As many fellow entrepreneurs and business owners can attest, the United States government has a very distinct habit: it consistently aims to enact labor laws without fully considering the economic implications on businesses of all types.
True to form, we are seeing the proposal of yet another potentially detrimental work rule by the Department of Labor. According to a newly proposed rule, the overtime exemption threshold will move from $23,660 to $50,440 per year. In other words, workers who earn less than $50,440 will be guaranteed overtime pay if they put in more than 40 hours per week, no longer being considered an exempt level employee.
At first glance, this idea sounds quite pleasant: more Americans will be paid overtime after surpassing 40 hours per week. Who doesn’t want that, right? However, this may be more of a pie in the sky plan than a realistic one. This is largely due to the fact that this significant jump (113%) is potentially dangerous to small businesses, retailers, restaurants, universities, and other sectors that must carefully track where every dollar is spent.
It comes down to basic economics – when employees cost more, employers must cut costs in other ways. Not everyone can afford to do this, especially after we are still feeling the effects of the new costs incurred by Health Care Reform.
For instance, a store manager for a fast food chain may be salaried at $45,000 and average 50 hours. If every hour of overtime must be paid, the cuts will come from somewhere else and often in the form of more part time and less full time positions – thus causing individual pay cuts!
Not to mention a rule like this could put a significant wrench in employer flexibility and culture. Lamar Alexander (R-Tenn), chairman of Senate Health, Education, Labor and Pensions, notes that this rule “will hurt the lowest paid American workers the most, by reducing their opportunities for a promotion or a better job and making it all but impossible for workers to negotiate flexible schedules”.
In other words, if flexible schedules cause some employees to run into overtime, the entire concept could be scrapped. Again, this takes away from employees rather than aiding their efforts.
Fortunately, there has been some protest against this rule in the form of the Protecting Workplace Advancement and Opportunity Act. A new bill proposed hopes to at least require the Department of Labor to first “conduct a comprehensive economic analysis on the impact of mandatory overtime expansion to small businesses, nonprofit organizations and public employers.”
Concerns for the changes run across political lines. According to SHRM, both Republicans and Democrats have expressed concerns about the unintended consequences of this rule.
As a business owner myself, I can tell you that most business people will detect the negative implications of this rule. Let’s hope the bill blocks the rule before it goes too far.