On August 30, 2023, the U.S. government introduced a transformative change to labor laws concerning overtime pay. The proposed rule aims to expand the eligibility criteria, making millions more white-collar workers qualify for overtime compensation. Specifically, employers will need to pay overtime to salaried white-collar employees earning less than $55,000 a year. Additionally, the rule introduces an automatic yearly adjustment to this salary threshold, ensuring it remains relevant in the face of economic shifts.
Background of Overtime Pay Rules
Overtime pay has been a cornerstone of U.S. labor laws, designed to compensate workers for extended work hours beyond the standard workweek. Under the Fair Labor Standards Act, most hourly workers in the U.S. are entitled to overtime pay after completing 40 hours in a week, earning at least one-and-a-half times their regular rate. However, salaried workers in executive, administrative, or professional roles have been historically exempt from this rule unless they earn below a specified salary threshold. This threshold has seen changes over the years, with the most recent being set at $35,568 in 2019.
Key Provisions of the New Proposed Rule
The centerpiece of the new proposed rule, which is subject to a public commentary period and won’t take effect for months, focuses on expanding the eligibility for overtime pay by adjusting the salary threshold for white-collar workers. The new limit is set at $55,000 annually, a substantial increase from the previous cap of $35,568. This revision implies that any salaried white-collar employee earning less than this new threshold would automatically qualify for overtime pay. According to the Labor Department, the rule would extend overtime protections to 3.6 million salaried workers.
In proposing the new rule, Acting Secretary of Labor Julie Su said in a statement, “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.”
Another significant provision in the proposal is the introduction of automatic yearly increases to the salary level. This ensures that the threshold remains in tandem with economic conditions, avoiding potential stagnation that might reduce the rule’s efficacy over time. By adjusting the benchmark annually, the policy aims to consistently reflect the financial realities faced by workers and maintain the intended protection.
Previous Adjustments to Overtime Pay Rules
Historically, the issue of overtime pay has been a contentious one, with several changes proposed and implemented over the decades. During the Obama administration, there was an attempt to raise the overtime salary threshold to over $47,000, an initiative that aimed to expand protections for more American workers. However, this policy faced significant resistance and was ultimately halted in court after challenges from business groups. The Trump administration later instituted its own adjustment, setting a reduced threshold of $35,568 in 2019.
According to the Economic Policy Institute, under the current rule, about 15% of full-time salaried workers are entitled to overtime pay. According to the Labor Department, the new rule will double that to almost 30%. However, this is still significantly lower than in the 1970s, when more than 60% of salaried workers could receive overtime pay.
Impact of New Rule
The new rule, if implemented, would bring about pronounced shifts in several sectors of the U.S. economy. Industries like retail, food, hospitality, and manufacturing are poised to see the most significant changes, as many managerial positions in these sectors would now meet the new salary threshold for overtime. This could lead to an additional 300,000 manufacturing and retail workers, 180,000 hospitality and leisure employees, and a notable 600,000 individuals in the health care and social services sector becoming eligible for overtime pay. The ripple effect could reshape workforce dynamics, compensation structures, and operational costs across these industries.
Are You Working Overtime? Are You Entitled to Overtime Pay?
The proposed changes to overtime pay represent a pivotal moment in U.S. labor laws, attempting to bridge the gap between wage stagnation and the realities of modern living expenses. If you have questions about your entitlement to overtime pay, reach out to The Lore Law Firm by completing our free and confidential online client intake form.