The Department of Labor released details of new rules that double the threshold at which private-sector employees become eligible for overtime to $47,476.00 annually. Previously the cut off to receive overtime pay was $23,660, set in 2004.

President Obama
Photo courtesy of Creative Commons License
Photo courtesy of Creative Commons License

The rule will take effect on Dec. 1 and adds 4.2 million workers to the pool that must be paid 1.5 times their hourly wage for each hour worked beyond 40 hours a week.

The measure is intended to fight growing income inequality in America and will require no Congressional input.

Ed Brady, chairman of the National Association of Home Builders (NAHB), came out against the rule in a statement Wednesday: “The sheer arrogance displayed by the Department of Labor in failing to heed the concerns of the nation’s small business community will result in severe repercussions that will harm workers, small businesses, housing affordability, job growth and the economy.”

The Associated Builders and Contractors (ABC) also responded to the rule: “DOL’s overtime rule will rob employers of needed flexibility and employees of career advancement avenues, and it will have a disruptive effect on the construction industry as a whole,” said Kristen Swearingen, vice president of legislative and political affairs for ABC.

ABC has now thrown its full support for the “Protecting Workplace Advancement Opportunity Act," a bill designed to thwart the rule in the House by Rep. Tim Walberg (R-Mich.) and Rep. John Kline (R-Minn.) and in the Senate by Sen. Tim Scott (S.C.) and Sen. Lamar Alexander (R-Tenn.).

The Department of Labor published the rule online on Wednesday. Here are the key takeaways.

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

  • Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  • Sets the total annual compensation requirement for highly compensated employees, subject to a minimal duties test, to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  • Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level.

Critics say that the rule puts an unfair burden on employers by forcing companies to scale back hiring and by creating a need to closely monitor hours, which would impede on workers’ freedom.

Vice President Joe Biden, Secretary of Labor Thomas Perez, and Sen. Sherrod Brown (D-Ohio) will be unveiling the rule in Columbus, Ohio.

Secretary of Labor Thomas Perez wrote in defense of the rule in a post on Medium.
The White House fact sheet can be viewed here.

We will continue to cover this story as more industry leaders respond.

Check out our previous coverage on overtime pay below: