As more workers become eligible for overtime pay, how will businesses respond?

While the federal government is preparing to implement a proposal that would require companies to pay more American workers overtime, some states are moving ahead with more aggressive rules of their own – which could place a larger burden on small businesses.

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As stipulated by the Department of Labor, certain employees are required to receive overtime pay for each hour worked past 40 per week – equal to at least one and one-half times the regular pay rate.

The threshold exemption currently sits at $23,660 – meaning workers who do not earn at least that much are expected to be paid overtime.

But a number of states are taking matters into their own hands and implementing statewide thresholds to increase the number of workers that can earn overtime pay, as first reported by The Associated Press.

California, for example, implemented a threshold equal to twice the state’s minimum wage – meaning it rises as higher minimum wage rates are adopted. This year, for example, the threshold for larger business is $49,920. By 2022, when the $15 minimum wage is adopted, it will rise to $62,400.

New York City’s overtime pay threshold of $58,500 took effect for businesses with 11 or more workers in December. For small business, with fewer than 11 employees, the adjustment will go into effect at the end of this year.

Washington recently proposed expanding overtime pay to workers at large companies earning less than $49,000 per year – increasing the threshold over time to nearly $80,000 per year by 2026.

Massachusetts and Pennsylvania are working on policies of their own.

While small business are generally given more time to implement the pay rules – which could negatively impact growth and job creation – they may decide to adopt new strategies to avoid increased costs.

One way business owners could do that is by limiting the number of employees that work more than 40 hours per week. This could be done, for example, by hiring more entry-level people.

They could also raise salaries’ above the threshold, so employees no longer qualify for overtime.

Owners could alternatively decrease employees’ salaries, to offset the costs of more overtime pay.


The Department of Labor issued a proposal earlier this year to raise the pay threshold at which workers would be exempt from overtime to $35,308 – from $23,660. This change would expand overtime pay to more than 1 million workers or more.

The Obama administration had previously proposed doubling the pay threshold to $47,476—which would have impacted more than 4 million people.