New Biden rule would make 4 million white-collar workers eligible for overtime pay

The Biden administration on Tuesday announced a new rule that would make millions of white-collar workers newly eligible for overtime pay.

Starting July 1, the rule would increase the threshold at which executive, administrative and professional employees are exempt from overtime pay to $43,888 from the current $35,568. That change would make an additional 1 million workers eligible to receive time-and-a-half wages for each hour they put in beyond a 40-hour week.

On January 1, the threshold would rise further to $58,656, covering another 3 million workers.

“This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid for that time,” Acting Labor Secretary Julie Su said in a statement. “So 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. This is unacceptable.”

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The new standard fulfills one of President Biden’s signature objectives of raising the wages of low- and middle-class Americans and it comes within months of his face-off with former President Donald Trump in the November election. For years, Biden and Democrats in Congress have proposed raising the federal minimum wage from $7.25 an hour but have been blocked by Republican lawmakers.

The new initiative also follows a pandemic that led to widespread burnout among millions of U.S. workers and a desire by many to strike a better work-life balance. The health crisis triggered severe labor shortages that gave employees the leverage to seek more flexible hours and higher pay.

Last summer, the Labor Department proposed lifting the salary threshold for exempt employees to about $55,000 but updated the benchmark in the final rule after receiving more than 33,000 public comments.

While hourly workers are generally entitled to overtime pay, salaried workers are not if they earn above a certain pay level and supervise other workers, use professional expertise or judgment or hire and fire workers, among other duties.

The new standard could be legally challenged by industry groups that have argued that excessively raising the standard exceeds Labor’s authority and adds heavy regulatory and financial burdens or compliance costs.

“This rule is another costly hoop for small business owners to jump through," Beth Milito, executive director the the National Federation of Independent Business's small business legal center. "Small businesses will need to spend valuable time evaluating their workforce to properly adjust salaries or reclassify employees in accordance with this complicated mandate.”

Some companies could lift workers' base pay to the new threshold to avoid paying overtime or convert salaried workers to hourly employees who need to punch a clock. Others could instruct salaried employees to work no more than 40 hours a week, bringing on part-time workers to pick up the slack. Still others may reduce employees' base pay to offset the overtime, effectively sidestepping the new requirement.

In 2016, the Obama administration proposed doubling the overtime salary threshold to $47,476 from $23,660 but a federal judge in Texas struck down the increase as excessive. In 2020, the Trump administration set the current standard of $35,568.

The initial bump in the salary threshold to $43,888 that takes effect July 1 is based on a Trump administration formula that sets it at the 20^th percentile of the full-time weekly earnings of salaried employees in the lowest-wage region, which is currently the South. The increase to $58, 656 on January 1 adopts a new formula that sets the threshold at the 35^th percentile of those weekly earnings.

In a statement, the Labor Department said it's confident the new standard can better withstand a legal challenge because it's notably lower than than the 40th percentile benchmark set by the Obama administration.

"This is a meaningful methodology change that addresses potential concerns that the salary level test should not play an outsized role in relation to the duties test," Labor said.

The Labor Department also said it raised the threshold for “highly compensated” employees who only need to perform one of the duties of executive, administrative or professional workers to be exempt from overtime. That benchmark will rise from $107,452 to $151,164 by January.

Starting July 1, 2027, the rule requires Labor to adjust the salary threshold every three years to account for updated wage data.