I’ve been thinking about the Obama administration’s proposed overtime rule reform — specifically, how it would affect low-wage workers, if at all.
Short answer is that it wouldn’t affect them directly. The main reason is that most are paid by the hour, which automatically qualifies them for one-and-a-half times their regular wage if they work more than 40 hours in a week. Not that they always get paid for overtime, mind you. But that’s a separate issue.
The proposed rule also wouldn’t directly affect workers whose take-home pay reflects a salary, rather than an hourly rate, if it’s no more than $23,660 — less than would lift a family of four above the federal poverty line. These poor and near-poor workers are already entitled to overtime pay.
Nor should the proposal affect workers who get paid more, but whose “primary duties” don’t meet specific tests, e.g., involve executive functions or exercising “discretion and independent judgment” on “matters of significance” to the overall management or business of the operation.
Workers whose primary duties don’t meet any of the tests are supposed to get overtime pay under the current rule. Many don’t, however, because the tests enable employers to exempt workers whom no reasonable person would consider executives or administrators with the scope and independence the test seems to call for.
The license employers have to exempt large portions of their white-collar workforce is not an unintended consequence of the rulemaking process.
I recall well when the Bush administration’s Labor Department moved to update the overtime rule. Fast food restaurant companies — through their associations and directly behind closed doors — lobbied hard for broad exemption criteria, unrelated to the amount of time a worker spent on those primary duties. Other business interests did the same.
They got what they wanted. So, for example, an assistant restaurant manager who spends most of her time pitching in where crew members can’t keep up could get no extra pay for doing the same things they do, but for 50 or 60 hours a week if she merely makes sure that at least two of them do what they’re supposed to and tells her higher-ups whom she thinks they should hire, fire and/or promote.
The proposed rule doesn’t alter the duties tests, though the Labor Department considered doing that and asks for comments on whether they “work as intended.”
Instead, it simply raises the pay threshold to what it would have been if it had kept pace with consumer price inflation during the last 40 years — probably $50,400 when the final rule becomes effective. The new threshold would then rise so that it continued to correspond to the 40th percentile of all weekly wages.
So the proposed rule might seem irrelevant to low-wage workers, except those whose salaries are at or barely above the current threshold. But it’s likely to affect them — just as the current rule does, but in the opposite way.
Basically, the current version enables employers to hire fewer workers than they’d otherwise need for routine tasks like cleaning floors, restocking shelves and checking on backroom inventories by shifting those tasks to “executive” staff, who have to do at least some of them for free.
Today, only about 7.6% of retail supervisors qualify for overtime, based on their salaries, the Economic Policy Institute has reported. The proposed rule would cover somewhat over 56% — and roughly 79.5% of first-line restaurant supervisors like the overworked, underpaid assistant manager.
Hard for me to see how this would not induce employers to hire more workers for those routine tasks — or in some cases, convert part-time to full-time jobs.
That’s a far cry from what the associations that lobby on behalf of affected businesses say. The proposed rule would have “a significant job-killing effect,” the National Retail Federation warns.
It also claims that the proposed rule would “force” companies to downgrade positions and to rely more on part-time, entry-level workers — halfway acknowledging, without intending to, that they’ve been relying on exempt employees to do what entry-level workers could.
The Chamber of Commerce predicts something similar — lost benefits, flexibility, status and opportunities. Here again, we’re given to understand that employers will respond by cutting back on lower-level salaries positions they’ve classified as exempt.
The Chamber also alleges harms to small businesses in particular. This, I take it, is because we’re supposed to have a soft spot in our hearts for mom and pop operations and those risk-taking entrepreneurs oft-heralded (somewhat misleadingly) as our leading job creators.
If these doomsday prophecies sound familiar, that’s because they’re very similar to what the associations and some of their members say about any and all minimum wage increases, as well as other policy changes that would make life better for low-wage workers, e.g., mandatory paid sick leave.
We’ve had minimum wage increases, of course. Numerous studies have found little or no effect on employment. In the relatively few states and cities that require paid sick leave, employers seem to be doing just fine.
Now, we’re a long way from a final rule that updates federal overtime requirements. What the Department of Labor ultimately issues could look quite different. How businesses will respond is simply unknowable, association warnings notwithstanding.
We can guess, however, that they’ll respond in different ways. They may reduce salaries so as to pay non-exempt workers the same total amount, once estimated time-and-a-half is factored in. Probably not, however, for workers already on board.
They may, as an NRF-commissioned study hypothesizes, cut bonuses and benefits, risking the loss of their most qualified workers and prospects, unless all their competitors follow suit.
They may instead make no such adjustments. They’d then probably put tighter controls on overtime. Some could, I suppose, boost worker productivity such that more gets done during a 40-hour work week.
Only so much more they can do on that score, however, especially when tasks can’t be automated. If they can be, they probably will be anyway, so long as that doesn’t bust the budget.
But I’m still inclined to think that a goodly number of employers will hire more workers to compensate for the loss of unpaid labor. The overtime rule update will thus be a job creator. Happy to see that at least one labor economist thinks so too.