In a move that could affect millions of workers, the Biden administration proposes to increase overtime pay cutoff

Introduction

In a move that could affect millions of workers, the Biden administration announced Wednesday that it was proposing to substantially increase the cutoff below which most salaried workers automatically receive time-and-a-half overtime pay.

Proposed Rule Details

Under the proposed rule, issued by the Labor Department, the cutoff for receiving overtime pay after 40 hours a week would rise to about $55,000 a year from about $35,500, a level that was set during the Trump administration. About 3.6 million salaried workers, most of whom fall between the current cutoff and the new one, would effectively gain overtime pay eligibility under the proposed rule, the department said. Julie Su, the department’s acting secretary, said in a statement that the rule “would help restore workers’ economic security by giving millions more salaried workers the right to overtime protections.”

Implications and Opposition

• The department estimated that the rule would result in a transfer of $1.2 billion from employers to employees in its first year.
• Some industry groups argue that expanded overtime eligibility could lead many employers to convert salaried workers to hourly workers and set their base wage so that their overall pay, with the usual overtime hours, would be unchanged.
• These groups also suggest that vastly expanding overtime eligibility could discourage employers from promoting workers to junior management positions that provide a path to well-paying careers.
• Small business advocates argue that to prevent triggering new overtime costs, many small businesses will be forced to demote employees back to hourly wage earners, reversing their career progression.

Previous Attempts and Proposed Adjustments

The proposal follows a similar move by the Obama administration in 2016, which sought to raise the overtime cutoff to about $47,500. But a federal judge in Texas suspended the Obama rule. The Trump administration later installed the $35,500 limit. Under the Biden administration’s proposal, the overtime limit would automatically adjust every three years to keep pace with rising earnings.

Preventing Misclassification

Advocates of a higher cutoff argue that one key benefit would be to prevent employers from misclassifying workers as managers to avoid paying them overtime. Research has shown that many companies illegally deny workers overtime by raising their salaries just above the cutoff and simply labeling them managers, even if they do little managerial work.

Increasing Worker Protections

Raising the salary threshold would make misclassification less common by eliminating subjectivity in determining which workers should receive overtime pay. The proposal is the latest effort by the Biden administration to increase pay and protections for workers. President Biden has been outspoken in his support of labor unions.

Possible Legal Challenges

The proposed overtime rule could face legal challenges like the ones that derailed the Obama-era rule, suggesting that the president’s rationale for the proposal may be as much about communicating his support for workers during the 2024 presidential campaign as it is about significantly expanding eligibility for overtime.