The Department of Labor proposes a significant expansion of overtime eligibility

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

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

About 3.6 million wage workers, most of whom fall between the current and new thresholds, would effectively gain overtime pay eligibility under the proposed rule, the department said.

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

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

Some industry groups, particularly in retail, restaurant, and hospitality companies, have argued that expanding overtime eligibility could prompt many employers to convert some salaried workers to hourly workers and set their base pay so that their total pay, with regular overtime hours, equals without change.

These groups claim that significantly 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 will have to pay overtime wages to entry-level managers when they work long hours.

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

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

The Trump administration later installed the $35,500 limit.

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

Advocates of the cap claim that one of the main benefits is to prevent employers from misclassifying workers as managers to avoid paying them overtime wages.

Under the law, employers do not need to pay overtime to workers who are paid above the minimum if they are bona fide executives or managers, meaning their primary job is to manage and they have real power.

But research has shown that many companies illegally deprive their employees of overtime, by raising their salaries beyond the permissible overtime limit, and simply classifying them as managers, even if they do little to no administrative work.

Because the legal definition of an overtime-exempt manager can be somewhat subjective, and because many salaried workers are unaware that they are eligible for overtime pay if they earn more than the minimum, they typically do not 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.

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

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

Mr. Biden’s major climate bill It occurred last year It included incentives for clean energy projects to pay wages similar to the union scale.

But the proposed overtime rule could face legal challenges like the one that derailed the Obama-era rule, suggesting that 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 significantly expanding eligibility. For overtime work.

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 were concerned that a judge might toss the rule aside, but added: “There are others whose offices are physically closer to the president who says: “No, no, no, this district court judge doesn’t tell us how to do our jobs.”

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