Economics

Anticipating the Effects of New Overtime Rules, Over Time

So much for good intentions.

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Overtime
Dreamstime

Wouldn't it be nice if your boss were forced to pay you more because the government said so? Not if—as the result of the government's intervention—you lost your job, saw your salary reduced or couldn't work from home anymore. Yet that's what the Obama administration is trying to do by requiring that employers pay overtime for salaried employees who earn less than $50,440 per year.

Under the Fair Labor Standards Act, most employers must pay time and a half for overtime hours (usually understood as hours worked above and beyond 40 hours per week) for salaried employees who don't have sufficiently advanced job duties or make less than $23,660 annually. Employers only have to track the hours of salaried employees eligible for overtime.

Under the new rules, the salary threshold would be raised to $50,440—and employers would track the hours of salaried employees making less than this amount, no matter how advanced their duties.

The underlying assumption behind the proposed rules is that employers are forcing their employees to work long hours without paying them appropriately. Increasing the salary threshold, the administration claims, would force employers to dish out higher pay to their employees, hire new workers or give part-time ones longer hours rather than overwork their current workforce. According to the administration, this mandatory overtime pay would increase the earnings of about 5 million workers.

As they say, the road to hell is paved with good intentions. With these proposed rules, the administration just added a few more bricks on that already-long road. For one thing, it fails to demonstrate that there is indeed a rampant problem of underpayment and overwork in our labor force. But even if there were a problem, this would hardly be the way to address it.

I have never understood how anyone can believe that forcing employers to pay employees more could lead to more hiring and more available hours for employees. After all, labor is like every other good or service. If you raise its price, over time the demand for it will go down.

In a paper about the proposed rules published last summer, Heritage Foundation labor economist James Sherk reviews the literature on the economic impact of expanding overtime coverage and finds that "employers largely respond to new overtime requirements by cutting base pay—leaving total hours and earnings little changed."

This isn't surprising unless you think most firms are sitting on lots of unused cash that they could easily use to pay for overtime. Very few firms have this luxury, which means that the only way for businesses to meet the proposed requirements in the short term would be to shift resources around or reduce their profits—whether they can afford it or not.

Over time, companies would find ways to offset these new costs. For example, they might reduce the hours employees work so fewer of them work over 40 hours a week, or they might fire workers who are working over 40 hours and hire part-time workers instead.

In the longer run, employers could reduce the base wages so that total compensation (base wages plus overtime pay) would be the same as before the implementation of the new rule.

Unfortunately, while employees would be unlikely to see their earnings go up, the loss of flexibility in the workplace might be dearly felt. Sherk notes that the rules would "severely limit (workers') use of the flexible work arrangements and telecommuting options that many rely on to balance their work and family lives."

At a time when the sharing economy and nontraditional forms of work are expanding thanks to new technology and innovation, these proposed rules attempt to force everyone back into an old and outdated one-size-fits-all model.

So much for good intentions.

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  1. Under the new rules, the salary threshold would be raised to $50,440…

    The underlying assumption behind the proposed rules is that employers are forcing their employees to work long hours without paying them appropriately. Increasing the salary threshold, the administration claims, would force employers to dish out higher pay to their employees, hire new workers or give part-time ones longer hours rather than overwork their current workforce.

    In that case why not raise the threshold to 100,000? Or $200,000? Why have the threshold at all? Maybe they don’t fully believe their own bullshit.

  2. salaried employees who earn less than $50,440 per year

    No cost-of-living variance? I’m sure that won’t have any unintended consequences at all.

    1. Good point. They like to ignore that. $50k is enough to be reasonably comfortable with a modest house and a small family where I live. I’m sure that’s a bit more difficult in NYC or the Bay Area in CA.

  3. Voter ignorance is rational, since you get just one vote every two years to stand for all policy choices; coercive government is a monopoly, not a free market where if you don’t like store A’s toothpaste choices you can try store B.

    Similarly, politician ignorance is also rational, since laying out specific policy choices doesn’t interest anybody but the few cronies who will fund your election.

    Over and over again, these kinds of things come down to coercive government as the root case. Coincidence? I think not.

  4. How do you know how many hours someone works if they are on salary? What if they do some work at home and don’t report all their hours? Can they sue later for back pay? What could possibly go wrong?

    I would think that being on salary for the equivalent of $10/hr is a pretty lame deal. But some may well find it perfectly fine. And a lot of salary positions have more flexibility than hourly positions, which can benefit low income people as well.

    1. How do you know how many hours someone works if they are on salary?

      You make them have to fill out timecards. Which naturally means now you have to hire more bean counters and compliance officers to make sure you don’t have too many workers working overtime hours and you’re in compliance with the new rules.

      Which also increases costs, which also impacts hiring, wages and benefits, etc. etc. But when hiring goes down, or wages are reduced for new hires while existing employees have their pay frozen for several years instead of getting even a meager raise, remember: it’s all those EVUL KKKORPORASHUNZ fault!

      1. It’s a waste of time and resources, and it’s fucking insulting. In my job, I manage several people who are paid hourly. They are long term, skilled, dedicated people, but because of their job descriptions, HR won’t put them on salary. Which was fine until they switched to a system where hourly people actually punch a clock (in the modern internetty way), are forced to take unpaid lunch break. It’s all a big slap in the face for some people who have been trusted employees for over 10 years, and all because of stupid labor regulations supposedly there to protect them. Labor law produces some of the most blatant cases of “everything not forbidden is mandatory”. The rule that says you have to allow people to take a break becomes a rule forcing people to take a break, whether they want it or not.

      2. I had a salaried job where they wanted us to fill out time sheets for hours worked on our various projects. When I filled it out honestly, it seldom was exactly 40 hours, usually 45-50 (not billable hours like lawyers, but honest-to-god work hours). The bean counters complained; said it had to be exactly 40. So I wrote 8-8-8-8-8=40, picking one project alone, and they complained. Eventually I wore them down and they settled for the 8-8-8-8-8 scheme and allocated it among whatever projects they wanted in whatever fashion they wanted.

        1. That’s pretty much what every salaried employee who has to fill out timecards does. It’s idiotic. They have to know that at least 90% of what they see on people’s timecards is complete bullshit, yet they have to pretend that it’s not in order to keep the lawyers happy. Completely absurd.

          1. To avoid getting in trouble with the Union, I decline to comment on why my timecard says I arrived exactly on time, left exactly on time and took lunch exactly on time every day for the past 100 time periods.

            1. Does your union have a policy against robots?

              1. No, it gets really worked up if anyone deviates from “assigned duty hours” without “thirty days notice” as per the contract language. I work IT, off-hours incidents happen, off-hours work happens. often we don’t have thirty days prior notice. It’s easier to lie to the union than put up with those hacks.

      3. I’m one of the bean counters that does payroll and frankly we have a robot to do all of that for us.

        1. [insert Office Space scene of dude poorly defending his job]

          1. Yup, pretty much. Why do you think I’m posting here in the middle of the day? ^_-

  5. This isn’t surprising unless you think most firms are sitting on lots of unused cash that they could easily use to pay for overtime. Very few firms have this luxury…

    Oh, horseshit. Everyone knows that EVULLY KKKAPITALIST business owners all have huge Scrooge McDuckian vaults filled with the ill gotten gains from exploiting the poor. IT IS KNOWN. /sarc

    It boggles the mind how many people seem to have learned everything they know about economics from watching Ducktails.

    1. You haven’t seen the pool filled with money that your company executives swim in?

      1. I work for Lockheed Martin, so I’m pretty sure our executive swimming pool is filled with Pakistani orphan blood.

        1. So then you basically work for the government.

          1. no their pools have the latino migrant worker baby blood…can’t you tell the difference?

  6. I’m sorry, but if Barack Obama’s people can’t anticipate the needs and wants of 350 million individuals then they’re not as intelligent as we all know FOR A FACT that they are.

    1. “Individuals”? Eeew!

  7. I don’t see why anybody bothers taking anything the government does at face value any more. You’re playing a sucker’s game by trying to argue the case on the issue of whether or not this benefits people in the way the government claims it will benefit people because the government is just throwing that argument out there as a red herring. If you ain’t sucking on the government’s teat or the government’s dick, the government hates your guts and wishes you were dead and they’re going to do everything they can to make your life miserable, you disgusting piece of dogshit, you.

    1. And don’t give me any of that Hanlon’s razor shit, because I’ve got Occam’s razor. Ever notice that government rules and regulations are written by government employees? Imagine taking a survey among public sector employees and private sector employees asking them whether the public sector or the private sector is the better way of getting things done? Would you be surprised to find that the people who chose to go to work for the public sector think the public sector is superior? If you were to expand the scope of the survey, would it surprise you to find that public sector employees have a generally negative, if not hostile, view of the private sector, that they have a tendency to view the private sector as more likely to be evil greedy bastards driven by the desire to fuck people over and a tendency to view the public sector as the public’s defense against the same? What do you suppose their attitudes are toward “fairness” in rule-making when on the one hand you have innocent little lambs who need a shepherd to look after them and on the other hand you have ravenous wolves intent on devouring those sweet little lambs right after they get done raping them to death? It would be an abomination to be neutral between the lambs and the wolves, “fairness” requires beating the wolves with a big-ass stick every time you get the chance.

      1. Would you be surprised to find that the people who chose to go to work for the public sector think the public sector is superior?

        Yes. I would be, because as a public sector employee I learned that government is shit at doing anything but making things shit. That is a common opinion shared among the office.

        1. This. The more I work within the machine the more tempted I am to sabotage it. Everyone I work with feels the same way.

      2. but it’s true…all private sector folks are evvull, greeedyyy bastards living on the blood of the down trodden and hopeless.

        1. Rad,

          Yes, they know it works because they do it. In the Navy, we do a similar thing for hours when some of our shore based offices; all of our larger ones. We have a complex chart on a “e page” that I saved and over-wrote, then re saved and submitted weekly. I arbitrarily assigned hours, trying to keep it as realistic as possible. As I read the descriptions above, that came back to me.

          So when Gov bureaucrats impose this nonsense, it seems perfectly reasonable to them.

  8. Rock and roll never forgets dude.

    http://www.Anon-Net.tk

  9. Government intervention in basic market functions always works out…right? RIGHT??

  10. “After all, labor is like every other good or service. If you raise its price, over time the demand for it will go down.”

    Maybe YOU believe that, and maybe I believe that, but problem #1 is that, according to the lefties of my acquaintance, “labor is not a commodity!” They never seem to be able to explain why it is not a commodity, which tends to give one the sneaking suspicion that what they really mean is “I don’t want labor to be a commodity.” Problem #2 is that they seem to have trouble distinguishing what they want from what actually is…

    1. Not a commodity? I wonder how many lefties don’t blink when the baby sitter raises her rates from $8 hr. to $15?

    2. “After all, labor is like every other good or service. If you raise its price, over time the demand for it will go down.”

      So can we also assume that when supply goes up, price goes down?

      1. Yeah, pretty much, until it hits the level the government says is ‘minimum’. Interesting that value only ever goes up though, isn’t it? Equally interesting that there isn’t a maximum, but I suppose if we ‘feel the Bern’ that might become a reality.

        1. my ass, it Berns….

          1. Sounds like you need some Preparation-H(illary)!

            /shudder

  11. Before I saw the bank draft which had said $9426 , I didnt believe that…my… brother woz like actualy earning money part-time at there labtop. . there uncles cousin has done this 4 less than fifteen months and by now repaid the dept on there place and got a great new Mini Cooper . read the full info here …

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    1. Sorry. According to this article, the Obama Administration just put a stop to your independent work. Your Mini Cooper will be repossessed shortly.

  12. until I looked at the draft of $7079 , I didnt believe that…my… mother in law had been actualie bringing home money in there spare time at there labtop. . there sisters neighbour haz done this for under 4 months and resantly cleard the dept on their place and purchased a new Lotus Carlton .try here ..

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  13. until I looked at the draft of $7079 , I didnt believe that…my… mother in law had been actualie bringing home money in there spare time at there labtop. . there sisters neighbour haz done this for under 4 months and resantly cleard the dept on their place and purchased a new Lotus Carlton .try here ..

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  14. I’ve pointed at salaried employee’s for a long time as a bizarre exception to the law. Frankly, I’ve never understood why you can demand a salaried employee work 60-80 hour weeks for a cheaper rate than what you would need to pay an hourly employee. Obviously, companies are willing to eat high turnover for cost savings in this area and there are enough people in this economy that will do anything to make ends meet. Market forces at work, I suppose, but the government isn’t doing us any favors by legislating more instead of less in this instance.

    TL;DR the government created this problem, and now they’re going to solve it with the same flawed decision making process that created the problem in the first place. I.E. par for the course.

  15. I’m confused. I don’t even mean that sarcastically.

    I have several salaried people who work here. I thought the whole concept of salary was: I’ll pay you this much to do the job, regardless of the time it takes, i.e. if some weeks if you can get it all done in 30 hours, great. If other weeks it takes 48 hours, that’s fine too.

    Everyone seems happy with this. People can basically take time off as they see fit, so long as the job gets done and I have some level of predictability about when they’ll be in.

    Need time off on Thursdays for Girl Scouts? No problem. Make sure I know and that everything crucial is up to date.

    I always assumed that if this was unacceptable, someone would be other than demonstrably happy working here.

    So is it really the case that I’m supposed to track the hours that a salaried person works? Doesn’t that defeat the whole point??

    1. That might be the theory, but that’s not how salaried people are utilised in a lot of places.

      I am salaried, but if I fall below a normal work week, I get my pay docked. All salaried means where I work is “Not eligable for overtime” which means we’re the go-to people for odd-hours work.

      1. It sounds like your employer is not following the law. With a few exceptions, an employee who is exempt from OT and min wage laws cannot legally have his pay docked for working less than 40 hours in a week.

        1. what country are you from?

        2. This is the same employer that went unchallenged for conducting layoffs during contract negotiations for the sole purpose of pressuring the employees to accept a crap agreement.

  16. This reminds me of when the CEO of Papa Johns said that if he gave health insurance to all his employees, he’d have to raise the price of every pizza by a quarter, and expected people to be outraged by it.

    It also reminds me of how there were so many threats about reducing workers to 29 or 29.5 hours because of the ACA. As the data showed, that wasn’t something that really happened.

    Or how every single time anyplace ever raises their minimum wage there are predictions of doom and gloom that are never actually seen a year later.

    So I’ll have to beg forgiveness, but at this point I find it hard to take these sort of “the sky is falling” prediction seriously. If you have good arguments against the proposal, share ’em. Based on history, this kind of prediction isn’t in the “good argument” category. People just don’t behave right-wing and libertarian economists think they will.

    1. Which data do you reference here? Should we take this to mean you are in favor of a $15 minimum wage?

      1. You can take it to mean I’m an evil dwarf living in a tea cup on the dark side of the moon and shoot lightning from my nipples, if you want. I have no interest in -or ability to- stop you.

        1. I only ask because I find it interesting that you imply that wage hikes have no appreciable effects upon employment. This is specifically why I wanted to know what data you reference. I’m sure if you look at some of the most bleak outlooks you could certainly say all is rosey now, but labor force participation still hasn’t recovered.

          1. And I only respond sarcastically because, based on your first response, I had zero faith in a good-faith discussion. With this second response you have not increased my esteem of you.

            So like I said, you can take my comments to mean anything you like. But I have no ability or interest in providing a lifetime’s worth of articles and studies I’ve read along with observed experiences because some guy that likes making assumptions in an internet comment thread asks for it.

            1. Righto, I will indeed take your lack of even a token post to a token economists blog to mean that your ‘evidence’ consists of your ‘opinion’ as expected.

              1. he’s a fucking trolll, and a sock.

    2. “It also reminds me of how there were so many threats about reducing workers to 29 or 29.5 hours because of the ACA. As the data showed, that wasn’t something that really happened”

      This is exactly what happened to my son. Boss gave him a raise to offset the loss of “official” hours.

      1. Happened in some cases, sure. But if you compare what actually happened with the Chicken Little predictions in 2009/2010, and, well, every year after that until that part went into effect, you see that it was vastly overblown and very minor.

        1. The Employer mandate just kicked in recently, no? Why don’t we wait until the dust settles before declaring victory, hey Escher?

        2. The net effect is hard to know. I’m pretty sure hours earned are up from 2009 (gave up on a citation after five minutes on the BLS site), and it might well be a lack of liquidity in the labor markets means that warm bodies are at a premium. Or are there tons of under-employed folk available to rush into the breach? Anyway, the long-run implications might be worse than the presumably tolerable short-run impact.

    3. This comment reminds me of other comments from those who are also ignorant of economics and who believe in the metrics provided by the government, for the purpose of justifying government policy. The sky isn’t falling yet, but it will, just as it did in 2008, if not worse. The business cycle being perpetuated by the market interference of government will have to clear eventually, and when it does, the fall will be inversely proportional to the height. Then guess what?..we will be “saved” by yet another government intervention, in exchange for more our liberties, only to start the wheel over again with a new coat of paint. This is the tool of the statist and their central bankers. Please read any credible economist that has a reasoned and logical explanation of the business cycle (HINT: Mises, Hayek, Rothbard).

      1. “inversely proportional”

        help

        1. well, the direction of the slope is inverted….but yeah

          my bet is a logarithmic relationship between height and fall.

    4. Right. And when those same people are complaining about how difficult it is to make ends meet, get a decent-paying job, get affordable health insurance, decent retirement benefits, etc., they’ll CONTINUE to blame evil corporations and/or free market and capitalism without bothering to look at the actual consequences of all these laws and regulations that government keeps spewing out.

      People are incredibly inventive and adaptable when they have to be, and the economy always chugs away in some form or another. But it would be a lot easier for everyone if we weren’t having to adapt or work around stupid legislation like this.

  17. Yet that’s what the Obama administration is trying to do by requiring that employers pay overtime for salaried employees who earn less than $50,440 per year.

    Which will mean that employers will put clerks and analysts on the clock and shove them out of the building at 4:56 PM. It will mean that the younger and more eager professionals will not be able to shine by staying late with the boss on projects or presentations. It will also mean promotions will be much slower for the lower-level employees and that employers will more likely than not hire new managers and supervisors from OUTSIDE the company rather than from inside.

    It means a lot of things EXCEPT this ‘benefit’ the Obama administration is conjuring from thin air.

    1. isn’t that what they do? conjure shit from thin air? they’s da gummint

      1. Show me a better way to produce life giving unicorn farts, smart guy.

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