Millions more salaried workers will be eligible for overtime pay under final Biden administration rule

The Biden administration has finalized a rule that will extend overtime pay eligibility to millions of salaried employees. This move, which marks the largest expansion in federal overtime eligibility in decades, is set to take effect on July 1, 2023, and is anticipated to result in a substantial income transfer from employers to employees.

The new rule, announced by Acting Labor Secretary Julie Su, sets the salary threshold for overtime eligibility in two stages. Initially, the threshold will be raised to $43,888 annually or $844 weekly. By January 1, 2025, it will further increase to $58,656 annually or $1,128 weekly. This phased approach is designed to gradually introduce the changes, allowing both employers and employees to adjust to the new standards.

The Department of Labor estimates that approximately 4 million more workers will benefit from the rule when it is fully implemented. In its first year alone, the rule is expected to result in a $1.5 billion income transfer, primarily from new overtime premiums or salary increases to maintain exempt status for some affected employees.

The policy is a clear reflection of the administration's commitment to ensuring fair compensation for workers who put in extra hours. "This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time," Su stated. She further emphasized that "lower-paid salaried workers should not be expected to work longer hours without additional compensation."

The current threshold, set at $35,568 annually or $684 weekly by the Trump administration in 2019, will be updated every three years, starting July 1, 2027, to reflect changes in wage data. This update mechanism is intended to prevent the erosion of overtime protections over time due to inflation and other economic factors.

The move to expand overtime eligibility is not without its detractors. Business groups have expressed opposition to the new rule, echoing concerns raised during the Obama administration's attempt to significantly increase the threshold. Trade associations have warned of increased costs and operational challenges for their members, particularly small businesses.

Ted Hollis, a partner at the law firm Quarles & Brady, voiced concerns about the potential impact on smaller businesses, stating, "I suspect that such substantial increases may be a particular burden for many smaller businesses, forcing some to choose between cutting jobs and raising prices." He also raised the possibility that some businesses might be forced to close due to the financial strain imposed by the new rule.

The finalization of this rule follows a pattern of attempts to reform overtime regulations. In 2016, then-President Barack Obama directed the Labor Department to overhaul federal overtime regulations and raise the salary threshold to $47,476 annually or $913 weekly. However, this effort was halted when business groups and 21 states filed a lawsuit, and a federal judge in Texas granted an injunction against the rule. The Trump administration subsequently abandoned the Obama-era rule and set the threshold to its current level.

The Biden administration's decision to revive and expand overtime protections is part of a broader agenda to strengthen labor rights and enhance the economic security of American workers. It aligns with the administration's efforts to rebuild the middle class and address income inequality, which have been central themes of Biden's presidency.

As the new rule enters into force, it is expected to have a wide-ranging impact on industries such as retail, hospitality, and manufacturing, where many managerial and administrative employees will now qualify for overtime pay. The rule's implementation will likely lead to changes in how businesses structure their workforce and compensation packages, as well as influence the broader debate on fair labor practices and economic policy in the United States.