Trump Overtime Tax, What It Means and Why It Matters.

What is Overtime Pay?

Under the Fair Labor Standards Act (FLSA) passed in 1938 most hourly workers in the United States are entitled to overtime pay when they work more than 40 hours in a week. Overtime pay is typically 1.5 times the employee’s regular hourly rate. However, not all workers are eligible. Employees who earn above a certain salary threshold and perform certain types of managerial or professional duties are considered “exempt” from overtime rules.

The U.S. Department of Labor (DOL) periodically updates the salary threshold for overtime eligibility to account for inflation and wage growth. Workers earning less than this threshold are generally entitled to overtime pay, even if they are salaried.

The Obama-Era Overtime Rule

In 2016, during the Obama administration, the DOL issued a rule raising the overtime salary threshold from about $23,660 per year to $47,476 per year. This change would have made an estimated 4.2 million more workers eligible for overtime pay. Many advocates hailed it as a win for the middle class and low-wage salaried workers who often worked long hours without extra pay. However, business groups argued it would hurt small businesses, increase labor costs, and lead employers to cut hours or reclassify workers.

The Trump Administration’s Response

After Donald Trump became president in 2017, his administration reversed the Obama-era rule. In 2017, a federal judge in Texas struck down the Obama rule, saying it exceeded the DOL’s authority by placing too much emphasis on salary rather than job duties. Rather than appealing this decision or implementing the higher threshold, the Trump administration issued a new, lower overtime rule in 2019.

The Trump DOL raised the salary threshold for overtime eligibility but only to $35,568 per year, far below the Obama-era level of $47,476. This made about 1.3 million more workers eligible for overtime, compared to the 4.2 million under the Obama plan. Labor advocates and unions criticized the move, calling it a “pay cut” compared to what workers would have received under the higher threshold.

Why Critics Call it a “Tax”

Critics of the Trump overtime rule began referring to it as the “Trump Overtime Tax” because it effectively limited the amount of overtime pay millions of workers could earn. By setting the threshold lower, workers earning between $35,568 and $47,476 remained exempt from overtime, even though they would have qualified under the Obama rule. This, critics argued, forced workers to put in long hours without fair compensation — amounting to a kind of tax on their time and labor.

Although the government did not literally tax workers more, the term highlights how policy decisions can financially burden workers by denying them additional income they would otherwise have earned.

Supporters’ Perspective

Supporters of the Trump overtime rule argued that it struck a more reasonable balance between workers’ rights and business costs. They contended that the Obama rule would have imposed steep labor costs on small businesses, leading to layoffs, reduced hours, or even higher prices for consumers. Some employers also argued that the Obama rule would have reduced flexibility for salaried workers who valued their exempt status.

The Broader Debate

The debate over the “Trump Overtime Tax” reflects a larger discussion about income inequality, the value of workers’ time, and the role of government in setting wage standards. For millions of Americans working in retail, food service, healthcare, and other industries, overtime pay can make a big difference in supporting their families. Advocates argue that wage standards should keep up with inflation and productivity, while opponents warn of unintended consequences for businesses and employment.

Looking Ahead

The Biden administration has proposed further raising the overtime salary threshold, though legal and political challenges remain. Workers and advocates continue to push for stronger protections to ensure fair pay for long hours. Whether the phrase “Trump Overtime Tax” remains a part of the political vocabulary depends on how future administrations address overtime policies.