The New Overtime Pay Rule, Unlike a Higher Minimum Wage, Is a Winner

Last week the Department of Labor adjusted a dollar amount unchanged in 41 years.  Effective December 1, the highest salary for which employers must pay time-and-a-half for weekly hours worked over 40 will increase from $23,660 to $47,476.  It will now increase, algorithmically, every three years.    

I do not support raising the minimum wage.  As I have written before, that costs jobs, rarely eliminates poverty, pushes demand for positions unnecessarily high, and sticks it most often not to the likes of McDonalds and Wal-Mart but to struggling local employers.  In a country where people’s wants and needs vary drastically, it is wrong that jobs paying below a certain amount are illegal.  Yet I do not see requirements for overtime eligibility the same way, and here is why.

First, requiring unpaid work is employee abuse.  Below a true management level, for which $47,000+ is a better approximation than $23,660, labor is an hourly expense.  Any requirement that production workers, be they making hamburgers or computer programs, provide it for free, whether they are compelled formally or informally, goes straight to the employer’s bottom line.   

Second, too much work and not enough people to do it during their regular hours is a human resources problem, for which the business’s management, not its workers, is responsible.

Third, over the past several decades there has been more and more concentration of work into fewer employees, which minimizes the number of jobs.  Avoiding hiring people by getting uncompensated hours from existing workers makes that worse.

Fourth, no longer will so many people need to choose between being promoted or getting higher pay.  That may sound strange, but if restaurant shift managers are expected to stay late whenever they are needed, those accepting that position may well earn less per hour than the newest salad maker. 

Fifth, the threshold adjustment will prevent the problem of many restaurant and retail managers, ostensibly hired to supervise, putting in unpaid extra time doing low-level tasks themselves.  These situations, as dirty as water after a manager washes dishes, will be cleared up.

Sixth, one of the few comprehensive solutions to the jobs crisis I have seen is to reduce working hours.  I think a normal standard of 30 a week would prove to be successful, and we are taking one step toward getting there by bringing that, in effect, down to 40.

As for the case against the change, I don’t remember seeing as many bad arguments on one issue as I have here.  Those opposing the law claim it will make managers punch time clocks (no need for that, and most managers fill out timecards, to track what projects they are working on, as it is), that jobs will become more rigid (only at the expense of volunteer work) with less telecommuting and flexible hours (employees can contemporaneously write down the hours they put in on paper, if recapping at the end of each week isn’t good enough), that businesses will be damaged by the loss of unpaid work (which also happened when slavery ended), that workers will lose “prestige” and suffer “demotions” (nonsense and nonsense), that it will call for excessive record-keeping (one small spreadsheet per work group?), that it will result in pay cuts and loss of benefits (employers can do that any time they want anyway), and, as maybe the most laughable example of false entitlement, that it will hurt universities by requiring they pay postdoctoral fellows and adjunct professors for the time they actually put in.  The only reasonable objection I have seen is making accounting for business travel more complex, but the laws on pay there should, of course, be the same for those now under the threshold. 

What will be the effect of this change?  Contrary to what President Obama said, it will not raise pay for a great deal of people.  Employers will have five main ways of dealing with the higher limit:  simply paying for overtime as it occurs, not having the extra work done, reducing base pay as to formalize the amount of hours the employees have actually been working, giving raises to bring workers over the maximum, and transferring work over 40 hours per week to new employees.  Only two of these would mean more money for workers, but two would give them extra free time.  As for opportunities, observers have different views on how many jobs this new law will generate, with Goldman Sachs economist Alec Phillips estimating 100,000 new ones next year, but California’s similar 1980 regulation created almost none.  We will need to wait and see. 

Although this threshold increase will mean change, three things should be clear to employers and employees.  Those earning more than this $47,476 – which is only the 1970 inflation-adjusted equivalent of $7,699 – can continue to be expressly paid for getting the job done, no matter how many hours it takes, and can put in all the extra time they want.  Despite one complaint, networking activities, if optional, will be unaffected.  And all workers will be as welcome as ever to advance themselves after hours.  Those things will continue to benefit businesses, but cheating their employees out of their labor will not.  That is a good thing.