A new bill, H.261, introduced in the Vermont House, seeks to redefine the full-time workweek from 40 hours to 32 hours, requiring businesses to pay overtime for any work beyond 32 hours per week. Sponsored by Rep. Monique Priestley (D-Orange-3), with additional sponsors Rep. Robert Hooper (D-Chittenden-16), Rep. Kate McCann (D-Washington-2), and Rep. Jubilee McGill (D-Bridport), the bill is being framed as a pro-worker reform aimed at increasing wages and work-life balance.
The bill has been read for the first time and referred to the Committee on General and Housing, marking what could become a major shift in Vermont labor policy.
Bill Overview and Expected Impact
Under current Vermont law, overtime pay (1.5x the regular wage) applies to employees working more than 40 hours per week. H.261 would lower that threshold to 32 hours, increasing payroll costs for any business that maintains a traditional 40-hour schedule.
For a full-time worker making $20 per hour, weekly pay currently amounts to $800 (40 hours at regular pay). Under H.261:
- If the worker continues working 40 hours, their pay would rise to $880 per week because hours 33-40 would now be overtime.
- However, if an employer reduces the workweek to 32 to avoid overtime costs, the worker’s pay would drop to $640 per week—a 20% pay cut.
The bill does not require businesses to maintain a 40-hour pay structure for a 32-hour schedule, leaving the door open for reduced hours rather than increased wages. This means that some employees may see a pay raise, while others could see reduced hours and lower total earnings.
Economic and Business Impact
H.261 effectively forces a 10% wage increase on businesses for full-time employees who continue working 40 hours, without an increase in productivity. In response, businesses may cut hours, restructure positions, or shift to part-time employment to avoid the additional labor costs.
The shift to a 32-hour workweek before overtime could also lead to higher consumer prices, job reductions, and greater reliance on automation. Businesses unable to absorb the cost increase will look for ways to restructure their workforce or pass costs onto consumers.
Industries that rely on consistent full-time work schedules, such as healthcare, manufacturing, and hospitality, could face the most difficulty adjusting to the new overtime threshold. Many of these sectors already operate with thin profit margins, making additional labor costs challenging to sustain.
For small businesses, the impact could be even greater. Unlike large corporations that may have financial flexibility, small businesses often lack the resources to absorb increased payroll expenses. If forced to comply with a 32-hour workweek overtime rule, many may have to limit hiring, reduce benefits, or cut back on operations altogether.
State’s Tax Windfall: More Revenue Without Raising Rates
An overlooked consequence of H.261 is the increase in state tax revenue.
Because overtime pay is taxed at the same rate as regular wages, any forced wage increase means Vermont automatically collects more in income tax without formally raising tax rates.
A full-time worker who continues working 40 hours under H.261 would see their annual taxable income rise by $4,160. With Vermont’s 3.35% state income tax on this income level, the additional tax per worker would be approximately $139.36 per year.
If 75,000 full-time workers are impacted, Vermont stands to collect an additional $10.45 million per year in tax revenue—all without passing a direct tax increase.
This built-in tax windfall raises questions about whether H.261 is truly designed to help workers, or if it serves as a way for the state to increase tax collections without explicitly adjusting tax rates.
Constitutional Questions: Does Vermont Have the Authority to Redefine Full-Time Work?
While Vermont has set labor policies in the past, nowhere in the state’s Constitution does it establish that the legislature has the authority to establish even a standard 40-hour workweek, nor does it grant explicit authority for lawmakers to redefine full-time work.
The Vermont Constitution protects the right to contract freely (Article 1) and prohibits government favoritism (Article 7), both of which could be relevant in a legal challenge. By forcing private businesses into a new overtime structure, the state is inserting itself into labor contracts that have traditionally been negotiated between employers and employees.
The bill’s potential legal implications remain unclear. If challenged, courts would need to determine whether the state has the power to unilaterally redefine workweek standards in the private sector.
Looking Ahead
With Vermont’s economy already facing high costs of living, a shrinking workforce, and increased pressure on businesses, H.261 presents significant changes to labor costs that could reshape employment practices in the state.
As the bill moves through committee discussions, its full impact on businesses, workers, and state revenue will be debated. The outcome will determine whether H.261 modernizes labor law or simply increases costs and tax revenue under the guise of reform.
Dave Soulia | FYIVT
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