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New Labor Department rule would give 1.1 million workers overtime eligibility

Economists said the working poor would be the primary beneficiaries of the higher threshold.
Image: Jason Joshua
Jason Joshua waits on customers at Zak the Baker in Miami on June 20, 2018.Lynne Sladky / AP

The Department of Labor announced on Thursday a proposed rule that would make 1.1 million American workers newly eligible to receive overtime pay beginning in 2020.

The proposed rule — which is subject to a 60-day comment period — would raise the salary cap under which non-management employees could earn overtime from $23,660 to $35,308, or from $455 to $679 weekly.

“It’s a compromise,” said Harry Holzer, a professor of public policy at Georgetown University. “I think those in the business community are going to accept it as a compromise — the best they can do — and Democrats will feel it’s certainly better than nothing.”

The threshold was last raised in 2004 under George W. Bush. An Obama-era rule that would have raised it to $47,476 was blocked by a judge mere days before it was due to take effect on December 1, 2016. By that point, many big companies had already made adjustments to worker pay and titles — in some cases raising the pay of employees who were just below the higher threshold to just above it, or reclassifying salaried workers as hourly employees eligible to earn overtime.

In its announcement, the department indicated it was seeking a middle ground between a 15-year-old figure that had not kept pace with pay trends and the much higher cap that had been sought by President Barack Obama, which would have affected 4.2 million workers.

The Labor Department determined the new overtime eligibility threshold using the same formula as the 2004 rule, basing it on the 20th percentile of full-time earnings for workers in the South, the census region with the lowest overall income. It said its decision was informed by “extensive public input” it received in response to a 2017 Request for Information, including feedback gleaned from six in-person “listening sessions” and more than 200,000 comments submitted. Unlike the Obama-era version, the new proposed threshold would not automatically increase over time.

Economists said the working poor would be the primary beneficiaries of the higher threshold. “Expanding overtime eligibility will likely have a positive impact on wage growth for workers with lower wages,” said Daniel Zhao, Glassdoor senior economist.

Research from the left-leaning Economic Policy Institute found that, between 2013 and 2017, pay for low-wage workers has increased the most in states where minimum wages have risen.

Zhao said Glassdoor’s data showed this trend has continued. “Over the past year, we’ve actually seen minimum wage increases translate into very healthy pay growth — over 5 percent — for low-wage workers like cashiers, bank tellers, and baristas,” he said.

Although the rule might not entirely satisfy pro-business or pro-labor interests, Holzer said the Labor Department’s middle-ground approach probably increases the rule’s chance of surviving partisan challenges. “In the end, it will get enough political support to move ahead,” he predicted.

Labor market forces could be a tailwind, as well. “With employers already increasing wages to attract talent, the cost to employers for these worker protections may actually be lower than expected,” Zhao said.

Holzer also suggested that the momentum of wage growth — which reached 3.4 percent in February — could quell pushback from business interests.

“If they’re already having some difficulty hiring or retaining the kinds of workers they want, they’re probably more likely to go along with the overtime increase. The tightness of the labor market matters,” he said.