An additional 1.3 million U.S. workers will see an increase in pay in the new year after new rules from the Labor Department go into effect on Jan. 1, 2020.
Under the new federal rules, more workers will be eligible for overtime pay if they log more than 40 hours a week, after the department raised the threshold—for the first time in more than 15 years—for when employees are exempted from being paid overtime.
The new threshold will rise to $684 per week, or $35,568 a year, which is a 50 percent increase from the current threshold of $455 per week, or $23,660 a year. The rules will also allow employers to cover up to 10 percent of the threshold with bonuses and commissions that are paid at least annually or more frequently.
The purpose of the new threshold is to exempt executive, administrative, or professional employees from the Fair Labor Standards Act’s minimum wage and overtime pay requirements, the department said. It added that the new threshold would take into account wage and salary growth since 2004.
The new rules are largely accepted by businesses, who were given ample notice on the proposed rule. The department had opened up the development of the new rule in a 2017 Request for Information, listening sessions in 2018, and had asked for comments on the proposed rule in March. The department noted that those who participated in the sessions or commented agreed that the thresholds needed to be updated, due to growth to salaries and wages.
The Obama administration had attempted to make changes to the overtime pay rules by proposing a larger exemption threshold of $47,476 a year. Under Obama’s rule, more than 4 million additional workers would have qualified for overtime pay. However, the 2016 rule was blocked by a federal court, after many business groups and states challenged it.
“This rule brings a commonsense approach that offers consistency and certainty for employers as well as clarity and prosperity for American workers,” then-acting Secretary of Labor Patrick Pizzella said in a statement, at the time the final rule was issued.
Along with the federal rule, some states have started pushing their own proposals to allow more workers to fall within the eligibility requirements for overtime pay. Currently, California and New York have their own exemption thresholds.
In California, the threshold is twice the minimum wage, which changes from year to year. This year, the threshold workers can earn before they are exempted from being paid overtime is $49,920. That changes next year to $54,080, after the state minimum wage is increased.
Earlier this month, Washington state approved new overtime rules starting on July 1, 2020, that would incrementally increase the exempt salary threshold until 2028, which is expected to reach $83,356 a year (pdf). The state estimates that about 259,000 additional workers will be covered by the new rule when it is fully implemented.
Federal law doesn’t prevent states from establishing their own standards for overtime. If state law provides a more protective standard than the federal law, the higher standard applies.