The Labor Department announced Tuesday that it had finalized a rule expanding overtime pay eligibility to up to 1.3 million workers, though critics say it leaves out millions more.
Meanwhile, Washington state officials are moving toward a December decision on raising the state’s overtime threshold for the first time in four decades, a move that could eventually cause an estimated 252,000 people in the state to be eligible for time-and-a-half pay.
Under the new federal rule, most salaried workers who earn less than about $35,500 per year will be eligible for overtime pay, up from the current threshold of about $23,700.
The federal rule is scheduled to take effect on Jan. 1, and will be the governing law in Washington state for six months. Then, on July 1, Washington’s proposed rule, now entering its final stages of development after more than a year and thousands of public comments, would take effect.
The state rule proposes to raise the salary threshold for some workers here — those at companies with 51 or more employees — to $49,140, the first of several planned incremental increases toward a proposed salary level of 2.5 times the state minimum wage.
But it gets more complicated. Washington’s proposed rule would give smaller employers more time to ramp up. The salary threshold for Washington state employers with 50 or fewer employees increases July 1 to $35,100 — still below the new federal threshold, meaning the federal rules would govern overtime pay at those companies. Then, on Jan. 1, 2021, the overtime salary threshold for small employers here is projected to increase again, to $50,180, bringing them under Washington state law.
By 2026, the rising wage floor would make some 252,000 Washington state workers eligible for time-and-a-half pay for work beyond 40 hours in a seven-day week, according to the Washington Department of Labor and Industries. The rule would also raise minimum hourly wages paid to some tech industry employees exempt from overtime.
The pay thresholds would continue rising indefinitely as the state minimum wage is adjusted upward each year with inflation. The federal rule has no such automatic increase.
The state salary thresholds are subject to change as the department considers public input on the proposed rule and moves toward a final decision expected in early December, said spokesman Tim Church.
Another test of overtime eligibility — the so-called job duties requirements — is expected to be substantially the same in both the new federal and proposed new state rules.
Washington state regulators had delayed the start of a rule-making process to raise the overtime salary threshold until federal revisions, begun in 2016 under the Obama administration, were completed.
The Obama administration raised the threshold considerably higher than the new federal rule announced Tuesday in an effort to cover millions more workers, but a federal judge first suspended and later invalidated the rule, which never took effect.
The current federal salary limit was set by the George W. Bush administration in 2004. Washington has left its overtime salary threshold unchanged since 1976.
“This rule brings a common-sense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers,” Patrick Pizzella, the acting labor secretary, said in a statement.
Many employers and business groups had supported an increase in the federal limit but argued that the Obama threshold of about $47,500 was simply too high. They warned that it would require businesses to suddenly pay out hundreds of millions of dollars in overtime compensation or raises intended to move workers above the new threshold.
“Had the Obama administration adopted a number that had three in front of it, they would not have been sued,” said Tammy McCutchen, one of the authors of the Bush increase who is now a lawyer at the management-side firm Littler Mendelson.
The Obama administration had argued that its rule was in line with historical increases, and that it left fewer salaried workers eligible for overtime than had been eligible in 1975.
“While the (Trump) administration may be trumpeting this rule as a good thing for workers, that is a ruse,” Heidi Shierholz, a former Labor Department chief economist who helped develop the Obama rule, said in a statement. “In reality, the rule leaves behind millions of workers who would have received overtime protections under the much stronger rule, published in 2016, that Trump administration abandoned.”
The Trump administration had appealed the decision that struck down the Obama rule but asked the court to suspend its appeal while it worked on a replacement.
In an analysis of the rule that the Labor Department proposed in March, which closely resembles the final version announced Tuesday, Shierholz estimated that the Trump rule would yield workers $300 million to $600 million per year in wage increases over the next decade. But that amount was over $1 billion per year less, on average, than the wage gains that the Obama rule would have produced, according to her estimates.
Salaried workers who make more than the legal threshold can also be eligible for overtime pay if they lack substantial decision-making authority. But the Obama administration argued that employers had either ignored this so-called duties test or circumvented it by giving low-level workers loftier titles, which made the salary threshold the de facto standard.
President Donald Trump’s first nominee for labor secretary, Andrew Puzder, strongly opposed a significant increase in overtime eligibility. But Alexander Acosta, who replaced Puzder after his nomination collapsed amid personal controversy, took a more conciliatory tack. Acosta endorsed a threshold in the low $30,000s during his 2017 confirmation hearings.
Acosta resigned as labor secretary in July amid criticism of his handling of a sex-crimes case against financier Jeffrey Epstein when Acosta was a federal prosecutor in South Florida. On Tuesday, a Senate committee voted to advance the nomination of Acosta’s proposed successor, Eugene Scalia, along party lines. The full Senate could vote within days on Scalia, a son of Supreme Court Justice Antonin Scalia, who died in 2016.
The Trump administration has felt a sense of urgency about the proposed rule.
Congress can reject a rule within a mandated review period. Many in the business community did not want to risk giving a future Democratic Congress and president a chance to replace the Trump rule with a higher salary limit if Republicans lose power in next year’s elections. With the rule now completed, the congressional review window will close within a few months.
The rule could nonetheless become a campaign issue given the president’s stated commitment to protect workers. “Through this rule, the Trump administration is breaking its promise to hardworking Americans,” Sen. Sherrod Brown, D-Ohio, said in a statement. “By failing to stand up for workers and expanding the overtime rule, the president is failing to put workers first and is driving down the value of work.”
In its 2016 rule, the Obama administration sought to adjust the salary limit automatically every three years to keep up with rising wages, an approach the new rule abandons in favor of simply urging the department to update the limit “more regularly.” McCutchen said there was nothing in the law underlying the rule to justify automatic increases.
Seattle Times business reporter Benjamin Romano contributed to this report.