This week, the Department of Labor issued a final regulation updating some key overtime requirements. More employees—about 1.3 million more, according to the DOL’s estimates—will be entitled to overtime under the new rule when they work more than 40 hours a week. Critics call the new overtime rule a step in the right direction, but a small one: Under a regulation issued during the Obama Administration, many more employees would have been entitled to overtime. The new rule goes into effect in January 2020.
How Overtime Works
Under the federal Fair Labor Standards Act, employees are entitled to earn overtime—1.5 times their usual hourly rate—if they work more than 40 hours a week. The law grants overtime pay to all employees, unless they fit into one of the law’s exempt categories. Most of these exemption categories are very specific, such as amusement park employees or seamen on international vessels. In contrast, the new rule applies to the broadest exemption category: so-called “white-collar” employees, who do executive, administrative, or professional work. Lawmakers often fight about this category, because it’s easy for employers to abuse the exemption by calling low-level employees “assistant managers,” then requiring them to put in countless extra hours without pay.
To be exempt, an employee must perform certain job duties, such as managing a department or supervising other employees. In addition, the employer must pay the employee on a salary basis. That means the employee earns the same amount every week, no matter how many hours the employee works. And, the employee must meet a minimum salary requirement, which is where the new rule comes in.
What the New Overtime Rule Changes
The new overtime rule changes two important salary requirements for exempt employees:
- To be exempt, executives, administrators, or professionals must earn a salary of at least $684 per week—that’s $35,568 per year. (The current amount is $455 per week.) The new rule allows employers to satisfy up to 10% of this salary requirement with incentive payments and non-discretionary bonuses. Employees must still meet the job duties and salary basis tests outlined above.
- Employees who earn at least $107,432 annually are exempt from overtime. (The current amount is $100,000 per year.) These employees must meet at least one job duty requirement.
Critics Say Numbers Are Too Low
These changes make more employees eligible to earn overtime. But the increase is too small to keep up with changes in the economy, critics say. Representative Bobby Scott, Chairman of the House Education and Labor Committee, points out that the change would cover only 15% of all salaried workers. He also questions whether earning about $35,000 a year should deprive an employee of the presumption of eligibility for overtime.