[US] New Overtime Rules See Companies Paying More While Workers Lose Out

On January 1 the Department of Labor’s new mandatory overtime pay rules came into effect, following over three years of negotiating, debate and lawsuits The new rule extends overtime pay for an estimated 1.3million workers, CNBC reports.

Previously, workers earning a salary rather than an hourly wage were entitled to overtime pay if they made under $23,660 per year. The new rule has raised the threshold to $35,568, well below 2016’s $47,000 threshold which was introduced under the Obama administration. 

Workers who are not exempt must be paid at least one and a half times their regular wage after working above 40 hours a week. Salaried employees earning under a specified amount and carrying out executive, administrative or professional duties are also exempt.

To comply with the new rule companies will pay out more wages. However, the overall benefits for workers are mixed. Margaret Ferrero - vice president and assistant general counsel at ADP - said, “In a compromise, no one is truly happy. It’s leaving behind workers who could get better overtime protections under the 2016 rule proposal. The big thing is really for employers to get the analysis done sooner rather than later.” (Link via original reporting)

Companies have expressed relief that the threshold is lower than originally proposed. The threshold of $23,660 a year has not changed since it was set by the Bush administration in 2004. In a September statement Patrick Pizzella - acting U.S. Secretary of Labor - said the new rule “brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers.”

Yet workers continue to make a wage loss. In 1975, the threshold was $8,060 - equivalent to around $50,440 by 2014 - and in 2016 the original rule was intended to bring salaries in line with inflation and the increased cost of living. Before the rule could go into effect, a district court judge in Texas blocked it nationwide. Companies claimed the new limit was too high.

Going forward, it is important for companies to look at their workforce according to both salary and job descriptions. The executive, administrative and professional exemption tests have two parts. The first requires that employees are paid on a salaried basis that meets the minimum threshold. The second part of the test - which is regularly overlooked - requires that employees also carry out certain duties.

“It’s a common misconception that just because someone is paid on a salaried basis, they are exempt,” Krista Slosburg - an employment attorney at Stokes Lawrence in Seattle - reportedly said, “It’s that aspect of the test that requires a bit more analysis. I’ve been counselling employers that it’s a good time to revisit job descriptions and conduct internal audits to verify that employees have been properly classified,” Ms Slosburg continued.