Minimum Wage

Obama Wants More Americans to Qualify for Overtime – Would His Plan Actually Work?

Will increasing the threshold to exempt supervisors from overtime give workers more pay or force more business cutbacks?

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What you need to know about possible changes to federal overtime rules, 3/13/2014:

Today President Barack Obama is announcing a plan to increase the number of Americans who qualify for overtime, potentially putting the screws to small businesses who depend on flexible schedules for low-level managers or administrators.

Federal law currently allows employers to exempt employees making more than $455 per week from overtime laws if they're involved in management or supervisory duties. The president wants to propose increasing the pay threshold to trigger the exemption. The Associated Press notes:

In his memorandum, Obama plans to direct the Labor Department to recommend new regulations that could increase the salary threshold for overtime eligibility and to change the definition of what constitutes a supervisor.

The change in overtime rules does not require approval from Congress. However, the process to implement the changes is extremely bureaucratic and could take years to actually complete.

The new threshold is not known yet, but it could be as high as $900 a week or more, if the administration accepts the research by liberal research group Center for Budget and Policy Priorities.

What's the possible impact?

Since the announcement came as a bit of surprise, just filtering out Wednesday, analysis is just beginning. At Forbes, Daniel Fisher runs through some of the most basic concerns about the president's plan: Will it actually result in workers bringing home more money?

By sweeping millions of workers into the overtime system, however, the administration may not be doing many of them a favor. First of all, nobody is guaranteed a pay increase as a result. Back when I was briefly in the Newspaper Guild, an older employee explained his real view of the utility of overtime laws: They force managers to schedule more carefully, to avoid cost overruns. As a relatively highly paid young reporter with zero control over my schedule, that made sense.

But that also means non-exempt employees will be watched more closely to avoid tripping the sort of litigation threat that increasing numbers of labor lawyers are looking out for. Working at home could become taboo, since the employer has more difficulty monitoring hours and working conditions. Employees who harbor the perhaps foolish idea that by working hard and taking on greater responsibilities they can move up in the organization will instead be told to go home and relax.

Complex overtime rules have proven to be a flashpoint for lawsuits. Walter Olson noted at the Cato Institute how the ambiguities of overtime regulations create a market for lawyers looking for targets. Now the stakes will be even higher:

Already, wage-and-hour lawsuits are a thriving hub of litigation, since the law sets up a retrospective guessing game as to whether or not exemption will be upheld: "Enterprising plaintiff attorneys have made hundreds of millions of dollars pursuing lawsuits on behalf of stockbrokers, mortgage loan officers and other white-collar professionals not normally associated with punch-the-clock, shop-floor labor." 

For years, some lawyers have been advising clients not to hand out company-paid cellphones to any workers who lack a lawful overtime exemption, lest a claim later be made that work was done on the phones during evenings and weekends. Where the law is particularly stringent about calculation of lunch breaks, as in California, some lawyers have advised employers to make it a firing offense to do any work during the allotted break.

The president's memorandum also orders the Department of Labor to "simplify the overtime rules to make them easier for both workers and businesses to understand and apply." Once the lobbying begins, does anybody actually believe the rules would actually be simplified?

On the other side, there's this rather unusual take in support in the president's proposal. It may screw over small employers and increase the possibility of lawsuits, but by cutting back the hours of low-level managers, University of Texas economics professor Daniel Hamermesh says there's an upside:

"I would argue it's a job-creation program," Hamermesh said. "There's no question it gives employers the incentive to cut the hours of some people. But if you do that, it increases the demand for more individuals, and that creates jobs."

But it doesn't create the money to hire more individuals, which is why, like the hike in the minimum wage, it's going to wallop small- to mid-sized businesses, who are still struggling to deal with Affordable Care Act costs, more than the big boys.

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  1. Sigh, once again government demonstrates that they think economics is the study of the noises small creatures make in caves…

  2. “Obama Wants More Americans to Qualify for Overtime ? Would His Plan Actually Work?”
    Depends. Do you mean will it buy votes? Yes.

    1. Public choice ftw.

    2. Who are the voters this helps? My guess is many of those hard working $450-$900 a week employees get their hours cut to make sure they don’t come close to getting any OT.

      More people get to complain about being underemployed and very few get any additional OT pay. Everything this man does in office is leading to a poorer, less effective workforce.

  3. Another case of government inserting itself where it doesn’t belong. Salary or hourly pay and overtime rules are a decision for employer and employee. It isn’t anyone else’s business.

    1. I agree in principle but in the real world this only works when there is a balance of power. The reality is that the strong prey on the weak.

      I can’t believe I sound like some leftist nut job, I don’t believe this is an area where laws can really help but a complete pack of regulation certainly wouldn’t improve things.

      1. “I don’t believe this is an area where laws can really help but a complete pack of regulation certainly wouldn’t improve things.”

        You sound like some leftist nut job.
        To make it obvious: Anytime a third party sticks a nose in a a free transaction between two parties, wealth is lost to humanity.

      2. libertarians don’t want a complete lack of regulation. Libertarians want the freedom for private individuals to make their own deals with one another and have the government provide legal backing to said agreements (EG. enforce contracts)

        What the Prez is trying to do is make the deals himself on behalf of the individual, thus stealing their liberty. and fuck people who steal my liberty.

  4. the President enforces laws he does not get to make them up like a dictator. Where is our congress it is their job to shut down his illegal actions.

    1. Congress is who empowered the administration on this one.

      1. If you examine outcomes, Congress’s only job is to increase the power of the federal government. Congress has no obligation to function in an idealistic way that governments are incapable of doing.

  5. Why is this in 24/7?

    1. Nobody goes here anymore.

      1. It’s way too busy.

  6. It will work by imposing additional costs upon businesses, destroying jobs, and providing Obama another excuse to blame “the free market” for the damage.

  7. All it will accomplish is lower “official” wages and salaries. I’m a small business owner…I don’t care how what the stipulated per hour wage I’m paying is, I care what it actually costs me in the end. If I have to pay more because of changes to the overtime laws, I’ll just lower the per hour rate* to make up for it (and I know I can do that without losing talent because all of the people I’m bidding against to buy labor are under the same rules). At the end of the week/month/year, my employees will work the same hours and make the same amount, and I will pay the same amount.

    Democrats in a nutshell: Dumb economists, good politicians.

    *Of course, I won’t actually lower anybody’s rate, I’ll just hire new employees at a lower rate or hold off raises until the lower rate is achieved.

  8. “I would argue it’s a job-creation program,” Hamermesh said. “There’s no question it gives employers the incentive to cut the hours of some people. But if you do that, it increases the demand for more individuals, and that creates jobs.”

    The problem is there’s nobody to hire. Yes, I know there’s excess labor right now*, because of the recession. But in the long run (aka, when this actually goes into effect), all labor is utilized. The end result, then, is less work being done and a poorer society.

    *Unless the extended benefits have raised the frictional unemployment rate and there is no real excess labor. Maybe 6-7% unemployment is the new normal.

  9. Sure would be nice if I could get more hours.. there seems to be an artificial barrier at 40..

  10. No, it DOES provide the money to create new jobs — not that it means anything.

    If I reduce hours on my employees who now work overtime, then I have my current overtime expenses to hire more people. But here, as with the minimum wage, the greatest victims will likely be young, black males and THAT is the issue that nobody talks about.

    1. But you don’t have overtime expenses now because those employees aren’t subject to the overtime rules. That’s the point.

  11. “I would argue it’s a job-creation program,” Hamermesh said. “There’s no question it gives employers the incentive to cut the hours of some people. But if you do that, it increases the demand for more individuals, and that creates jobs.”

    This is not job creation any more than cutting a cake in two is cake creation. This is taking a single job that already exists and forcing two people to accomplish it. That a professor of economics “would argue” that this constitutes the creation of a job only demonstrates how far from actual economics and toward political ideology economics professorships have drifted.

  12. “I would argue it’s a job-creation program,” Hamermesh said. “There’s no question it gives employers the incentive to cut the hours of some people. But if you do that, it increases the demand for more individuals, and that creates jobs.”

    So by raising the cost of labor it will reduce demand for labor, which will in turn raise the demand for labor? What sort of soothsaying academic bullshit is this now?

    At best, the “jobs program” doesn’t create wealth or time, it just rations out the existing hours of labor among a larger pool of people, which wouldn’t actually create wealth. It would just spread poverty and limit opportunity more widely.

  13. So I currently pay Jane $800 a week for 50 hours of work at $16/hr, or $800 a week. Now I have to pay her overtime for 10 of those hours, so I cut her hourly rate to $14.55, and she is still working 50 hours a week for $800. How did this help Jane?

  14. Well there was one really stupid comment from the business uber-alles crowd. If this goes through. companies would start cutting the hours of those employees.

    Imagine the horror of the employee when told that from now on he will only be getting paid for 40 hours by working 40 hours instead of getting 40 hours pay for 50 working hours. I bet they would all quit.

    1. Are you really that bad at math? The total paid to a worker will not change, nor will the hours. All that will change is the hourly wage. Hint: It will go down.
      Enterprise Rent-A-Car, my employer for 15+ years did this. You were paid a salary, but it was based upon 49 hours a week as a management trainee.

      1. “Are you really that bad at math?”
        Thinking in general ain’t one of Markin’s skills.

    2. no people would go from getting 50hrs pay for 50hrs work to getting 40hrs pay for 40hrs work. Less total hours so less money in their pockets, and they would probably still be expected to perform the same duties in less time to boot.

      and that is if the boss don’t just simply cut base pay which would suck for anyone who doesn’t work OT.

  15. The change in overtime rules does not require approval from Congress.

    In my opinion, ALL regulations should require approval from congress, given that they carry the force of law.

  16. Overtime labor laws make sure that workers are compensated if required to work longer than a standard work week. Unfortunately, overtime labor laws do not apply to all workers. When overtime labor laws apply, will be able to see if it benefits to workers. Anyway, there’s much more freedom, when a person can have a small business and other kind of work. This extra-money definitely help a lot of people who thoroughly depend on credits. So, in case of financial troubles they can resort to online payday loans which might be timely and helpful.

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