Last night, news emerged that a federal judge put a halt to the Department of Labor’s damaging new overtime rule.
This is welcome news, and businesses across the country are breathing a sigh of relief. The rule was set to take effect on Dec. 1, but the judge’s preliminary injunction now means the Trump administration will likely be able to cancel the overtime rule before it is ever implemented.
And if Donald Trump cancels it, families, consumers, and businesses across the country will reap benefits.
The Obama administration’s new overtime rule, set by the Department of Labor, doubles the current income level under which salaried workers must be paid overtime—from $23,660 to $47,476.
This means that under the rule, almost all workers who earn a salary of less than $47, 476 would have to receive time-and-a-half pay if they work more than 40 hours in a given week.
The rule was clearly intended to raise incomes for lower- and middle-income workers. But a recent report from the nonpartisan Congressional Budget Office shows that it imposes huge costs and yields very few benefits.
Over the next seven years, the overtime rule is estimated to cost businesses $6.9 billion in compliance costs, reduce family incomes by $8.5 billion, and increase prices for consumers by $6.9 billion. All this in return for only $2.7 billion in additional earnings spread across about 900,000 workers.
Although the CBO report finds that earnings will rise, evidence suggests employers will compensate by reducing base pay or converting employees into hourly workers to avoid higher employment costs.
While the CBO report estimated that canceling the rule would reduce earnings by a little less than $450 per year for the roughly 1 percent of affected workers, it also found that every single income group would benefit from higher family incomes—$8.5 billion in total.
Many of the massive costs imposed by the rule come from wasted productivity. Businesses have already spent significant amounts of time and money figuring out how to comply with the overtime rule, and they will spend an additional $8.6 billion complying with it over the next seven years if it is not canceled.
Those compliance costs include familiarization costs, adjustment costs (including educating employees, adjusting payroll systems, and changing work assignments and practices), and management costs.
Just the lost productivity alone of managers who would have to spend their time monitoring workers’ hours is estimated to cost employers $6.4 billion. And remember, workers will only receive $2.7 billion in increased earnings.
While it may appear that businesses would be the prime beneficiaries from canceling the overtime rule, workers and families would be the true winners.
The CBO found that consumers and businesses would initially share equally in lower prices and higher profits, but as businesses respond to competition, they would convert more of their profits into lower prices.
By 2023, consumers would enjoy 75 percent of the net benefit in price reductions while businesses would retain about 25 percent through higher profits.
Canceling the overtime rule should be a no-brainer. The widespread economic damage of the overtime rule is enough, but its unintended consequences—such as reducing workplace flexibility or non-wage compensation—could wreak havoc on the very same workers the rule is allegedly supposed to help.
Now that the overtime rule will likely not take effect before Trump is in office, he easily could—and should—cancel the overtime rule on his first day in office.
