The Biden administration has proposed a significant increase in the cutoff for overtime pay for salaried workers, a move that could impact millions of workers. The proposed rule, issued by the Labor Department, would raise the cutoff for receiving overtime pay after 40 hours a week from about $35,500 to approximately $55,000 per year. This change would make about 3.6 million salaried workers eligible for overtime pay.
According to Julie Su, the department’s acting secretary, this rule aims to restore economic security for workers by expanding overtime protections. The department estimates that this new rule would result in a transfer of about $1.2 billion from employers to employees in its first year.
However, some industry groups, particularly in retail, dining, and hospitality businesses, have expressed concerns about expanded overtime eligibility. They argue that this could lead employers to convert salaried workers to hourly workers and adjust their base wages to compensate for overtime hours. Additionally, they claim that expanding overtime eligibility may discourage employers from promoting workers to junior management positions, as they would have to pay overtime to these employees.
It’s worth noting that this proposal follows a similar attempt by the Obama administration in 2016, which was later suspended by a federal judge in Texas. The judge concluded that the Labor Department lacked the authority to raise the overtime cutoff to such a significant extent. The Trump administration subsequently set the limit at $35,500.
Under the Biden administration’s proposal, the overtime limit would automatically adjust every three years to keep up with rising earnings. The Labor Department is currently accepting public comments on the rule before finalizing it.
One of the key advantages of raising the salary threshold is that it would prevent employers from misclassifying workers as managers to avoid paying them overtime. Currently, employers are not required to pay overtime to workers above the salary cutoff if they are bona fide executives or managers. However, research has shown that many companies exploit this loophole by raising salaries just above the cutoff and labeling employees as managers, even if they do minimal managerial work. By raising the threshold, this practice would become less common, and more workers would be eligible for overtime pay based on their job responsibilities rather than subjective criteria.
Overall, this proposed rule aligns with President Biden’s commitment to increasing pay and protections for workers. It is part of a broader effort to support labor unions and improve workers’ economic conditions. However, there may be potential legal challenges to the rule, similar to those that derailed the Obama-era rule. Some speculate that the president’s rationale for the proposal may also be linked to his support for workers during the upcoming presidential campaign in 2024. Regardless, the Biden administration remains determined to prioritize workers’ rights and expand eligibility for overtime pay.
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