Thousands of Minnesota white-collar workers now eligible for overtime pay

Despite much pushback, millions of American white-collar workers are eligible for overtime pay this month under a new federal law that boosts the wage levels employers must use to decide which employees qualify for overtime and which are exempt.

In Minnesota, an estimated 10,000 workers are expected to benefit. The rule changes mainly apply to executive, administrative and other professional employees. It is not expected to affect construction and factory workers, who operate under a different set of wage rules and customs.

The law updates the U.S. Department of Labor’s Fair Labor Standards Act in two stages — one effective July 1 and the second effective Jan. 1, 2025.

Before the change, any white-collar worker making more than $684 a week — or $35,568 a year — was exempt from overtime pay. As of July 1, that threshold jumped to $844 a week — or $43,888 a year. On Jan. 1, it jumps again to $58,653 a year or $1,128 a week.

“This will immediately improve the lives of the over 4 million lower-wage workers who will benefit by no longer working overtime for free,” said Brian Walsh, who heads the Workers’ Protection Unit in the Hennepin County Attorney’s Office.

After two decades with little change to overtime rules, the law is finally “being modernized so that more salaried workers who are the lowest paid now get overtime pay. [Those impacted are] equivalent to the bottom 35% of all salaried workers in the lowest wage census region,” Walsh said.

Some employers are expected to simply boost the salaries of their lowest paid workers to $58,653 in an effort to avoid having to pay more overtime.

But other employers have fought the rule change by testifying before Congress, filing lawsuits or petitioning the U.S. Labor Department for more time to implement the federal rule that was first announced in April. Opponents in Texas sued, and on June 28 a judge in the Eastern District of Texas temporarily struck down the new overtime limits for state employees pending further court proceedings.

Other districts or states may follow with lawsuits of their own, human resource experts said.

Increasing overtime pay has long been a contentious topic as workers, labor advocates, business groups and politicians battle it out. Former President Barack Obama tried to increase the overtime pay exemption limits from $23,660 to $47,000 a year, only to face lawsuits and pushback. In 2019, former President Trump’s administration increased the limit to $35,568 a year.

Now, such challenges may be playing out again.

Labor advocates, such as Walsh, acknowledged the new overtime wage rules will require adjustment for some employers but noted the changes affect less than 0.01% of all the wages employers pay.

That’s not mollifying everyone.

“Betting that legal challenges to the 2024 overtime rule will prevail, some employers are postponing compliance with the first July 1 deadline to either raise workers’ salaries so that they remain exempt or start paying them overtime,” officials from the 300,000-member Society for Human Resource Management recently posted in a member bulletin. “Even if a district court does block the rule, litigation to keep the rule alive likely will continue, at least during the Biden administration.”

Challenges could zing back and forth until the matter lands before the U.S. Supreme Court.

Still, David Epstein, a SHRM director of human resources and talent strategy at Mobilization for Justice Inc. in New York, advises employers to get ready.

“You still must prepare for the changes and their impact on salaries, fiscal, and so on. But at the same time, prepare for a court challenge that causes a delay or change in implementation,” Epstein said.

Expanding overtime eligibilities has its fans, even in groups that won’t benefit from the change.

The Minneapolis community labor advocacy group CTUL (Centro Trajabadores Unidos En La Lucha) said its members mostly work in restaurants, hotels, construction, manufacturing and janitorial jobs. Their hourly pay is not covered by the new overtime protections.

“Though this does not offer new protections for our members, a new rule like this is generally good for everyone in the sense that a rising tide raises all boats,” said CTUL President Brian Merle Payne.

Chamber of Commerce officials noted the new overtime pay rule is just the latest of several new regulations employers are juggling. In January, Minnesota adopted a new “sick and safe time” law that lets nearly all workers earn paid sick days. While that law affects nearly all workers in the state, the new overtime rule is expected to affect fewer than 10,000, so its impact is not nearly as broad, officials said.

Mary Knoblauch, law partner and head of the employment and labor practice at Minneapolis-based Maslon LLP, said clients are calling asking how they should enact the new rule. Most have an option of going two ways — change affected workers’ classifications from salaried/exempt to hourly/overtime eligible, or simply raise the salaries of law-affected employees so they remain exempt from overtime pay requirements.

“Employers need to decide now,” she said.

Either situation can challenge an employer, Knoblauch added. Smaller employers with tight budgets may struggle with cost hikes. Others may see wage compression or morale issues as employee pay scales suddenly become out of whack with peers.

There are some employees, though, that prefer the flexibility of being salaried and not having to “clock in” and track their hours.

”These options can cause morale issues. But businesses tend to rise to the challenges,” Knoblauch said.

Walsh believes many overlooked health care workers, in particular, will feel some relief.

“And [they] will reinvest their new earnings into the economy and time with their families,” he said.