As you’ve likely heard by now, a new overtime rule was set to go into effect on December 1st, 2016, that would have expanded the number of people eligible for overtime pay by millions. Currently, workers who make less than $23,660 are automatically eligible for overtime pay; the new rules would have extended overtime benefits to anyone making less than $47,476.
However, the measure was blocked in federal court just before going into effect, with opponents claiming that the Obama administration and the Department of Labor (DOL) had overstepped their executive authority by so drastically increasing the salary limit.
The DOL has said it “strongly disagrees” with the court’s decision. With the election of Donald Trump, who has vowed to roll back many of President Obama’s initiatives, the future of overtime expansion is unclear. Many groups, such as the National Retail Federation, have opposed the rule while expressing some support for a less drastic increase in the limity.
The Preliminary Effects
There was a long lead time on the overtime rule, and many companies had already begun to prepare for it by the time it was blocked.
“Employers were given more than six months to prepare for the final rule change under the Obama administration, and iCIMS data shows that many employers across various industries, geographical areas, and company sizes have already raised salaries and taken other measures in anticipation of the overtime rule change,” says Josh Wright, chief economist for iCIMS, a provider of talent acquisition software-as-a-service solutions. “While some of this may be due to the influence of upward wage pressure from the tightening labor market as a whole, it would be surprising if employers did not prepare carefully for this rule change.”
According to iCIMS’s findings, employers of many sizes had already taken steps to comply with the overtime rule by decreasing the proportions of newly eligible employees in their workforces.
“Specifically, larger companies appear to be the most attentive in preparing for the potential new regulations, consistent with their resources to monitor and respond to policy changes in a proactive manner,” Wright says. “Relative to smaller companies, they saw larger decreases in the proportion of lower salaries, and this shift began in 2015.”
It is unclear what will happen to the overtime rule in the new political environment. Many feel that Andy Puzder, Donald Trump’s pick to head up the DOL, will put an end to any government opposition to the injunction. As result, the overtime rule will likely fade into obscurity.
But that may not be the case – at least not right away.
“While the early signs indicate the Trump administration will seek to roll back, delay, or weaken the overtime rule change to some extent, it’s not clear how high a priority this will be, since it wasn’t a prominent campaign theme,” Wright says. “With a Republican-controlled Congress, there are a variety of legislative and executive strategies that the administration could employ, but so far this doesn’t look like a particularly easy win. Formally revising the rule would require another drawn-out comment period, and the prospects for new legislation on this point are unclear.”
Even if nothing of the overtime rule survives, that doesn’t necessarily mean that workers won’t eventually win better paychecks.
“Growing income inequality has become a hot topic, and with the debate on overtime pay newly reopened, the need for informed analysis has only grown,” Wright says. “The good news from the worker perspective is that the tight labor market has already been pushing wages up over the last year or two. iCIMS data shows that even small businesses have been raising salaries.”
With the dawning of the new year, 19 states have increased their minimum wages, and the #Fightfor15 movement shows no signs of going away. Non-government supporters of the overtime rule likely won’t disappear either. Even if the rule doesn’t survive the first few months of a Trump administration, the discussion will likely continue.
“At stake are some familiar themes about labor relations, income inequality, and job creation,” Wright says. “There are some important historical points to bear in mind about the original scope of the rule – such as that it used to cover a much larger portion of the U.S. population.”
Wright says that the federal injunction does underline one critical complication: Not only have prices and incomes risen over the years since the original overtime limit was put into effect, but the very nature of the U.S. economy and the composition of the country’s workforce have shifted.
“Which workers need how much protection now? Will employers make different trade-offs between job creation and wage adjustments? These are the debates we should be having,” Wright says.