How the Biden administration’s overtime proposal could play out
How the Biden administration’s overtime proposal could play out
The Biden Administration launched a new proposal Wednesday to make more salaried workers eligible for overtime.
The rule would guarantee overtime for most people who earn less than $55,000 a year. That’s up from the current threshold of about $36,000. So what might happen if the rule goes into effect?
The types of workers who’d become eligible for overtime are mostly low-to-middle income workers, often in supervisory roles, said Peter Orazem, an economics professor at Iowa State University.
“That usually ends up being, say, lower-level supervisors in manufacturing, but also fast food or hospitality industries, writ broad,” he said.
Orazem said those are exactly the same people who’ve been working long hours during the pandemic.
One, because they’ve had to cover for the open positions employers haven’t filled.
And two, because many of those salaried workers currently aren’t eligible for overtime.
“And so there’s an incentive for firms to perhaps overuse their salaried employees because it’s less expensive,” Orazem said.
If more workers qualified for overtime, some employers might reduce worker hours.
“That also could mean that new, additional workers are hired to make up those hours, so we might see an increase in employment, said Alex Colvin, dean of Cornell’s School of Industrial and Labor Relations.
He said businesses might also raise base salaries above the proposed threshold of $55,000 a year.
“Then I keep paying them a salary, I don’t have to worry about overtime, I’ll just pay them the flat salary,” he said.
Either way, Colvin said businesses would have to pay more for labor.
Several business groups say the proposed rule would increase costs for businesses at a time when they’re still grappling with inflation and workers are hard to find.
But Kate Bahn, research director at WorkRise at the Urban Institute, said the rule could help smaller employers compete for workers.
“If they are able to offer similar job quality, because public policy mandates that, they may find they have an easier time recruiting workers,” she said.
Bahn said smaller employers tend to have a harder time raising wages to attract good candidates.
But if everyone has to pay people more, that can level the playing field.
“And so it makes easier for them to try to hire if they know that all their competitors have to follow the same rules that they do,” Bahn said.
In other words, having to pay out more overtime can help an employer fill positions they needed to fill anyway.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
