Millions of U.S. workers may now become eligible for overtime pay under an overhaul of wage rules announced by the Biden administration today.
The rule, which would make workers earning up to $55,000 a year eligible for overtime, is intended to reverse four decades of reducing the number of workers qualified to earn overtime pay. As Capital & Main reported in a series of stories last year, overtime pay has steadily eroded, so that the percentage of workers eligible for overtime is now a fraction of what it was in the 1970s.
Currently, workers who earn more than $35,568 annually are not eligible for overtime. An estimated 15% of full-time salaried workers qualified for overtime in 2022, down from more than 60% of full-time salaried workers in 1975. The new eligibility rule could make 3.6 million more U.S. workers eligible for overtime pay, according to the administration. Overtime is defined by the Fair Labor Standards Act as 1.5 times one’s hourly pay rate after working more than 40 hours per week.
“For over 80 years, a cornerstone of workers’ rights in this country is the right to a 40-hour workweek, the promise that you get to go home after 40 hours or you get higher pay for each extra hour that you spend laboring away from your loved ones,” said Acting Secretary of Labor Julie Su. “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 sacrifices. Today, the Biden-Harris administration is proposing a rule that would help restore workers’ economic security by giving millions more salaried workers the right to overtime protections if they earn less than $55,000 a year.”
In 2014, the Obama administration sought to more than double the exemption threshold from $23,660 to $47,476, but the proposal was shot down by a federal judge in Texas. At that time, fewer than 7% of U.S. workers qualified for overtime.
In 2019, the Trump administration increased the threshold to $35,568, which was still considered inadequate by worker advocates, and was not pegged to cost of living increases, meaning that it was frozen at that level.
The new exemption threshold, while falling far below the recommendations of lawmakers and worker advocates, was praised because it includes automatic annual increases, meaning that it will grow over time. The changes will have a major impact on the workforce by setting a floor — states can increase the exemption threshold, and some states like Washington plan to phase in increases up to $85,000 by 2028, but they cannot set a threshold lower than the federal standard.
Worker advocacy organizations welcome the overhaul. “Once this rule goes into effect, some workers will get paid more money for the extra time they put in on the job, some workers will get their time back and be better able to balance their work and personal lives, and some workers will get new jobs or extra hours as work is spread out among more people,” said Judy Conti, government affairs director of the National Employment Law Project. “All of these things are great results.”
Soon after Biden took office, his then-Secretary of Labor Marty Walsh appeared before Congress and asserted that the salary threshold was “definitely too low” and hinted at an increase. A few months later, the Department of Labor listed a new overtime rule in its regulatory agenda, and DOL spent several months in virtual town halls with employees and employers around the country to get their input, with an expectation to announce the new rule in the spring of 2022. It was pushed back to October 2022 and then into the spring of 2023, likely due to the confirmation battle in the U.S. Senate over Julie Su, Biden’s nominee to succeed Walsh, as well as the nomination of Jessica Looman to lead the agency’s Wage and Hour Division, which oversees the overtime rule.
In anticipation of a significant increase, the administration had been heavily lobbied by both industry groups and labor unions. And it is expected that the rule will face a legal challenge, says Mark Wilson, the chief economist at the HR Policy Association, who also predicts a surge in class-action lawsuits by employees and an increase in legal and administrative costs for employers in the wake of the rule.
Even if the rule survives likely court challenges by employer groups, enforcing it may prove difficult given the limited resources of the DOL’s Wage and Hour Division. The agency is responsible for enforcing labor laws related to overtime pay, child labor, work visa programs, family and medical leave, among others, for 165 million workers across the country. Yet, while the workforce has grown over the last four decades, Wage and Hour’s team of investigators has shrunk from a high of 1,232 in 1978 to 810 at the end of last year, according to the Economic Policy Institute.
David Weil, dean of the Heller School for Social Policy and Management at Brandeis University and the architect of the Obama administration’s overtime wage proposals, said it was smart for the DOL to make sure the new rule is “legally defensible.” He added that “they’ve done a very good job at meeting all the questions put to the 2016 rule.” Weil was also pleased to see that automatic increases are included, since it provides more predictability to workers and employers.
