A Significant Shift in Overtime Eligibility
Salaried workers who have long been ineligible for overtime pay could be in for a significant change thanks to a new regulation proposed by the Biden administration. The Department of Labor’s latest rule requires employers to compensate full-time workers in management, administrative, or other professional roles for any overtime hours worked if their annual salary falls below $55,068. This is a notable increase from the current salary threshold of $35,568, and it is expected to impact approximately 3.6 million workers across the United States.
Automatic Updates for Overtime Eligibility
One of the key features of this proposed rule is its provision for automatic updates to the salary threshold every three years to align with changes in earnings. Additionally, U.S. territories subject to the federal minimum wage would also benefit from these overtime protections, effectively reversing a policy change implemented during the Trump administration in 2019.
Worker Sacrifice Recognized
Acting Secretary of Labor Julie Su emphasized the importance of this regulation, stating, “I’ve heard from workers again and again about working long hours for no extra pay, all while earning low salaries that don’t come anywhere close to compensating them for their sacrifice.”
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Public Support and Feedback
Under the new rule, the standard salary level would be linked to the 35th percentile of weekly earnings among salaried workers in the lowest-wage region of the country. Public support for these changes is evident, with a 2022 Data for Progress survey of likely voters revealing that 65% either strongly supported or somewhat supported raising the salary threshold for overtime pay.
The proposed rule will undergo a public comment period as part of the rulemaking process, allowing supporters and opponents to provide feedback. This process may extend over several months, potentially delaying its finalization until the following year. Labor rights advocates and economists anticipate that the regulation will significantly impact workers in retail, restaurants, and healthcare.
Addressing Overtime Pay Evasion
Judy Conti, the director of government affairs at the National Employment Law Project, a worker advocacy nonprofit, highlighted a common practice among employers of paying workers just above the current threshold to avoid paying overtime. She believes the proposed rule will rectify this issue by giving more workers the overtime pay they deserve.
Conti explained, “A lot of these dollar stores call people managers and supervisors and pay them $36,000 a year. Then they claim that they’re overtime exempt, and they may do a little managing, and they may do a little supervising, but mostly they’re working the cash register, stocking shelves, or unloading in the back. They’re not doing work considered bona fide executive, professional, or administrative work.”
Incentive for Efficient Time Management
She further noted that this regulation would incentivize employers to manage employee time more efficiently or hire additional workers to handle the workload. “There’s [currently] no incentive to manage that time wisely and see if it should instead be spread to other people,” Conti said.
Fairness to Employers
Erica Groshen, senior economics adviser at the Cornell University School of Industrial and Labor Relations, emphasized the need for fairness to employers. She explained, “I think the important thing to realize is that this will affect all those employers equally. It’s not putting some at a disadvantage compared to others. It’s going to change the playing field for everybody.”
Potential Economic Effects
Regarding potential economic effects, Groshen suggested that there might be some pass-through to consumer prices, depending on industry competitiveness. She noted, “To the extent that these companies are quite profitable, employers might try to hold on to market share by not increasing prices as much. Their profits might be a bit lower.”
Automation Considerations
In terms of automation, she speculated that some employers might consider automating services, such as electronic ordering at restaurants or investing in food preparation equipment to offset the potential increase in labor costs.
Past Policy Changes and Legal Challenges
The Trump administration had previously altered the salary threshold in 2019, raising it from $23,660, set in 2004, to the current level of $35,568. This figure was significantly lower than the $47,476 threshold proposed by the Obama administration in 2016, a change that was blocked by a federal judge who deemed it too high and questioned the administration’s authority to make such a change.
Twenty-one states, including Nevada, Arizona, Kentucky, and Wisconsin, brought the lawsuit against the rule, arguing that it could strain state budgets and was unconstitutional. In 2017, the same judge ruled against the regulation once again.
Optimism Amid Legal Challenges
However, Conti expressed optimism that the current rule is less likely to be blocked, asserting that the judge’s reasoning for stopping its implementation lacked “legal or economic support.” Nonetheless, attorneys specializing in employment and labor law anticipate potential legal challenges to the rule, with some suggesting that the absence of a Senate-confirmed labor secretary could make it more vulnerable to such actions. President Biden nominated Julie Su for labor secretary six months ago, but confirmation is still pending.
Mixed Industry Reactions
Many groups that opposed or criticized the overtime regulation overhaul during the Obama administration have taken similar positions on the Biden administration’s effort. FOR INSTANCE, the U.S. Chamber of Commerce has called on the Department of Labor to “adjust” the rule without specifying what changes it seeks while criticizing the proposal to automatically adjust the salary threshold every few years.
Industry groups like the National Restaurant Association and the National Association of Manufacturers have echoed similar concerns about the rule’s potential impact.
Economic and Employee Benefits
Conti, however, sees the proposed rule as a catalyst for economic growth and a positive change for employees and employers. “Adding jobs and getting more money into more people’s hands is good for the economy,” she argued. “We’ve seen a lot of workers over the past couple of years walking away from jobs when they’re overworked, don’t have time for themselves, and don’t have time for their families. Ensuring workers have moderate work weeks that are 40 hours is good for employers. They’re not going to burn out their employees.”
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