Biden Administration Extends Overtime Pay to Millions of U.S. Workers

The Biden administration has issued a new rule that will extend overtime pay eligibility to millions of salaried workers in the United States. The rule, announced by the Department of Labor, will raise the salary threshold for overtime exemption in two stages, making an estimated 4 million more workers eligible for overtime when fully implemented in 2025.

Under the new rule, the salary threshold will increase to $43,888 per year starting July 1, 2024, and then rise to $58,656 per year on January 1, 2025. This marks a significant increase from the current threshold of $35,568 per year, which was set by the Trump administration in 2019. The Department of Labor estimates that the rule will result in an income transfer of about $1.5 billion from employers to workers in the first year, mainly from new overtime premiums or pay raises to maintain the exempt status of some affected employees.

Why this matters: The new overtime rule is expected to have a broad impact, particularly in the retail and hospitality sectors. It aims to ensure that lower-paid salaried workers are fairly compensated for working longer hours. While advocates praise the move as a step towards creating a stronger and fairer economy, business groups argue it will raise costs and hurt operations, especially for smaller businesses.

The rule also includes a provision to update the salary thresholds every three years based on up-to-date wage data, starting July 1, 2027. This mechanism is intended to ensure that the overtime eligibility standards keep pace with wage growth over time.

However, the new rule is expected to face legal challenges from business groups, similar to the opposition faced by the Obama administration's attempt to significantly raise the overtime threshold in 2016. Critics argue that the policy change will drive up payroll costs, and some have already indicated plans to challenge the rule in court.

In response to the rule, employers may choose to lift workers' base pay to the new threshold, convert salaried workers to hourly employees, or reduce base pay to offset the overtime requirement. The Biden administration estimates that around 1 million workers will be affected when the first stage of the rule takes effect in July 2024, with an additional 3 million workers covered when the threshold increases to $58,656 in January 2025.

"This rule will put more money in the pockets of millions of American workers," said President Biden, emphasizing that the initiative is part of his administration's efforts to raise the wages of low- and middle-class Americans. The Department of Labor engaged with stakeholders and considered over 33,000 public comments before finalizing the rule, which Labor Secretary Marty Walsh described as a step towards "restoring the promise that if workers work more than 40 hours in a week, they should be paid more for that time."

Key Takeaways

• Biden admin issues new rule to extend overtime pay to 4M+ salaried workers by 2025.
• Salary threshold for overtime exemption to rise from $35,568 to $58,656 by 2025.
• Rule aims to ensure fair compensation for lower-paid salaried workers working longer hours.
• Thresholds to be updated every 3 years to keep pace with wage growth.
• Rule faces potential legal challenges from business groups concerned about rising payroll costs.