Overtime Pay: Why More Government Meddling Isn’t Good for Workers
Genevieve Wood /
Making more money is a good thing. But having a job you like is even better. Which is why President Obama’s announcement this week that he wants to increase the number of Americans eligible for overtime pay is not as good a deal as it sounds.
Who qualifies for overtime pay is based on the Fair Labor Standards Act, originally passed in 1938, which set the original standards for the work week and the minimum wage. The U.S. Department of Labor has modified and updated those standards many times over the years as the U.S. workforce has changed and modernized, most recently under the Bush administration in 2004.
Policies, such as the base salary level for those who should qualify for overtime, should be reviewed from time to time. But if news reports are accurate, President Obama is considering raising the salary threshold for overtime exemptions from just under $24,000, today’s base, to as high as $50,000. Anyone in any job making less than $50,000 would have to track their hours (and get paid overtime for the extra)—whether a salaried or hourly worker.
That may sound good, but here is why it’s not.
Overtime pay has to come from somewhere, and that somewhere is the employers. Businesses will have to find ways to absorb the costs. If they are going to have to pay someone overtime, they may reduce that person’s base salary to help make up for it. This happened at IBM, which cut base pay 15 percent for salaried technical support workers it reclassified as eligible for overtime.
Or employers may decide to lay off some workers to reduce the new costs and have the remaining employees simply do more. Companies could also make sure full-time employees work no more than 40 hours and bring in part-timers to cover unexpected needs.
And to ensure employees aren’t working more than 40 hours, employers would have to step up their monitoring efforts of exactly when their employees are clocked in and clocked out. Not only does that mean more burdensome regulations for businesses, it very likely means less flexibility for workers. Working at home and taking flex time become much harder to accommodate if an employer has more difficulty monitoring when the employee is actually working.
Many people enjoy having flexible schedules, being able to work from home, and getting paid for their work product—not the hours logged. Think of a blogger who makes $42,000 a year working for an online media company. Currently, that person is exempt from overtime pay rules. She is able to write articles at various hours of the day, sometimes while at home, other times working from her local coffee shop. She doesn’t track her hours, and her employer—who pays by the article—doesn’t care whether the article takes her three hours to write or five hours as long as she makes her deadline.
The president’s proposal would potentially prevent anyone like this blogger (making less than $50,000 a year) from enjoying this flexibility. She would have to keep track of how much time she spent writing, surfing the web for research, checking business email, etc.
And because determining who qualifies for overtime pay is more complicated than just someone’s salary level, to protect themselves from lawsuits many companies would be strongly encouraged to make employees earning less than $50,000 a year hourly workers and take them off salary. And formerly salaried workers who might want to put in extra work to impress the boss and move up the ladder faster would be strongly discouraged from doing so.
Regardless of how it sounds, the president’s proposal is not a good deal for many workers.