In a move that could affect millions of workers, the Biden administration announced Wednesday that it was proposing to substantially increase the cutoff below which most salaried workers automatically receive time-and-a-half overtime pay.
Under the proposed rule, issued by the Labor Department, the cutoff for receiving overtime pay after 40 hours a week would rise to about $55,000 a year from about $35,500, a level that was set during the Trump administration.
About 3.6 million salaried workers, most of whom fall between the current cutoff and the new one, would effectively gain overtime pay eligibility under the proposed rule, the department said.
Julie Su, the department’s acting secretary, said in a statement that the rule “would help restore workers’ economic security by giving millions more salaried workers the right to overtime protections.”
The department estimated that the rule would result in a transfer of $1.2 billion from employers to employees in its first year.
Some industry groups, particularly in retail, dining and hospitality businesses, have argued that expanded overtime eligibility could lead many employers to convert some salaried workers to hourly workers and set their base wage so that their overall pay, with the usual overtime hours, would be unchanged.
These groups argue that vastly expanding overtime eligibility could also discourage employers from promoting workers to junior management positions that provide a path to well-paying careers, because more employers would be compelled to pay junior managers overtime when they worked long hours.
“To prevent these employees from triggering new overtime costs, many small businesses will be forced to demote them back to hourly wage earners, reversing their hard-earned career progression,” Alfredo Ortiz, the president and chief executive of Job Creators Network, a group that promotes the interests of small businesses, said in a statement.
The proposal follows a similarly ambitious move by the Obama administration in 2016, which sought to raise the overtime cutoff for most salaried employees to about $47,500 from about $23,500. But just before Donald J. Trump took office as president, a federal judge in Texas suspended the Obama rule, concluding that the Labor Department lacked the legal authority to raise the overtime cutoff so substantially.
The Trump administration later installed the $35,500 limit.
Under the Biden administration’s proposal, the overtime limit would automatically adjust every three years to keep pace with rising earnings. The Labor Department will accept public comments for 60 days before issuing a final version of the rule.
Advocates of a higher cutoff argue that one key benefit would be to prevent employers from misclassifying workers as managers to avoid paying them overtime.
Under the law, employers do not need to pay overtime to workers who make above the salary cutoff if they are bona fide executives or managers, meaning that their primary job is management and that they have real authority.
But research has shown that many companies illegally deny workers overtime by raising their salaries just above the overtime cutoff and simply labeling them managers, even if they do little managerial work.
Because the legal definition of an overtime-exempt manager can be somewhat subjective, and because many salaried workers aren’t aware that they are eligible for overtime pay if they make more than the cutoff, they typically do not challenge employers who game the system in this way. The result is that many assistant managers at fast food restaurants or retail outlets have been denied overtime pay even though the law typically required that they receive it.
Raising the salary threshold would make this practice less common by eliminating the subjectivity in determining which workers should receive overtime pay. Instead, many workers — like assistant managers in restaurants — would become eligible for overtime automatically, no matter their job responsibilities.
The proposal is the latest effort by the Biden administration to increase pay and protections for workers. President Biden has been outspoken in his support of labor unions, and issued an executive order requiring contractors on federal construction projects worth more than $35 million to reach agreements with unions that determine wages and work rules.
The major climate bill that Mr. Biden signed last year included incentives for clean energy projects to pay wages that are similar to union scale.
But the proposed overtime rule could face legal challenges like the ones that derailed the Obama-era rule, suggesting that the president’s rationale for the proposal may be as much about communicating his support for workers during the 2024 presidential campaign as it is about significantly expanding eligibility for overtime.
In an interview this year, Seth Harris, a former deputy labor secretary who recently served as a senior labor adviser to Mr. Biden, said some administration officials worried that a judge would set aside the rule, but added, “There are others whose offices are physically closer to the president who say, ‘No, no, no, this District Court judge doesn’t tell us how we do our business.’”
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