the new threshold, which is equivalent to $679 a week. Another 200,000 will see their incomes rise under changes for a smaller category of highly compensated workers who are also covered by overtime rules.
The new rule would make that person eligible for overtime pay. Employers will need to convert low-paid managers to hourly workers in order to accurately track their time, or can raise their salaries above the threshold to avoid the new rule altogether.
The proposal doesn’t establish automatic, periodic increases of the salary threshold as the Obama proposal had. Instead, the department is asking the public to weigh in on whether and how the USDOL might update overtime requirements every four years. The proposed rule also doesn’t tinker with the current “duties test,” a checklist used to determine whether workers making more than the salary threshold are supervisors, not entitled to overtime wages.
The salary threshold was last increased in 2004, during the George W. Bush administration. The USDOL is using the same economic methodology used to reach that standard, which the department officials say should protect the proposal from litigation.
A federal district court in Texas issued a nationwide preliminary injunction blocking the Obama overtime rule, as nearly two dozen states and a coalition of business groups led by the U.S. Chamber of Commerce filed separate lawsuits in September to overturn the regulation. Under that rule employers would have had to pay most "white collar" employees a minimum salary of $913 per week ‐ $47,476 annually ‐ to maintain the overtime exemption.
In discussing what Congress had delegated to the USDOL, the Texas federal court said that the "Department has significant leeway to establish the types of duties that might qualify an employee for the exemption" but "nothing in the executive, administrative, professional (EAP) exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level. Thus, the Department's delegation is limited by the plain meaning of the statute and Congress' intent."
But what was so magical about $913 per week? The court reasoned:
The Department has admitted that it cannot create an evaluation based on salary alone. But this significant increase to the salary level creates essentially a de facto salary‐only test. For instance, the Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties. Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption.
Basically, the court found that $913 per week exceeded the USDOL’s authority.
So why would $679 pass legal muster? The bottom line is that the USDOL may lack the authority to raise the salary level threshold in the first instance.
In that event, expect more litigation, this time arguing that the local setting of salaries exceeds the USDOL’s authority delegated by Congress.
Indeed, Bloomberg Law reports that any lawsuit challenging the salary threshold could raise a complicated legal question that many inside and outside the USDOL would rather leave unanswered: Does the Department have the authority to base overtime eligibility on any salary level?