By A.J. Kaufman, Managing Editor
A new U.S. Department of Labor (DOL) law — which went into effect July 1 after being approved by the White House — requires that employees making less than $43,888 per year must receive overtime pay if they work more than 40 hours a week.
Come January, the threshold increases to include those making less than $58,656. Prior to the rule, the threshold was capped at $35,568. Beginning in 2027, the threshold will continue to increase every three years to “keep pace with changes in worker salaries.”
The rule also raises the total annual compensation requirement for highly compensated employees from just over $107,000 per year to nearly $133,000. This significant increase is larger than even the DOL initially proposed. It’s set to equal to $151,164 per year come Jan. 1, 2025.
The DOL wrote on their website earlier this year that “One of the basic principles of the American workplace is that a hard day’s work deserves a fair day’s pay. Simply put, every worker’s time has value.” They argue the rule “is restoring and extending” promises from the Fair Labor Standards Act’s (FLSA) requirement that “when most workers work more than 40 hours in a week, they get paid more.”
Overtime rules have long been fluid. Nearly a decade ago, then-Pres. Barack Obama proposed doubling the threshold from $23,600 to over $47,000. His proposal was struck down in court.
Although states like California and New York already have salary thresholds that exceed the federal level, the new rules could affect roughly four million workers in the first year and lead to income gains of more than $1 billion.
Needless to say, this vast law and its accompanying 65% threshold increase is drawing consternation from businesses and legal challenges.
In May, business groups, likely concerned over the cost and their future survivability, sued the DOL in a Texas federal district court over the overtime rule, claiming the department went beyond its authority under the FLSA. The lawsuit also claimed the rule violated the Administrative Procedure Act.
The plaintiffs argued that the new rule will unlawfully make an employee’s salary, rather than a worker’s duties, determinative of whether an executive, administrative, and professional-capacity employee should be exempt from overtime pay. It can also harm nonprofits, which must now pay unforeseen labor costs or eliminate positions altogether.
Arguments against the policy range from noting that many dedicated employees prefer not to close their workday precisely at 5 p.m.; or they cite college athletic coaches who work long hours during the season but have more flexibility during the offseason. Some argue these rules will affect work done after hours, like checking email and participating in continuing education courses.
Locally, the Beacon Center of Tennessee filed a lawsuit in August against the DOL on behalf of the Association of Christian Schools International, saying employers would be required to reclassify millions of workers and shoulder additional labor costs on top of rising prices.
“Employees these days accept a salary for the time and effort required for a particular position,” Jordan Kahn, a small business owner with a background in financial planning, told the Business Journal. “Having to treat them as hourly employees will make them feel like they are being micromanaged, when they have always had the flexibility to work more or less, as long as they were getting their job done. And if employers are forced to track them to avoid overtime, they will place necessary constraints on how many hours they can work to avoid having to pay overtime compensation. It seems an overly burdensome regulation that will cost employers additional time and money to track and monitor.”
The Business Journal sympathizes with intentions to help Americans earn more money, but like many government edicts, the policy hurts more than it helps. Furthermore, it is a one-size-fits-all law that neglects to acknowledge how certain workplace dynamics are not conducive to overtime rules when applied so broadly and where eligibility is expanded. If anything, it favors those already earning a comfortable living.
Using a Great Depression era law and rhetoric to force businesses to convert salaried employees to a status where they are tracking hours on a clock inhibits flexibility, and frankly, will feel like a demotion to workers. The law seems an inappropriate usage of public power into private industry that will undoubtedly also create compliance hurdles for businesses, which can result in a workforce reduction, lower productivity and higher prices for consumers.
