The Biden administration is trying to hike the threshold under which hourly-wage work regulations apply by about $25,000 per year. The proposed overtime rule threatens to throw millions of workers out of their salaried jobs and into hourly work, leading to lost flexibility and autonomy, benefit and wage cuts, and job losses.

The Fair Labor Standards Act requires that hourly employees be paid 1.5 times their usual rate for any hours worked over 40 in a given week. Employees who receive regular salaries, regardless of the hours they work, are exempt from overtime requirements, so long as they pass a duties test and are paid a minimum salary level. (Certain occupations like teachers and lawyers are exempt altogether.)

If the rule is finalized, employers who have salaried employees earning between the current threshold of $684 per week ($35,568 per year) and the proposed threshold of $1,158 per week ($60,209 per year) will have to decide whether they will convert them to hourly workers, trade salary increases for benefit cuts or eliminate their jobs. According to data from the Bureau of Labor Statistics, 12.3 million workers fall in this range.

Since the cost of living and wages vary significantly across the U.S., and the proposed overtime rule sets the same salary threshold throughout, workers in lower-cost areas would face the greatest consequences. For example, while fewer than 50% of workers in the District of Columbia, Massachusetts and Washington state have earnings below the proposed threshold, more than 70% of workers in Arkansas, Mississippi, South Dakota and West Virginia have earnings below the proposed threshold.

Given the massive increase in the salary threshold, and the fact that the proposal includes automatic future increases, most employers will have to make major changes to their workforces, including:

Moreover, employers may maximize efficiency by altering work schedules. In California, an increase in the minimum wage left workers with fewer hours and significantly smaller paychecks. Employers also resorted to on-demand scheduling, changing workers’ start times and total hours.

In addition to the millions of workers adversely affected by this regulation, the economy at large would suffer. A Congressional Budget Office study of a similar proposed overtime increase found that its benefits were far less than its costs. Overall, it would raise prices for consumers, lower family incomes and reduce employment.

Instead of imposing costly new regulations in an attempt to force employers to pay higher wages for the same work, policymakers should enact policies that help workers produce and earn more while also keeping doors open to flexible work opportunities.

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