Regulation

Trump Paving the Road to Overtime Pay With Good Intentions

Raising the cost of employing workers is never a recipe for increasing employment.

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Back in 2016, the Obama administration passed an overtime-pay regulation that would have required employers to pay overtime for salaried employees who earn less than $47,476 per year. But its implementation was blocked by a federal judge in November 2016 in response to a lawsuit filed by states and businesses. That regulation is back in the news, however, after the Trump administration has spent months re-examining the issue and seems close to a final decision.

Under the Fair Labor Standards Act, most employers must pay a time-and-a-half rate for overtime hours (usually understood as hours worked beyond 40 hours per week) for salaried employees who don't have sufficiently advanced job duties or who earn less than $23,660 annually. These standards were last set in 2004.

The Obama administration decided to go all in and double the salary threshold. While in the past, employers only had to track the hours of salaried employees eligible for overtime, under the new rules they'd be required to track the hours of salaried employees making less than this amount, no matter how advanced their duties—a significant increase in reporting requirements. At the time, the Department of Labor estimated that an additional 4.2 million workers would qualify for the added pay, with 35 percent of full-time salaried workers expected to fall below the threshold under the new rule.

The Obama administration's motivation for proposing the new rules was the belief that without government intervention, employers always tend to make their employees work long hours without paying them appropriately. Yet Obama's folks failed to demonstrate that the American workforce was indeed plagued by rampant underpayment and overwork. Even if there were a problem, this "solution" would hardly be an appropriate way to address it.

Raising firms' costs to employ people is never a recipe for increasing employment. It isn't even a recipe for higher pay for the new workers who qualify under the rules but enter the workforce after the new rules are implemented.

Most firms aren't actually sitting on piles of unspent cash that they could easily use to pay for overtime. As such, in the short term, when faced with higher costs, we can expect firms to look for ways to offset them, either by reducing the hours that employees work—so that fewer of them work more than 40 hours a week—or by using more part-time workers in place of full-time workers. In the long run, employers may mitigate the costs by reducing the base wages so that total compensation (base wages plus overtime pay) is again equal to what it was before the new rule implementation.

Research confirms this theory: Back in 2015, The Heritage Foundation reviewed the literature on the economic impact of expanding overtime coverage. This study found that "employers largely respond to new overtime requirements by cutting base pay—leaving total hours and earnings little changed."

Some states and businesses sued, arguing that the Labor Department didn't have the authority to set a salary threshold. Unfortunately, in a world where the government has usurped the right to tell businesses how to conduct their affairs—whether by setting wage floors or by dictating the conditions under which employers can and can't fire their employees—the Trump administration has declared that indeed it can, and will, set the overtime-pay threshold (even though it appears to be considering a level lower than the Obama administration proposed). The Wall Street Journal recently reported that the new annual level could be set at about $32,000.

Testifying before Congress last July, Labor Secretary Alexander Acosta signaled empathy for increasing the level with a cost-of-living adjustment, saying, "I think it's unfortunate that rules involving dollar values can go more than a decade without adjusting," since "(l)ife does get more expensive."

Unfortunately, it seems to have never occurred to the labor secretary that the existence of the threshold itself actually works against workers. With an actual limit set on when and how to pay overtime, most businesses might decide to stick to that limit instead of letting competition between firms for employees raise wages and overpay threshold. As the saying goes, the road to hell is paved with good intentions.

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  1. Sounds like the type of regulation that Tucker Carlson Republicans can get behind.

    1. This. This is exactly what I was talking about it in the other thread.
      Get your shit together, dude

      1. Yes, Tucker Carlson needs to decide if he really is “anti-regulation” or not. My hunch is that he is not.

    2. Agree. Tucker is an out of the closet statist, you could see it coming, his authoritarian streak was bubbling beneath the surface and niece he’s a full fledged interventionist.

      The poppycock he espoused about shareholders without ever taking into account that the stock market also consists of billions of dollars held by ordinary working class folk in the popular 401(k) vehicle. Never in history has it been easier for the average Joe to compete with the big boys on Wall Street thanks to the Internet.

  2. It’s real easy to think you just *find* the money. It’s what the feds do: pass any spending bills they want, the printers crank out more money, easy peasy, lemon squeezy. Businesses splash out on jets, conferences, why not some for us now and then?

  3. Those salaried guys knocking down $40K per year have a pretty sweet deal.

    1. I see no reason why anyone at any salary should not be paid overtime unless you are paid on a contract only basis.
      If you work the hours, you should get paid.

  4. Minimum wage is minimum wage no matter how you slice it. Businesses have to make profit, so if you raise the cost of labor you need to raise the cost of your product, which means it’s at best a net neutral. Since the house (aka government) always takes a cut, it’s far more likely a net loss to the wage earner.

    Why do control freaks always find organic solutions to problems so horrifying?

    1. The “organic solution” to employer abuse is unions. And if y’all actually succeeding in getting rid of all the current employee protection regulations, we’d see a serious resurgence in their popularity.

      But somehow, I don’t think that’s the “organic solution” you had in mind.

      1. On the contrary, I fully support private sector unions as long as they are not being protected by the government.

        A private sector union *has* to improve the company for the employees to have any long term benefit. Improving the company in a sustainable manner means it has to make the customers happy. So, customer wins, employee wins, company wins. I call a win-win-win a really big win.

        True private sector unions are a great and necessary thing.

  5. Salaried exempt employees are supposed to be management, so the $23,660 limit seems rather low. Gradually raising it might be appropriate if you buy the arguments for federal regulation of wages. But doubling it is obviously a greater impact than employers can absorb all at once.

  6. Ah, yes. Paying your workers for the work they do is *so* socialistic and ebil.

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