The Department of Labor proposes a significant expansion of overtime eligibility

In a move that could affect millions of workers, the Biden administration announced on Wednesday that it is proposing a significant increase in the threshold at which most salaried workers automatically get overtime pay for half the time.

Under the proposed rule, released by the Labor Department, the maximum amount for receiving overtime pay after a 40-hour week would rise to about $55,000 annually from about $35,500, a level set during the Trump administration.

The ministry said about 3.6 million wage workers, most of whom fall between the current and new limit, would actually be eligible for overtime pay under the proposed rule.

The rule “would help restore economic security to workers by giving millions of salaried workers the right to protection from overtime,” Julie Su, acting secretary at the department, said in a statement.

The department estimated that the rule would result in $1.2 billion being transferred from employers to employees in its first year.

Some industry groups, particularly in retail, restaurant and hospitality businesses, have argued that expanding overtime eligibility could lead many employers to convert some wage workers into hourly workers and set their base wage so that their total wage, with usual overtime, equals without change.

These groups argue that greatly expanding overtime eligibility could discourage employers from promoting workers to entry-level management positions that provide a path to well-paying jobs, because more employers would have to pay junior managers overtime when they work long hours.

“To prevent these employees from raising new overtime costs, many small businesses will have to demote them back to hourly workers, reversing their hard-earned career advancement,” said Alfredo Ortiz, president and CEO of Job Creators Network. He said in a statement that promotes the interests of small businesses.

The proposal follows a similarly ambitious move by the Obama administration in 2016, which sought to raise the maximum overtime limit for most salaried employees to about $47,500 from about $23,500. But before Donald J. Trump took office as president, a Texas federal judge suspended the Obama rule, concluding that the Labor Department lacked the legal authority to significantly raise the overtime limit.

The Trump administration subsequently installed a limit of $35,500.

Under the Biden administration’s proposal, the overtime limit would be automatically adjusted every three years to keep pace with rising earnings. The Labor Department will accept public comment for 60 days before issuing the final version of the rule.

Defenders of the upper limit claim that one of the main benefits is that it prevents employers from misclassifying workers as managers to avoid paying them overtime.

By law, employers do not need to pay workers overtime if they are bona fide executives or managers, meaning their primary job is management and they have real power.

But research has shown that many companies illegally deny their employees overtime, by raising their salaries beyond the permissible limit for overtime, and simply designating them as managers, even if they do little administrative work.

Because the legal definition of a manager who is exempt from overtime can be somewhat subjective, and because many salaried workers don’t realize they qualify for overtime pay if they earn more than the minimum, they usually don’t challenge employers who game the system. from here. The result is that many assistant managers at fast food restaurants or retail outlets have been denied overtime pay even though the law normally requires that they receive it.

Raising the salary cap would make this practice less common by eliminating subjectivity in determining which workers should receive overtime pay. Instead, many workers — such as assistant managers in restaurants — will become eligible for overtime automatically, regardless of their job responsibilities.

The proposal is the latest effort by the Biden administration to increase wages and protect workers. President Biden has been outspoken in his support for labor unions, and has issued a statement executive order Requiring contractors on federal construction projects worth more than $35 million to reach agreements with unions that set wages and labor rules.

Major climate bill introduced by Mr. Biden signed last year It included incentives for clean energy projects to pay wages similar to the union schedule.

But the proposed overtime rule could face legal challenges like the one that derailed the Obama-era rule, suggesting the president’s rationale for the proposal may be as much about communicating his support for workers during the 2024 presidential campaign as it is about greatly expanding eligibility. for overtime.

In an interview this year, Seth Harris, a former deputy labor secretary who most recently served as a senior labor adviser to Biden, said some administration officials worried the judge might push the rule aside, but added, “There are others whose offices are closer physically to the president who says: “No, no, no, this district court judge doesn’t tell us how to do our jobs.”