Millions of New Workers Eligible for Overtime Under DOL Rule (2)

Roughly 4 million workers will take home more money when they work more than 40 hours a week under a new US Labor Department rule that expands overtime pay eligibility under federal law.

The highly anticipated final rule released Tuesday changes the salary threshold used to determine whether a worker is exempt from overtime pay so that workers making less than $58,656 are automatically owed time-and-a-half wages.

That threshold will apply to a large swath of industries, but is expected to have the broadest impacts in the retail and hospitality sectors. The figure will be revised every three years, with no cutoff date for the updates.

Once published in the Federal Register, the changes will start to take effect on July 1.

“Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay,” acting Labor Secretary Julie Su said in a written statement on the rule. “That is unacceptable.”

Worker advocacy groups and Democrats have applauded the rule for ensuring that the lowest earning workers get more of their time back, or are paid fairly for working extra hours.

“Rather than relying on unpaid or off-the-clock overtime hours, businesses may now choose to reassess workloads, consider hiring additional staff, and/or convert part-time workers to full-time,” the National Employment Law Project said in a press release on the rule. “This shift will foster both a healthier work-life balance and an environment where employees are compensated with fair pay, which can also result in new hiring.”

But business groups have warned the policy change will unreasonably drive up payroll costs, with some already saying they plan to challenge the rule.

“This rule is another costly hoop for small business owners to jump through,” said Beth Milito, executive director of the National Federation of Independent Business’ Small Business Legal Center. “Small businesses will need to spend valuable time evaluating their workforce to properly adjust salaries or reclassify employees in accordance with this complicated mandate.”

David French, executive vice president of government relations at the National Retail Federation, raised concerns about the rule’s automatic triannual updates, noting that it exceeds “the Department’s legal authority and oversteps longstanding Fair Labor Standards Act and Administrative Procedure Act principles.”

Legal threats against the rule land as the agency was already operating carefully around a 2017 Texas federal court ruling striking down a similar attempt by the Obama administration to raise the overtime salary threshold to $47,476.

Dozens of states and national business groups representing a broad swath of industries joined in the lawsuit against the Obama rule, including the National Retail Federation, the National Association of Homebuilders, the International Franchise Association, the American Bakers Association, and the National Association of Manufacturers.

New Salary Threshold

The Fair Labor Standards Act has several provisions that exempt workers from overtime pay requirements. One of the major carveouts requires an employee to be salaried, make more than a certain amount per year, and work in a “bona fide executive, administrative, or professional capacity.”

Currently, salaried workers making less than $35,568 annually qualify for overtime pay when they work more than 40 hours in a week, a threshold last set by the Trump administration.

The Biden DOL last year initially proposed to raise the salary level to roughly $55,000. The final rule’s $58,656 threshold is based on newer Bureau of Labor Statistics salary data.

That ceiling will go into effect on Jan. 1, 2025, following an intermediate bump to $43,888 on July 1. Solicitor of Labor Seema Nanda said Tuesday the move responds to public comments urging a longer implementation period.

Notably, the first increase will use the methodology from the Trump-era rule, which sets the salary level based off of the 20th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South.

In January 2025, the agency will use new methodology tying the salary level to the 35th percentile of earnings in the poorest Census region.

The final rule also dropped some provisions included in the proposed version, like raising the overtime salary threshold for certain US territories that are currently subject to a looser standard.

Rule Impact

The Biden administration estimates the rule will benefit roughly 4 million workers by the time the final salary cap is implemented in January 2025.

Ultimately, the rule change will only impact about 3% of the workers who are covered by the FLSA, according to an analysis from the left-leaning Economic Policy Institute.

The largest share of workers who will see changes are in “professional and business services, health care and social services, and financial activities,” EPI found.

The agency also forecasts that the policy change will generate about $803 million in employer compliance costs over the first 10 years of its implementation.