(Reuters) - The U.S. Department of Labor on Tuesday issued a long-awaited rule extending mandatory overtime pay for 1.3 million U.S. workers, far fewer than an Obama administration rule that was struck down by a federal judge.
Currently, workers who earn a salary rather than hourly wages are automatically entitled to overtime pay only if they earn less than $23,660 a year, a figure set in 2004. The new rule will raise the threshold to $35,568 when it takes effect on Jan. 1.
Employers must pay eligible workers one and one-half times their regular rate of pay when they work more than 40 hours in a week. Workers who earn above the salary threshold may still be eligible for overtime pay if they do not primarily perform management-related duties.
Several states including California and New York have salary thresholds for determining overtime eligibility that are higher than the federal standard.
Acting Secretary of Labor Patrick Pizzella said during a call with reporters that the department “believes there will be a broad consensus that more overtime pay for America’s workers is a positive step forward.”
The Labor Department in 2016 doubled the salary threshold to about $47,000, extending mandatory overtime pay to about 4 million U.S. workers.
A federal judge in Texas ruled the following year, however, that the ceiling was set so high that it could sweep in some management workers who are supposed to be exempt from overtime pay protections. (reut.rs/2x8Lr66)
Business groups have closely tracked changes to overtime pay regulations and were critical of the Obama-era rule. Class-action lawsuits alleging unpaid overtime are common, and large companies often pay millions of dollars to settle them.
A higher salary threshold could lead to more lawsuits, since many more workers would be covered by the federal law mandating overtime pay. Trade groups have also said a higher overtime threshold could push employers to cut some workers’ hours.
Christine Owens, the executive director of the union-backed National Employment Law Project, said in a statement that the rule excludes millions of workers in various industries who should be earning mandatory overtime pay.
Owens said the rule could be vulnerable to a legal challenge because it was rushed through the regulatory process without the proper consideration of its economic impact.
However, Susan Harthill of the law firm Morgan Lewis & Bockius, who represents employers, said the rule provides much-needed certainty after the Obama-era regulation was struck down.
She said that while private-sector industries will be the most affected, the lower salary threshold is also important for non-profits and state and local governments, whose employees are often paid less than private-sector workers.
Reporting by Daniel Wiessner in New York; Editing by Kevin Liffey and Steve Orlofsky,