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Where’s My Money?: The Impact of New Overtime Rules

Photo Credit: https://www.insperity.com/blog/comp-time-overtime/

By: Alex Townsley
Editor in Chief, American Journal of Trial Advocacy

           Overtime is an idea that factors crucially into some American workers’ budgets while being completely ignored by almost all workers who do not qualify for it.  But, what is overtime, and, more importantly, who qualifies for it?  The answer to the second question will change again in 2020 when the new Department of Labor rules go into effect.[1]   

WHAT IS IT?

           Black’s Law Dictionary defines overtime as “[t]he hours worked by an employee in excess of a standard day or week.”[2]  Overtime as a federally mandated program has existed in the United States since June 25, 1938.[3]  On that day, President Franklin Roosevelt signed the Fair Labor Standards Act of 1938,[4] along with over one hundred other bills.[5]  Of course, the impact of overtime on the worker was overshadowed at the time by the implementation of a federal minimum wage and the prohibition on the use of “oppressive child labor.”[6] 

           The Fair Labor Standards Act of 1938 describes the circumstances and requirements of overtime as:

no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.[7]

The Act goes on to describe different circumstances to which this section may apply to differing extents.[8]  These different circumstances are what have been historically fought over between administrations and the judiciary, and they are the subject of the changes approved by the Department of Labor on September 24, 2019, and that go into effect on January 1, 2020.[9]

THE CHANGES

            Employees who are paid hourly for their work will see no change in January 2020.[10]  Instead, the changes will primarily affect salaried workers who receive annual compensation below an increased threshold.[11]  The prior salary threshold was $23,660.00 for a salaried employee.[12]  With the rule change, the salary threshold increased by $11,908.00 to $35,568.00.[13]  The rule also makes a change to the threshold for “highly compensated employees,” increasing the threshold from $100,000.00 per year to $107,432.00.[14]  The acting Secretary of Labor stated the purpose of these changes was to “bring a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”[15]   

           This was not the first time a presidential administration attempted to raise the salary threshold.  The current threshold was not established until 2004.[16]  In 2014, President Obama attempted to raise the threshold from $455.00 per week to $913.00 or $47,476.00 annually.[17]  In invalidating this attempt, the federal judge stated the final rule was “not a reasonable interpretation of Section 213(a)(1).”[18]  The 2019 changes are expected to escape this judicial invalidation because the new threshold numbers were calculated “using a methodology consistent with what led to the successful 2004 update of the law.”[19]  The failed changes proposed by the Obama administration in contrast used an “untested methodology that set the standard salary level at the 40th percentile of the weekly earnings . . . the 2004 change only set it at the 20th percentile.”[20] 

            In determining if an employee now qualifies under the rule, the Department of Labor promulgated a three-part general test.[21]  To qualify an “employee generally must”:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. be paid at least a specified weekly salary level, which is $684 per week (the equivalent of $35,568 annually for a full-year worker) under this final rule (the “salary level test”); and
  3. primarily perform executive, administrative, or professional duties as defined in the Department’s regulations (the “duties test”).[22]

If an employee meets these requirements, they will be entitled to overtime under the new rule.  

HOW THIS IMPACTS EVERYONE ELSE

            A recent Wall Street Journal article stated, “The main beneficiaries of this higher overtime salary threshold will be people who did not go to college, rural Americans[,] and older workers.”[23]  This seems to correlate with the Department of Labor’s number that the new rule will impact an estimated 1.3 million American workers.[24]  Another segment to consider is the businesses who employ those estimated 1.3 million workers.  The Department of Labor believes these changes will result in “three direct costs to employers: (1) regulatory familiarization costs; (2) adjustment costs; and (3) managerial costs.”[25]  Will employers accept these costs, if these are even the only costs, or will they reevaluate their workforce so overtime pay will not be necessary?  Only time will tell, but if one thing is certain it is that business accountants just got a lot more business.  


[1] Final Rule: Overtime Update, U.S. Dep’t of Lab., https://www.dol.gov/whd/overtime2019/ (last visited Oct. 10, 2019).

[2] Overtime, Black’s Law Dictionary (9th ed. 2009).

[3] Jonathan Grossman, Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage, U.S. Dep’t of Lab., https://www.dol.gov/general/aboutdol/history/flsa1938 (last visited Oct. 10, 2019).

[4] 29 U.S.C.A. § 201 (West 2019).

[5] Grossman, supra note 3.

[6] Grossman, supra note 3.

[7] 29 U.S.C.A. § 207(a)(1) (West 2019).

[8] See generally 29 U.S.C.A. § 207(f) (2019); 29 U.S.C.A. § 207(g) (2019); and 29 U.S.C.A. § 207(o) (2019).

[9] Final Rule, supra note 1.

[10] Alexia F. Campbell, 1.3 Million Winners and 2.8 Million Losers from Trump’s New Overtime Rule, Vox (Sept. 24, 2019), https://www.vox.com/identities/2019/9/24/20835653/trump-overtime-pay-rule-explained.

[11] Id.

[12] Final Rule, supra note 1.

[13] Id.

[14] Id.

[15] U.S. Department of Labor Issues Final Overtime Rule, U.S. Dep’t of Lab., https://www.dol.gov/newsroom/releases/whd/whd20190924 (last visited Oct. 10, 2019).

[16] Final Rule, supra note 1.

[17] Nevada v. U.S. Dep’t of Labor, 275 F. Supp. 3d 795, 799 (E.D. Tex. 2017).

[18] Id. at 807-808.

[19] Patrick Pizzella, More Overtime Pay May Be Coming Your Way, Wall St. J. (Sept. 24, 2019, 9:00 AM), https://www.wsj.com/articles/more-overtime-pay-may-be-coming-your-way-11569330000. 

[20] Id.

[21] Highlights of the Final Rule on Overtime Eligibility for White Collar Employees, U.S. Dep’t of Lab., https://www.dol.gov/whd/overtime2019/overtime_FAQ.htm#1 (last visited Oct. 10, 2019).

[22] Id.

[23] Patrick Pizzella, More Overtime Pay May Be Coming Your Way, Wall St. J. (Sept. 24, 2019, 9:00 AM), https://www.wsj.com/articles/more-overtime-pay-may-be-coming-your-way-11569330000. 

[24] Final Rule, supra note 1.

[25] Highlights, supra note 21.

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