Employees who were previously not entitled to overtime pay would benefit from a proposed rule by the Biden administration.
The Labor Department's new rule would require employers to pay overtime to full-time employees in managerial, administrative or other professional roles who earn less than $55,068 a year. The current salary threshold is $35,568. The change is expected to affect 3.6 million workers.
The rule would also provide for automatic pay level adjustments every three years to keep pace with income changes. The same overtime protections would apply in U.S. territories that have the federal minimum wage, reversing a 2019 change made by the Trump administration.
“I have repeatedly heard of workers working long hours without additional pay while receiving low salaries that do not even begin to compensate for their sacrifices,” acting Labor Secretary Julie Su said in a statement.
The agency's proposed new standard salary level would be tied to the 35th percentile of weekly earnings for employees in the country's low-wage region. There is voter support for changing current rules. According to a Data for Progress survey of likely voters in 2022, 65% said they would either strongly or somewhat support raising the salary threshold for overtime pay.
As part of the legislative process, the rule will go through a public hearing to give supporters and opponents time to provide feedback. The process could take months, which could mean the rule won't be finalized until next year. Labor rights activists and economists say people who work in retail, food services and health care will be among the workers most affected by the rule.
Judy Conti, director of government affairs at the National Employment Law Project, a nonprofit labor advocacy group, said many workers who do overtime are paid just above the current threshold so their companies can avoid paying the 1.5-times premium. The proposed rule would help address that problem, she said.
“A lot of these dollar stores call their people managers and supervisors and pay them $36,000 a year. Then they claim they're exempt from overtime and maybe they do a little bit of managing and supervising, but mostly they're working the cash register, stocking shelves or unloading in the back. They're not doing any work that's considered really true managerial, professional or administrative work,” she said.
Conti added that this regulation would provide an incentive for employers to sensibly allocate their employees' working hours or hire more employees to cope with the workload.
“… There are [currently] “There is no incentive to really allocate this time sensibly and to consider whether it should not be divided among other people instead,” said Conti.
Erica Groshen, an economic adviser at Cornell University's School of Industrial and Labor Relations, said the rule should be fair to employers.
“I think it's important to recognise that this will affect all employers equally,” she said. “It doesn't disadvantage some over others. It will change the playing field for everyone. You could argue that it will change the playing field more for employers who have actively sought to take advantage of the erosion of the applicability of the law.”
Regarding the potential impact on the economy, Groshen said that depending on the competitiveness of the industry, there could be some price averaging for consumers.
“To the extent that these companies are fairly profitable, employers might try to maintain their market share by not raising prices as much. Their profits might be a little lower. Right now, nationally, profit rates are actually quite high. They've been high for some time and are continuing to rise. This would tend to reduce inequality if it comes from profits. Otherwise, the money is going to come from somewhere,” Groshen said.
This could mean that some employers would automate more services, such as electronic ordering in restaurants or purchasing food preparation equipment, she added.
The Trump administration last changed the salary threshold in 2019 from $23,660, which was set in 2004, to the current salary level of $35,568. This was well below the level of $47,476 that the Obama administration wanted to introduce in 2016. A federal judge blocked the Obama administration's plan on the grounds that the threshold was too high and that the government did not have the authority to make this specific change. 21 states, including Nevada, Arizona, Kentucky and Wisconsin, filed suit, arguing that the rule could “intentionally deplete state budgets” and was unconstitutional. In 2017, the same judge, an Obama appointee, again ruled against the rule.
Conti said she is optimistic the rule is less likely to be blocked this time. She argues that the judge's reasoning for stopping the rule's implementation is “legally or economically unsound.” However, lawyers at labor law firms still expect legal action against the rule. Some lawyers say the lack of a Senate-confirmed labor secretary makes the rule more vulnerable to legal action. Biden nominated Su as labor secretary six months ago.
Many of the same groups that opposed or criticized overhauls of overtime rules during the Obama administration have now taken similar positions on the Biden administration's efforts. The U.S. Chamber of Commerce has called on the Labor Department to “adjust” the rule. It did not provide specifics on what it wants the agency to do, but criticized the department's proposal to automatically change the salary threshold every few years.
“The Labor Department's proposed overtime rule is the wrong rule at the wrong time,” Marc Freedman, the U.S. Chamber of Commerce's vice president for labor policy, said in a statement. “It represents a more than 50% increase in the salary threshold and will increase costs for small businesses, nonprofits and other employers at a time when companies are already facing persistent staffing shortages that are hampering the economy.”
Industry associations such as the National Restaurant Association and the National Association of Manufacturers have criticized the regulation for similar reasons.
Conti said she sees the proposed regulation as stimulating for the economy and good for both employees and employers.
“Creating jobs and giving more money to more people is good for the economy,” said Conti. “We have seen many workers quit their jobs in recent years because they were overworked, because they had no time for themselves and their families. It is good for employers if employees have a moderate work week of 40 hours. This way they can prevent their employees from burning out.”
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