Biden Administration Finalizes Rule Expanding Overtime Pay to Millions of U.S. Workers

The Biden administration has finalized a new rule that will make millions of additional salaried workers in the United States eligible for overtime pay. Starting July 1, 2024, employers will be required to pay overtime to salaried workers who make less than $43,888 a year in certain executive, administrative, and professional roles. This threshold will increase to $58,656 by January 1, 2025.

The rule, released by the Department of Labor (DOL) on April 23, 2024, represents the largest expansion in federal overtime eligibility seen in decades. The Labor Department estimates that 4 million lower-paid salaried workers who are currently exempt will become eligible for overtime protections in the first year under the new rule. An additional 292,900 higher-compensated workers are also expected to get overtime entitlements.

Why this matters: The new overtime rule is expected to 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. Advocates have applauded the administration's move as an important step towards correctly valuing workers' time and creating a stronger, fairer economy.

The rule updates the current salary thresholds, which were set by the Trump administration in 2019 at $35,568 per year, using a new methodology. The salary threshold will now be updated every three years starting in 2027 based on the latest wage data. The highly compensated employee annual salary threshold will also increase, from $132,964 on July 1, 2024, to $151,164 on January 1, 2025.

Critics have argued that the new regulation could saddle companies with new costs and add to persistent labor challenges. Business groups are expected to challenge the new rule, as they have done in the past when the Obama administration attempted to significantly increase the threshold.

The rule is intended to restore the promise that if salaried workers work more than 40 hours a week, they should be paid more for that time. "The rule is a significant step towards ensuring that workers are paid fairly for their time and effort," said Secretary of Labor Marty Walsh in a statement announcing the final rule.

Employers must comply with the final rule by July 1, 2024, and should prepare by identifying affected employees, adjusting payroll systems, and communicating changes to employees. While the rule may face legal challenges, the DOL believes it is on solid legal footing and employers should plan for the rule to take effect as finalized.

Key Takeaways

• New rule makes millions more salaried workers eligible for overtime pay starting July 2024.
• Salary threshold for overtime eligibility increases from $35,568 to $43,888 in 2024, then $58,656 in 2025.
• Estimated $1.5 billion income transfer from employers to workers in first year via overtime pay.
• Threshold to be updated every 3 years based on wage data, starting 2027.
• Employers must comply by July 2024, despite expected legal challenges from business groups.