Millions more workers will soon qualify for overtime pay and advocates are warning that the changes are likely to further erode the availability of developmental disability services.

The U.S. Department of Labor started incrementally increasing the salary threshold at which employees are eligible for overtime pay under a new rule that took effect this summer.

As of July 1, most salaried workers earning less than $43,888 qualify for overtime if they work more than 40 hours in a week. That limit will grow to $58,656 in January and it will update every three years based on wage data beginning in July 2027.

The changes, which the Labor Department estimates will affect over 4 million workers in the first year, are putting disability service providers in a particularly tough spot, advocates say. That’s because providers rely on funding from Medicaid and they have no way to pay their employees more if reimbursement rates aren’t adjusted.

“With 60% of community-based providers already considering additional program closures and 77% of providers turning away new referrals before the overtime rule went into effect, we are extremely concerned about impacts to access as providers unable to shoulder additional unfunded expenses close programs and shutter services,” said Lydia Dawson, vice president of government relations at the American Network of Community Options and Resources, or ANCOR, which represents 2,100 disability service providers across the nation. “Given the fragility of the community-based service system, increasing the cost of delivering services without also ensuring sufficient and commensurate Medicaid funding will undoubtedly further reduce access to services for people with IDD.”

Last year, ANCOR released a report estimating that the higher threshold for overtime pay would yield an extra $1 billion in expenses for disability service providers in the first year. In a survey of more than 700 providers from 45 states that was included in the report, a third said they would have to eliminate positions, almost half said they would limit overtime and 61% indicated that they would shift salaried employees to hourly.

While the initial increase that took effect in July concerned providers, advocates say they are especially wary of the next hike coming in January.

“As our members work through their budget process for next year, we are hearing that community-based providers are considering additional program and service closures in order to comply with the January increase. Because state funding for Medicaid services is appropriated through state budgets, there is little to no opportunity to request funding to meet the new costs prior to the implementation date,” Dawson said.

So far, warnings about the impact on disability services have largely gone unheeded. The Labor Department said in April when the rule was finalized that it would work with the Administration for Community Living and the Centers for Medicare & Medicaid Services on the issue. More recently, however, a Labor Department spokesperson did not respond to questions about what the agency is doing to address concerns specific to Medicaid-funded disability service providers.

“The department has provided guidance, outreach and education as well issued technical assistance to help employers comply with the (Fair Labor Standards Act) and will continue to coordinate across the administration,” the spokesperson said.

The Centers for Medicare & Medicaid Services said that states are responsible for setting Medicaid reimbursement rates.

“States can establish their own Medicaid provider payment rates, within federal requirements, and generally pay for services through fee-for-service or managed care arrangements,” the agency said. “While states can establish their own payment rates, generally they must ensure that the rates are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that access to care is available.”

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