Tens of thousands of Alabama workers are expected to qualify for overtime pay under new federal rules that will start to take effect July 1.
By 2025, about 4.3 million Americans, including 66,000 workers in Alabama, will be newly eligible, according to an analysis by the Economic Policy Institute, a nonprofit think tank based in Washington, D.C.
“Workers could be affected possibly in a lot of different types of industries,” said Samantha Sanders, director of government affairs at the Institute, “but I think you’re most likely to see it in salary workers in white collar jobs who are kind of on the lower end of the pay scale,”
Currently, salaried workers who earn more than $35,568 per year and work in these roles are not entitled to overtime pay. But under the new rule, the salary threshold will expand to $43,888 by July, and then to $58,656 by Jan. 1, 2025.
“I think a lot of people would argue that $35,000 and change a year is not a comfortable, middle-class managerial salary,” Sanders said. “A lot of people have been falling into that exemption who do not actually have that leverage and who might need that protection from overwork.”
The workers who will become eligible for overtime pay are mostly in manufacturing, the professional and business sector, financial activities, healthcare, and social services industries, per the the U.S. Department of Labor. And, according to the Department, the largest share of potentially affected workers lives in the South. Women, Black and Hispanic workers, and younger workers with less education will be most impacted by the new eligibility, according to the department.
The Fair Labor Standards Act guarantees time-and-a-half overtime pay for most hourly workers who work more than 40 hours a week. But millions of workers fall under exemptions.
In late April, the Labor Department revised its rule for overtime pay. Most workers who earn hourly wages are already eligible for overtime pay, but the new rule opens opportunities for previously exempt workers who work in executive, administrative, and professional roles, if they meet the new salary threshold and their job duties don’t disqualify them.
Since 2019, the Labor Department’s rule has capped overtime pay for only certain workers making salaries of up to $35,568 per year. But the new rule will expand eligibility to these specific workers who earn up to $43,888 by July 1, 2024, and then $58,656 per year by Jan. 1, 2025.
The Department of Labor said it will recalculate the salary levels in 2027, and then every three years after that.
Previous changes to the salary thresholds have prompted lawsuits. Some employers are worried about absorbing the extra costs, and trade organizations and HR groups have protested the change.
When the Labor Department first proposed the rule in November, the U.S. Small Business Administration’s Office of Advocacy condemned the salary hike, saying that it will negatively impact the operations and payroll costs for small businesses.
“Small entities cannot afford these extra labor costs, as they face a difficult business environment post-pandemic including inflation, supply chain disruptions, shutdowns, and tighter labor markets,” the Office of Advocacy said in a Nov. 8 letter. “This rule may also lead to unintended negative consequences for employees, such as limiting worker flexibility, lowering morale, and loss of benefits.”
Allen D. Arnold, an employment attorney based in Birmingham, said he expects a window in which employers who don’t immediately adapt to the new structure expose themselves to lawsuits.
“If the regulations are upheld through a court challenge, the question’s going to really be how quickly employers adapt to the salary structure,” Arnold said. “Do they keep paying an employee the lower salary while there’s any litigation related to the regulation?”
For instance, under the new rule, salaried restaurant managers who make less than $58,656 will be eligible for overtime pay.
But Arnold – who represents workers, not employers – told AL.com that he’s met restaurant managers who get paid just $1 over the salary threshold to cut them out of overtime pay, even if they work 60 hours a week. Then, their hourly rate ends up being lower than other employees they manage, he said.
Arnold said he expects more of the challenge for employers to center around determining which of the workers qualify, based on their job duties. Sanders agreed.
“Employers can kind of determine how best to respond, what makes sense for their workplace and their employees to comply with that,” Sanders said.
