Tag: Overtime

The Overtime Follies

Good:

In a stunning blow to the Obama administration’s economic legacy, a federal judge in Texas granted a preliminary injunction Tuesday delaying implementation of a regulation that would extend overtime eligibility to an estimated 4.2 million workers.

The ruling puts in serious jeopardy the most significant wage intervention by President Barack Obama, who has been unable to persuade Congress to increase the minimum wage from $7.25 per hour. The Labor Department regulation, previously set to take effect Dec. 1, effectively restored overtime pay to the middle class after decades of erosion had reduced it to a benefit available only to low-wage workers.

Putting aside Politico’s liberal spin, the overtime rule is looking like a bad idea and a massive executive overreach.

But let’s back up a second and review the argument in favor of the changes in overtime rules. The Department of Labor raised the threshold for exemption from overtime pay from $23,660 to $47,120. At the same time, they made changes to what workers are exempt even if their income is below that threshold. This means that approximately four million workers who were previously on salary will not be getting paid hourly and thus eligible for overtime pay if they exceed 40 hours a week.

Ostensibly, the reason for this change is to curb abuses by businesses that give employees a slight bump over the $23,660 threshold and then require them to work 50-60 hours a week. When the President put the rule into place, he said that $30,000 a year did not constitute “management” and therefore should be eligible for overtime instead of being paid as straight salary.

The problem with this logic is that while $30,000 doesn’t sound like a lot to big time lawyers, government civil servants or Vice Presidents for Community and External Affairs, it is a reasonable income for many people who live outside of Washington, D.C. Warren Meyer, over at Coyote Blog, has been doing yeoman’s work cataloging why the increase in overtime exempt income is a bad thing:

The Obama Administration and its supporters (and apparently Politico, by how they wrote the headline) are smoking something if they think employers are going to react by raising salaries of current exempt employees being paid 23,660 or 30,000 or 40,000 to $52,000. Absolutely no way. There may be a few just under the $52,000 threshold that get a bump, but that will be a minor effect.

Everyone else is going to suddenly find themselves converted from a junior manager back to a wage earner. Companies are not going to allow these newly minted wage earners to earn overtime, and so I suppose one good outcome is that we may see a new boost in productivity as companies find ways to automate or eliminate junior management tasks to get all these folks down to 40 hours a week.

There are important differences between hourly and salaried work in the relationship with employers. Some are psychological — for better or worse, management [thinks] of salaried workers differently than hourly workers. And some are real — salaried workers can try to demonstrate that they are worthy of promotion by working extra hours and taking on extra tasks, things that hourly workers really can’t do.

Furthermore, he notes, thew new overtime rules are unlikely to deliver real benefits to employees. It may, in fact, hurt them:

Further, when someone gets switched from salary to hourly, they lose a minimum pay guarantee. When I get a $3,500 a month offer, I know that no matter how slow things are, until I am fired I get $3500 a month. There is a floor on my earnings. As an hourly worker, my hours can be adjusted up or down constantly. There is no floor at all

He also points out that the Department of Labor’s own study concluded that this would not increase the pay of workers. It would just lead to cuts in hours.

The thing is, none of this is theoretical to me. It’s all very real because it’s impacting my family.

After my son was born, my wife left her good-paying but long-commuting job to take a part time job in town at our school’s main campus. Her income was above the exempt threshold. But now it is below it. Under the old rules, she would still have been exempt because she was a skilled professional — a PhD biochemist and molecular biologist managing a lab and doing scientific research. But the new overtime rules, for some strange reason, removed that exemption. So skilled professionals with decades of training are now considered no different than clock-punching temps.

(Ironically, the exemption is being kept in place for two of the most downtrodden classes of workers in higher education — graduate students and adjuncts.)

This change in no way benefits my wife or any of the thousand of scientists around the country affected by this. She’s now, after twenty years of work, back to being a clock puncher, which is humiliating. As an hourly wage earner, she loses certain benefits, like maternity leave and vacation. Like many scientists, my wife is supported by grants which can not support paying massive amounts of overtime. So she’s been told not to work more than 20 hours a week. At other universities and research institutions, scientific staff are being told to only work nine to five and not answer e-mails out of hours lest they incur overtime. A few people are getting small bumps in salary to put them over the threshold. Most are being told to work a strict 40 hours (or, I suspect, lie about how much they work).

This is madness. This is what happens when people with no experience outside government start passing sweeping rules affecting millions of workers. This is what happens when you have people in charge who think businesses (and government institutions like universities) can just conjure money out of the ether.

The states and many businesses are suing, claiming that this is an unfunded mandate from the federal government (which it is). Congress is open to repealing this rule and Trump has indicated he would sign a bill repealing it. I’m not averse to raising the exempt threshold a little bit or a narrowly tailored change to prevent the abuses that supporters of the law assert exist. But this is way too far, way too fast and way too ill-considered.

Note: The judge in this case is an Obama appointee. One of the defining elements of the Obama presidency has been Democratic and liberal judges overturning his executive overreaches. I support their doing so and will continue to support it throughout the Trump Presidency and any future Administration.

This is what checks and balances looks like, folks. If you want judges and Congress to keep Trump in check, you should be applauding this decision. Today, it’s the overtime rules. Tomorrow, it might be registration of Muslims. Checks and balances are good.

Fixing the Problem They Created

What the what?

As the New York Times reported yesterday, President Obama intends to barge unilaterally into a hotly contested area of employment law by ordering the Department of Labor to develop regulations “to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as ‘executive or professional’ employees.” As with the expansion by decree of minimum wage law, it will be interpreted in some quarters as an undiluted boon to the employees it covers – their employers will either raise their pay or limit the hours they are expected to work, or both, and how could they be anything but happy about that? But as the piece quotes Cato’s Dan Mitchell as warning, ”There’s no such thing as a free lunch… If they push through something to make a certain class of workers more expensive, something will happen to adjust.”

Several thing to unpack here. First, as Olson points out, labor law is already a nightmare. The example he cites is that many business refuse to give cell phones to employees lest that be interpreted as an admission to working them after hours. If this regulation goes into place, employers will have to guess whether an employee is eligible or exempt from overtime, with thousands or millions of dollars in the balance. The change may hit small business hard and hit low-wage employees harder. Many businesses may get rid of “transition” jobs where people who work on an hourly basis can be tested out in salaried management positions.

Second, the ostensible reason for this is that employers are working employees harder these days, putting many on salary to avoid paying overtime and trying to squeeze every ounce of productivity out of them. But there’s a reason for that and it’s not because employers are evil. It is because hiring new employees has become very expensive. And the reason it has become expensive is because of Democratic pushes for mandated insurance, Democratic pushes for more extensive employer insurance, Democratic pushes for higher minimum wage, Democratic pushes for more more more more more. Even if this falls into place and millions of employee exemptions are rescinded, it may not result in wave of hires. Because overtime for a good employee is often worth more than the start-up costs of a new and untested one.

(Actually, I think the likely result of all of this stuff is going to be to push employers toward fewer employees and more contractors.)

This isn’t a constitutional issue, actually. The FLSA does give the executive the authority to decide the criteria for exemption from overtime. And maybe there’s a case to be made that the system is being abused (assuming you think it’s the government’s business to dictate labor conditions like this). But I’ll raise the same objection I did to the minimum wage: why would you hit businesses with this when unemployment is our nation’s biggest problem?

Quite simply because we have an Administration that doesn’t understand the Law of Unintended Consequences.