Approximately 4.3 million workers in the United States who were previously ineligible for overtime pay may soon be entitled to time-and-a-half for working more than 40 hours per week thanks to a recent regulation introduced by the Biden administration.
The U.S. Department of Labor revealed a new rule that expands overtime pay to salaried employees earning less than $1,128 per week, or $58,656 annually. Previously, only those making $684 or less per week, or $35,568 annually, were eligible for overtime compensation.
Under this new rule, businesses must pay employees 1.5 times their regular pay for hours worked beyond 40 in a week. This protection was previously limited to hourly workers and salaried employees with lower incomes. Acting Labor Secretary Julie Su emphasized that many salaried workers were carrying out the same tasks as their hourly counterparts but were not eligible for overtime due to the salary threshold.
"This rule aims to uphold the commitment to workers that they deserve additional compensation for working more than 40 hours in a week," Su stated.
According to an analysis by the Economic Policy Institute, a progressive think tank, the new rule could lead to an extra $1.5 billion in wages for employees. Estimates suggest a significant financial benefit for millions of American workers.
"Employers will have the ability to adapt to the rule without causing any negative impact on the overall economy," mentioned EPI's director of government affairs and advocacy Samantha Sanders and President Heidi Shierholz.
Below are the key points to understand about the new OT rule.
What is the reason behind the overhaul of overtime pay?
The Fair Labor Standards Act mandates that most employees who work more than 40 hours per week should receive 1.5 times their regular pay for each additional hour worked.
While this law applies to almost all hourly workers, salaried employees are eligible for overtime if their salary falls below a specific threshold. Presently, this threshold stands at $684 per week, or $35,568 annually.
This implies that a salaried employee earning less than this limit "may be required to work 60-70 hours per week without any additional pay compared to if they worked 40 hours," as per Sanders and Shierholz. "The extra 20-30 hours are essentially free for the employer, enabling them to take advantage of workers without facing any repercussions."
Who falls under the new overtime rule?
The rule applies to salaried employees earning below specific thresholds, and it will be implemented in two phases.
Commencing from July 1, salaried employees earning less than $844 per week, or $43,888 per year, will be encompassed by the new regulation. By January 1, 2025, the salary threshold will increase to $1,128 per week, or $58,656 per year, as stated by the Labor Department.
Most of the additional workers who will now qualify for overtime are in professional and business services, health care, and social services as well as financial activities, according to EPI. Out of the 4.3 million workers affected, approximately 2.4 million are women and 1 million are people of color.
Who is excluded from qualifying for overtime?
Firstly, overtime pay does not apply to salaried workers categorized as "executive, administrative, or professional" employees.
There have been observations by some researchers that companies assign false titles to lower-level employees, such as calling a barber a "grooming manager," to portray them as managers.
The new regulation specifies that only legitimate executive, administrative, or professional employees are exempt from the expanded overtime rule.
What is the business community's response to the new rule?
Several industry groups are resisting the overtime rule, arguing that it will negatively impact their operations and result in job losses. Some are even considering legal action.
"We are concerned that many hoteliers will be forced to eliminate managerial positions that have traditionally served as pathways to career advancement," stated Kevin Carey, interim President of the American Hotel & Lodging Association (AHLA). "AHLA is exploring all available options, including legal recourse, to challenge this misguided regulation."
