The Obama administration’s effort to rewrite the federal rule covering overtime, while dead, is likely to succeed in one respect: It is forcing the Trump administration to do its own update of the rule. Observers on both sides agree that will almost certainly force the Trump White House to expand the number of people covered by the overtime rule, even if it doesn’t go as far as former President Barack Obama wanted.
Federal law says employees must be paid time-and-a-half once they work more than 40 hours in a week. However, businesses may exempt workers from the requirement if their duties are “managerial” in nature and they reach a certain salary threshold. Last year, the Labor Department announced that the threshold, previously $23,000 annually, would rise to more than $47,000 and would be updated every three years to reflect wage growth. The administration’s rule change would have meant that 4 million more workers would be eligible for overtime.
The Obama change was declared unconstitutional by a Texas court last month, and the Labor Department said it would not challenge the ruling. However, the department has reopened the overtime rule to public comment. That is a prerequisite for rolling back Obama’s change, but it also means the administration must propose its own rule. Labor Secretary Alexander Acosta said during his Senate confirmation hearings that while the Obama administration went too far, the overtime rule needed to be updated. That has policy advocates on both sides wondering what the White House will eventually replace it with.
The administration will likely make that clear in the coming weeks or months, with Sept. 25 the deadline for public comments. Following that, the administration must put out its own recommendation for public comment.
The expectation of many on both sides is that the Trump administration will take the pre-Obama version of the rule, which came out in 2004, and adjust it for inflation. The first question the administration asked in its public request for comments was, “Would updating the 2004 salary level for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used?” That would set the salary threshold at about $30,000.
That is exactly what many businesses are hoping the administration settles on. “We believe the [Labor Department] should use the methodology used in 2004 so the new level would just be an update of that,” said a source at one major trade association who requested anonymity.
Others are concerned about how many other elements of the Obama-era rule will remain intact. “The previous rule had an automatic increase for the threshold tied to the Consumer Price Index. The thing to watch is whether the administration hangs on to that,” said a source at another trade association who requested anonymity.
There is a danger for the administration in setting the threshold too low, though, notes Heidi Shierholz, senior economist for the liberal Economic Policy Institute. That would force the administration to rewrite the “duties test,” the question of what type of work an employee can do before being exempted. The Obama administration’s high threshold rendered the duties test moot — that was was the basis of the Texas court’s ruling – but reducing the threshold would make it relevant again.
“A high threshold is associated with a less stringent test,” Shierholz said. A stringent test would force employers to be more careful about who they exempt and invite more scrutiny from regulators, which businesses don’t want, either.
The administration also has to keep in mind that their rule has to be able to withstand legal scrutiny better than Obama’s did, or it’s back to square one. “You’d think they wouldn’t want to put out a rule that was open to challenge,” Shierholz said, adding that with the current administration, “you never know.”
President Obama’s administration said it was merely updating the Fair Labor Standards Act to reflect current employment policies. Business groups and several states opposed the rule, saying it set the management threshold too high. They challenged it in court and in November the Texas court stayed it.
