Department of Labor’s new rule for overtime pay takes effect

A new rule from the Department of Labor went into effect Monday, expanding the number of workers who are eligible for overtime pay. But implementation could be delayed by pending court cases.

The rule increases the salary threshold for workers exempt from overtime from $35,568 to $43,888. Further, the threshold will increase again on Jan. 1 to $58,656, and will be adjusted every three years.

One Texas court on Friday issued an opinion that stays the rule, but only in Texas, according to ASTA general counsel Peter Lobasso. The rule is in effect for the rest of the country.

“Note, though, that there are two other pending cases, and the court in either could issue a broader injunction at some point in the coming weeks,” Lobasso said Monday.

During a webinar for ASTA members on Friday, Lobasso said it was “entirely possible” that a temporary injunction will be put into place, postponing the rule’s implementation. He also said that based on legal precedent, there is a good chance a challenge would be successful; a similar rule was issued under the Obama administration in 2016 that was ultimately invalidated.

But as it stands today, Lobasso said, agency owners have options if their agency has employees with a salary under $43,888.

First, he recommended ensuring employees are properly classified, ensuring that salaried employees are not performing duties that would make them eligible for overtime pay. 

Also, the agency could opt to give employees a raise if they’re near but under the $43,888 threshold.

Lobasso added that it could be more cost-effective to reclassify a worker as overtime-eligible, paying them on an hourly basis. The downside is adding the burden of hours-tracking. Whether that strategy is cost-effective would depend on how many hours of overtime an employee works per week. ASTA has created a formula to assist members in the calculations.

Also, qualifying agencies are able to employ the Department of Labor’s exemption for retail or service businesses. The exemption, which ASTA helped secure for travel agencies, relieves the employer from having to pay overtime.

To be considered a retail establishment, at least 75% of sales must not be for resale and sales must be retail sales or services. Most travel agencies meet that criteria.

For employees to qualify, their rate of pay has to be more than 1.5 times the minimum wage in the state or city where they work, and more than half of earnings must come from commissions. Lobasso noted adjustments could be made to meet that commission requirement and maintain the same salary.

“It’s a viable option for a lot of travel agency owners,” he said.