Whether they work in the hospitality, healthcare, construction or, in fact, any industry, millions of salaried American employees could soon be eligible for overtime pay if they earn less than $55,000 a year.
The change, which would cost employers about $1.2 billion to implement, was proposed by the Biden administration’s Labor Department and will undergo a monthslong regulatory process that could end up in the courts.
If it stands, about 3.6 million workers could begin to collect time-and-a-half pay if they work more than 40 hours a week.
At present, anyone earning $35,568 or less a year is eligible for OT. The median full-time employee in the U.S. makes around $57,000 a year.
The new rule would apply to individuals in executive, administrative, professional, and some outside sales and computer-related occupations.
The DOL proposal also includes mechanisms that would allow the agency to automatically update the white-collar salary level thresholds automatically every three years without having to rely on the rulemaking process.
“It’s going to raise the cost of doing business,” said Michael Layman, senior vice president for government relations for the International Franchise Association, which represents fast-food restaurants and others.
For some, that’s no doubt going to be true. But with the tight labor market, companies have already been raising pay and increasing benefits in the competition for workers.
The Trump administration in 2019 raised the overtime threshold to its current rate, the first increase since 2004. OT pay eligibility was extended to about 1.3 million workers at that time.
In fact, the Biden administration has been defending the Trump-era overtime rule in federal court in an attempt to quash a lawsuit that threatens to undermine its own plans to expand OT protections to more workers.
Government attorneys argue that the Trump DOL was well within its authority to update the overtime test, as recognized by prior court rulings, and that Congress explicitly granted the agency the authority to “define and delimit” exemptions to overtime pay requirements.
Unless the courts block the Biden DOL, employers should be prepared to either raise salaries to maintain exempt classifications or reclassify exempt employees to nonexempt status and pay overtime.
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This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.