NEW YORK (AP) — The Biden administration proposed a new rule Wednesday that would make 3.6 million more U.S. workers eligible for overtime pay, the most generous such increase in decades.
The rule revives an Obama-era effort that faced strong pushback from business leaders and Republicans and was ultimately scuttled in court. Labor advocates and liberal lawmakers have pushed the Biden administration to take the fight back up, arguing that overtime protections have been sharply eroded over the decades by wage stagnation and inflation.
The proposed regulation, unveiled by the Department of Labor, would require employers to pay overtime to salaried workers who are in professional, administrative and professional roles but make less than $1,059 a week, or $55,068 a year for full-time employees. That salary threshold is up from $35,568 level that has been in place since 2019 when Trump administration raised it from $23,660, in a more modest increase than President Barack Obama’s earlier proposal.
The rule, which is subject to a public commentary period and wouldn’t take effect for months, would have the biggest impact on retail, food, hospitality, manufacturing and other industries where many managerial employees meet the new threshold.
“I’ve heard from workers again and again about working long hours, for no extra pay, all while earning low salaries that don’t come anywhere close to compensating them for their sacrifices,” acting Secretary of Labor Julie Su said in a prepared statement.
The new rule is certain to face criticism from business groups that mounted the successful legal challenge against similar regulation that Biden announced as vice president during the Obama administration, when he sought to raise the threshold to more than $47,000. But it also falls short of the demands by some liberal lawmakers and unions for an even higher salary threshold than the proposed $55,000.
Under the Fair Labor Standards Act, almost all U.S. hourly workers are entitled to overtime pay after 40 hours a week, at no less than time-and-half their regular rates. But salaried workers who perform executive, administrative or professional roles are exempt from that requirement unless they earn below a certain level.
The left-leaning Economic Policy Institute has estimated that about 15% of full-time salaried workers are entitled to overtime pay under the Trump-era policy. The new rule would almost double that to nearly 30%, according to Labor Department figures.
That’s still fewer than the more than 60% of salaried workers who were entitled to overtime pay in the 1970s, according to the liberal Economic Policy Institute. The overtime rule has only been sporadically updated over the past decades, with the Trump increase being the first since 2004. The Labor Department’s new rule attempts to change that pattern by adopting automatic increases to the salary threshold every three years.
“This is long overdue. It’s decades overdue, and it’s really important step,” said Economic Policy Institute Heidi Shierholz, who was the chief economist at the Labor Department when the Obama administration tried to enact its overtime rule.
Business leaders argue that setting the salary requirement too high will exacerbate staffing challenges for small businesses, and could force many companies to convert salaried workers to hourly ones to track working time. Business who challenged the Obama-era rule had praised the Trump administration policy as balanced, while progressive groups said it left behind millions of workers.
Under the new rule, some 300,000 more manufacturing workers would be entitled to overtime pay, according to the Labor Department. A similar number of retail workers would be eligible, along with 180,000 hospitality and leisure workers, and 600,000 in the health care and social services sector.
The National Retail Federation criticized the proposal and hinted at legal challenges.
“While we are reviewing the impact of this proposal with our members, the proposed number is significantly higher than the rate of inflation,” NRF Senior Vice President of Government Relations David French French said in a statement. “Further, the attempt to tie the hands of future administrations through automatic increases exceeds the Department’s authority.”
Last year, the National Association of Manufacturers warned that it may challenge any expansion of overtime coverage, saying such changes would be disruptive at time of lingering supply chain and labor supply difficulties.
Under the new rule, 27% of salaried workers would be entitled to overtime pay because they make less than the threshold, according to the Labor Department. A smaller number workers would also become newly eligible because of a change to a rule that excludes very highly paid salaried workers from overtime benefits even if they don’t perform administrative, professional or executive duties. The Labor Department proposed raising that salary threshold from $107,432 to $143,988.
The Labor Department said the new threshold for duty-exempt employees brings it line with the 35th percentile of earnings by full-time salaried workers in lowest-paid Census Region, the South. It’s less generous that a proposal from a group of Democratic lawmakers, who called for a salary threshold of $82,732 by 2026, in line with the 55th percentile.
In its proposal, the Labor Department said it tried to find a balance that would address one of the concerns raised in legal challenges to the Obama-era policy: That the threshold was so high that it sidelined the so-called “duties” test, which determines whether salaried workers are entitled to overtime pay based on the work they perform.