Introduction & Context
The concept of overtime pay stems from the Fair Labor Standards Act (FLSA), ensuring employees get 1.5 times their rate when working beyond 40 hours per week. For decades, the salary threshold for automatic overtime eligibility has stagnated, meaning many “managers” or “professionals” earning modest salaries still get no time-and-a-half. The Obama administration attempted to raise this threshold to around $47,476 (and eventually to $58,656 by 2025), but legal challenges ensued. President Trump’s Labor Department effectively ended the push, leaving the threshold stuck near $35,568. Now, while the 2025 budget claims to help OT workers by removing federal taxes on their extra pay, fewer workers than expected are officially eligible in the first place.
Background & History
Overtime coverage in the U.S. was once broad, covering a large swath of the middle class. As inflation rose but the threshold remained low, millions lost OT eligibility. The Obama-era rule aimed to correct that, projecting that 4.3 million additional workers would gain guaranteed overtime pay. After lawsuits from business groups and a 2020 Texas court injunction, the rule never fully took effect. In 2023, the Biden administration tried reviving it, but the newly installed Trump Labor Department in 2025 refused to defend it in court, letting the injunction stand. Meanwhile, the president’s budget has introduced a populist-sounding “no tax on overtime” measure, which is overshadowed by the fact that eligibility expansions have collapsed.
Key Stakeholders & Perspectives
- Employers and Business Groups: Long opposed raising the OT salary threshold, citing increased labor costs and concerns about reclassifying employees as hourly. Some companies might prefer paying modest salaries instead of risk paying more OT.
- Employees: Particularly those on the cusp of the threshold—assistant managers in retail or fast-food, for example—stand to lose the most. They may work over 40 hours yet see no overtime pay if they’re deemed “exempt.”
- Government Officials: Trump’s administration hails the tax-free OT plan as a pro-worker measure. Critics in Congress and labor advocates argue the move is hollow without broadening OT eligibility.
- Labor Advocates: Groups like the Economic Policy Institute call the policy a deliberate sabotage, effectively limiting the pool of people who can access any overtime at all.
- States: Some states contemplate setting their own higher OT thresholds, though that often leads to a patchwork of rules.
Analysis & Implications
In the short term, many employees who had anticipated a pay boost from expanded OT coverage won’t receive it. Business owners might breathe a sigh of relief at avoiding added payroll burdens, but also face potential workforce dissatisfaction if employees feel shortchanged. The “no tax” portion might sound appealing, yet it benefits only those who already qualify for OT under existing, narrower rules—like unionized roles or certain hourly jobs. Over the long run, wage inequality could widen if more employees are reclassified as exempt. The cost-of-living pressures intensify this tension: with inflation high, losing potential overtime pay is a blow to families that rely on extra hours for financial stability. Politically, it highlights a pattern where the administration uses populist rhetoric while enacting business-friendly policies that undercut worker gains. On the flip side, supporters argue that controlling payroll costs helps small businesses remain viable, though data often finds the largest pushback from major retail and hospitality chains.
Looking Ahead
Over the next year, the number of workers receiving overtime pay may remain relatively static or even decline if more employers move to classify marginally higher-paid staff as exempt. Unions and worker advocacy groups may mobilize, pressuring state legislatures to adopt expanded OT thresholds, effectively bypassing federal inaction. Some states, like New York or California, already have higher standards. The new federal “no tax on OT” rule might pass but only tangibly help a subset of workers. If economic conditions worsen or public sentiment shifts, the administration could face backlash for undermining a widely supported labor reform. Meanwhile, employees are advised to check their statuses closely, as companies sometimes reassign job titles to avoid paying OT altogether. The bigger picture is whether a future Congress or administration might reinstate broader coverage or if this marks a long-term retreat from the idea that middle-income earners deserve OT protections.
Our Experts' Perspectives
- Labor economists note that had the original threshold risen with inflation since the 1970s, today’s cutoff would likely exceed $55,000. Hence, the $35,568 figure is historically low.
- Workforce specialists say that in pilot studies, businesses paying more overtime often reduced turnover and improved morale, offsetting some of the payroll cost.
- Policy analysts expect lawsuits from labor organizations, challenging the Department of Labor’s decision to drop the rule’s defense, though successful reinstatement may be difficult without administration support.
- Political strategists see the tension as symbolic: promising relief for the “working class” while quietly limiting who qualifies for that relief—some believe it’s a mid-term election wedge issue.
- Economists highlight potential ripple effects: if millions more had earned time-and-a-half, consumer spending might have risen, slightly boosting local economies.