Employers and workers may not realize it, but they just dodged a bullet.

They can thank a federal judge in Texas who just tossed out a Biden administration rule that tried to increase the salary threshold for overtime pay by 65%, from $35,568 to $58,656 per year (a range that includes about 12 million workers). That new threshold would have exceeded the earnings of more than 70% of workers in lower-cost states like Arkansas, Mississippi, South Dakota and West Virginia.

The same thing happened in 2017, when a federal judge in Texas tossed out a virtually identical overtime rule from the Obama administration. In both cases, the court ruled that the Department of Labor overstepped its authority by violating Congress’ intent for overtime exemptions to be based on workers’ duties—not just their salaries.

This is an obvious relief for employers, who were grappling with the prospect of having to increase millions of workers’ pay by as much as 65%.

And it’s a less obvious relief for workers and consumers. That’s because, despite the Biden administration’s promotion of the rule as raising the pay of millions of workers, the rule’s costly mandates would have unleashed a whole host of unintended consequences.

The overtime salary threshold is the minimum amount employers must pay their salaried employees for them to be exempt from being subject to overtime rules. Overtime rules require employers to pay workers 1.5 times their usual pay for any hours over 40 that they work in a given week. (Employees must also, first and foremost, meet a duties test—performing sufficiently self-directed work—to be considered exempt from overtime pay.)

The Department of Labor estimated that its rule—which was finalized in April and went into effect with a partial increase in the threshold to $43,888 on July 1—would affect more than 4 million workers, either increasing their base salaries or providing additional overtime pay.

But businesses aren’t bottomless money pits. Just as a family facing a 65% increase in their rent or mortgage would have to make significant changes to their lifestyle, employers facing large payroll cost increases were preparing for significant changes to their operations.

The most obvious change would be for employers to raise their prices to cover higher payroll costs. But with excessive inflation having significantly squeezed families’ budgets, employers may have avoided price increases by eliminating jobs, automating job functions and shifting more work onto remaining salaried employees. A study of recent changes to overtime rules in the U.S. found a 3 to 1 ratio of employment losses to income gains and an increase in inequality.

Another unintended consequence of mandated overtime increases would be employers keeping total compensation costs constant by reducing workers’ hours or eliminating workplace benefits like health insurance and a retirement contribution.

And many employers would have responded to the rule by converting millions of workers from salaried employees into hourly employees. That could have resulted in smaller, less consistent paychecks because workers’ hours often vary from week to week, and whereas a salaried employee would still receive a full paycheck if they had to leave early to pick up a sick child, an hourly employee would get a smaller paycheck.

Moreover, hourly employees often lack the autonomy and flexibility of salaried employees because complying with overtime laws requires that employers closely track and restrict workers’ hours. That usually means prohibiting remote work—which can’t be easily-tracked—and prohibiting autonomy, like choosing to come in early or leave late, and prohibiting co-workers from switching shifts because that could require overtime pay.

While invalidating this rule prevents a whole host of unintended consequences, it doesn’t fix the problems that workers’ pay has failed to keep pace with inflation in recent years and that government policies are imposing barriers to work and rising wages.

Instead of costly new regulations, policymakers should allow new apprenticeship programs to begin, allow successful welfare-to-workforce programs to expand, and allow workers to choose the type of work that works best for them.

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Rachel Greszler is a senior research fellow in workforce and public finance in the Roe Institute for economic policy studies at The Heritage Foundation.

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