A coming shift in the political winds could prove to be a windfall for entry- and mid-level workers—and a hefty bill for agencies across the country. The Biden administration is reexamining the overtime pay threshold, which delineates which U.S. workers must be paid time-and-a-half for any hours they work beyond a standard 40-hour workweek.

The "always on the clock" mentality is rampant in the ad industry, particularly since the beginning of the pandemic, but most agency employees have been exempted from overtime pay. Anyone making more than the threshold, currently $35,568 per year, does not need to be paid overtime, no matter how much they work. A Department of Labor rule will likely change that.

In testimony before Congress last month, Labor Secretary Marty Walsh said the current threshold is “definitely” too low. “We’re currently right now doing that, reviewing that regulation,” he said. “Literally, as we speak, we have people at the Department of Labor working on that.”

Buy your ticket for the Ad Age Small Agency Conference & Awards, being held virtually on Aug. 2-4, at AdAge.com/saca2021.

Walsh didn’t offer a specific number, but in March, four Congressional Democrats recommended a threshold of $82,732, phased in by 2026. That would entitle a far larger proportion of the industry to additional pay, perhaps tens of thousands of dollars for some people, especially those on the lower end of the pay ladder. For some agencies, especially small shops, it would affect nearly everyone.

“This is potentially a much bigger deal and hit for agencies outside the major markets who aren't already paying elevated pay scales,” says Alison Pepper, exec VP of government relations at the 4A’s. “I mean, $80,000 in Manhattan versus $80,000 in a city like Des Moines, that's not even remotely comparable. It seems to me that if you were to go that high with no adjustment for regionality, you're really going to kill the ability of entry-level hiring for a lot of agencies.”

Here we go again
If this game of shifting numbers sounds familiar, it’s happened a lot in the last few years. In its waning days, the Obama administration increased the threshold to $47,476, but a judge overturned the rule and the incoming Trump administration dropped it, opting for a more modest increase to the current level in 2019.

Agencies were taken for a wild ride during those months. Some increased all salaries to the threshold to avoid paying overtime, while others braced to write bigger paychecks as needed. In the end, most shops absorbed the smaller 2019 increase without issue. “The 2019 bump didn’t have much of an impact on our staffing costs,” says a holding company spokesperson who asked not to be identified.

“In recent years, several states have steadily increased their thresholds, some with prescheduled increases over a multiyear time frame,” says an executive at another holding company. “Some of the bumps have been significant, and we’ve always planned accordingly for them without a negative business impact.”

Of course, while the Biden administration would call itself pro-labor, it has rarely pushed for the kinds of sweeping changes called for by advocates. A smaller rise in the threshold is likely, according to Chaumtoli Huq, associate professor of law at CUNY School of Law.

Buy your ticket for the Ad Age Small Agency Conference & Awards, being held virtually on Aug. 2-4, at AdAge.com/saca2021.

“Businesses know that Biden will not take a strong labor stand, and his position will be moderate, so they are probably not as concerned,” she says. “He is hoping to ride on Obama’s approach, but that would be his error, because the labor movement has matured since Obama, and grassroots groups will be pushing Biden to do more for American working families.”

Rolling with it
The administration is expected to weigh in on the threshold in the fall, but there are many ways agencies can mitigate the coming impact while still paying workers what they’re entitled to. Managers are exempt, whatever their pay, though managerial titles aren’t enough. Workers must actually directly manage at least two full-time employees. Historically, unscrupulous businesses have tried to skirt this requirement, and even after recent crackdowns “inflated supervisor status” has been a problem, Huq notes.

Agencies based in states with higher thresholds have already been dealing with this issue and might welcome a more level playing field with their competitors. New York City’s current threshold is $58,000, and California’s is just over $54,000, which accounts for much of the U.S. industry, so the Labor Department would need to present a number higher than those to really move the needle on the coasts.

Shops can also increase their reliance on freelancers, who are exempt. But perhaps the most sustainable way to weather the rule change is to treat it as part of the economic climate.

“We are going to consider raising our entry-level pay again—because of market factors, not because of impending legislation, this time anyways,” says Steve Connelly, founder and president at Connelly Partners in Boston, which gave entry-level raises across the board in 2016 to meet the expected requirement, and even bumped up pay for workers just above the threshold to avoid hard feelings. “Independent of legislation, we know we are in a cycle where we will have to pay a little more for talent. We have planned and budgeted for it.”

A Dentsu spokesperson didn’t share specifics of the holding company’s plan to handle any rule change but did say, “As a people services business, we always ensure that we will be well-prepared should existing governmental and/or employee policies change, which would impact our people or businesses.”

Whatever the administration decides, it appears likely that a fair chunk of agency workers will see more money in their pockets later this year, and shops should prepare themselves. “I wouldn't call it a four-alarm fire right now,” Pepper says. "If they put out a rulemaking for public comment this fall and we see that they really are going with that $80,000 threshold, then agencies should be very concerned.”