Millions More U.S. Workers Eligible for Overtime Pay on 7/1

Millions More U.S. Workers Eligible for Overtime Pay on 7/1

New Rule Likely to Face Court Challenges from IFA and Other Business Groups

The U.S. Department of Labor has issued a new rule for overtime that will make millions more salaried workers eligible for overtime pay of time-and-a-half for hours worked in excess of 40 per week. The rule, announced months ago but finalized this week, will increase the threshold for qualifying for overtime pay in two stages. Starting July 1, employees making less than $43,888 per year, or $844 per week, will become eligible. On Jan. 1, 2025, the threshold will go up to $58,656 in annual pay, or $1,128 a week. The current threshold is $35,568 a year, or $684 per week, which was set in 2019 during the Trump administration. 

The expanded overtime rule covers 4.3 million workers, 56% (2.4 million) of whom are women and 24% of whom (1 million) are workers of color, according to the Economic Policy Institute. Many beneficiaries of the new rule are employed in low-wage but salaried occupations in industries such as finance, hospitality, health care, manufacturing and retail, The Washington Post reported. The Economic Policy Institute said the majority work in professional and business services, health care and social services, and financial fields.

Impact of New Rule 

In its first year, CNN said, the rule is expected to result in an income transfer of about $1.5 billion from employers to workers, mainly from new overtime premiums or from pay raises to maintain the overtime-exempt status of some employees. The development represents the biggest increase in the federal overtime threshold in decades, The Washington Post reported.

“This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time,” acting Labor Secretary Julie Su said in a statement. “Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay.” It could also cause businesses to adjust their procedures, so people work fewer overtime hours, giving employees more time back, an NBC News article pointed out.

Ted Hollis, a partner at the law firm Quarles & Brady, told CNN that “I suspect that such substantial increases may be a particular burden for many smaller businesses, forcing some to choose between cutting jobs and raising prices. Some businesses that cannot do either may be forced to close, resulting in unintended but predictable side effects of this government action.” 

Trade Group Opposition

The International Franchise Association, National Retail Federation and National Restaurant Association have criticized the new rule and are expected to battle it in court, The Washington Post reported. In 2016, business groups prevented a significant increase in eligibility during the Obama administration. That change would have raised the salary threshold to $47,476 a year, or $913 a week, approximately doubling the level in effect eight years ago.

Michael Layman, the International Franchise Association’s senior vice president of government relations and public affairs, released a statement saying the “rule is the latest unnecessary and burdensome regulation from the Biden administration targeting small businesses.”

The Washington Post quoted David French, executive vice president of government relations at the National Retail Federation, as warning that the rule could result in workers losing managerial positions, the ability to work from home, and “cause employers to reexamine compensation packages for millions of workers nationwide.”

Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, concurred in a statement, sounding the alarm that the rule will “exponentially increase” operating costs for small restaurant owners. “Because the Department of Labor created a one-size-fits all rule based on national income data, rather than regional data, this change is going to disproportionately impact restaurant owners in the South and Midwest,” Kennedy said.

Looking Back and Ahead

The Biden administration initially announced the rule last August and submitted a proposal in September. The Labor Department said it “conducted extensive engagement with employers, workers, unions and other stakeholders” and considered more than 33,000 comments as it developed the final rule, the Associated Press said in an article earlier this week. The salary threshold will be updated every three years, starting July 1, 2027, according to Reuters and other news outlets reporting on the new Labor Department rule.

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Mary Vinnedge is an award-winning journalist who has served as editor in chief, managing editor and senior editor at national and regional publications, including SUCCESS and Design NJ magazines. She also held reporting and editing roles at The Dallas Morning News and Charlotte Observer newspapers.

Before Mary began covering franchise news and trends as a staff writer for FranchiseWire and Franchise Consultant Magazine, she developed articles on topics ranging from lifestyle, education, health and science to home projects, horticulture, gardening, interior design and architecture. These articles included her reporting on academic news at her alma mater, Texas A&M University, when Mary worked in the marketing department of the Texas A&M Foundation. She continues to be a news junkie and subscribes to several publications.

Today Mary and her husband are empty nesters living on Galveston Island near Houston. The couple’s blended family – scattered around the United States – includes five children, four grandchildren and two very spoiled, very barky miniature schnauzer rescues.
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