New Overtime Rule Causes Triple Damage to Economy

e21 ^ | May 18, 2016 | Diana Furchtgott-Roth

[expat_panama]

Most bad policies harm the economy in one identifiable way. But the Labor Department’s new overtime rule, released on May 18, harms the economy and the American worker in three different ways.

The new rule requires employers to pay white collar workers overtime if they earn less than $47,476 annually, instead of less than $23,660, the case at present. (Manual workers generally have to be paid overtime at all earnings levels.) The effect will be (1) to raise costs to employers, discouraging employment; (2) to prohibit flexible time for employees; and (3) to stunt American productivity and economic growth.

Consider Rob, an analyst at a consulting firm, who earns a salary of $45,000 a year. Now if he works late one night he can come in later the following day, or take extra time off. He can duck out of the office to attend his child’s kindergarten concert. He can come home for dinner and catch up with his work in the evenings.

With the Labor Department’s new overtime rule, effective December 1, this will change. Along with others who make under $47,476 annually, Rob will have to keep track of his hours by clocking in and out. Because of the need to track hours, telecommuting will be difficult. If he works longer one week then his employer will not be legally allowed to give him “comp time” (time off instead of the extra hours), but will have to pay him overtime instead.

Not that Rob will necessarily earn more than what he is making now. Either Rob’s employer will make sure he never works more than 40 hours in a week, or his rate of base pay will be lowered to make up for the extra hours worked.

The Labor Department’s new salary test means only that Rob is “protected” with the right to time-and-a-half pay rate for any hours worked over 40 per week, but he never works over 40 hours, it is an empty benefit. Most workers affected never get the chance to work over 40 hours per week. The administration estimates that about 4.2 million workers would qualify for overtime in 2017.

The administration touts the overtime rule as a device to raise the incomes of workers, but their own analysis calculates only $1.2 billion annual increase in wages of affected workers. The real effect of the rule will be to add significant administrative costs.

One cost is familiarization, the initial time and effort that each employer must expend to understand the requirements and assess what needs to be done.

A second cost is the initial wage classification adjustment costs. Firms need to identify each employee affected by the higher salary test, to decide for each case whether to raise their salary to the new threshold or to convert the status to non-exempt hourly. In the case of conversions there will be further effort to determine what base hourly rate to establish and what usual hours requirement and policies to set for assignment and approval of overtime hours.

A third cost is management costs. Workers converted from salaried to hourly status will require additional management supervision time for checking time records and for approval of overtime hours.

The administrative costs of the new rule could total $18.9 billion the first year – over 15 times greater than the $1.2 billion of increased wages that the administration estimates will be received by workers. In subsequent years, the ongoing management supervision costs imposed by the rule could total around $3.4 billion each year, almost three times the $1.2 billion of wage gains generated.

In an article in the Huffington Post, National Institutes for Health Director Francis Collins and Labor Secretary Thomas Perez write that the overtime rule will improve pay for the 38,000 junior scientists who are critical to biomedical research. NIH plans to raise its salaries above the $47,476 threshold to enable scientists to continue to put in long hours without having to pay overtime. At the same time, Collins and Perez admit that other “research institutions that employ postdocs will need to readjust the salaries they pay to postdocs that are supported through other means, including other types of NIH research grants.”

While NIH might raise salaries, there is nothing in the law that prevents the other labs from reducing the scientists’ rate of base pay, and giving them the same paycheck. Unless science labs get more funding, the labs will either reduce base pay, reduce hours, or both to meet the new requirement. Even the most advanced labs cannot manufacture dollars out of nowhere.

The fundamental problem in science is not lack of overtime protection, but that the United States undervalues science research. Science pays far less than law, business, or finance, and so the brightest American minds are going to other fields. Perhaps Collins can fix that problem by raising funds and awareness.

Most of the workers who will be affected by the new overtime rule will see no increase in their pay checks. Their only benefit will be to know that they will not be required to work more than 40 hours in a week without getting overtime pay. Instead of extra pay, most will lose the schedule flexibility, prestige, and career opportunities that they now enjoy as salaried workers.

[expat_panama]

These new overtime labor costs are on top of existing costs. 

Anyone who's ever managed a payroll knows that overtime not only costs more per hour, but it's bad for morale, it also means lower productivity, and is a temporary measure at best.   Thing is that sometimes you just got to do it --deadline, penalties, weather, whatever.  Just the same, the rule of thumb is that employee output's just say, 60% after 8 hours and even that only lasts about 3 weeks before everyone's brain's gone out the window.  Of course, I'm talking 14 or 16 hour days/seven days per week but this is the kind of extreme situation we're dealing with.

Now we're piling more gov't interferance on top of it all.

[goodwithagun]

This makes me think of the Geico commercial with the little old ladies who think they know how to use social media. “That’s not how this works! That’s not how any of this works!”

[SoFloFreeper]

Megan, another perspective to consider. :)

[Biggirl]

Look for Trump to get rid of this EO.

[from occupied ga]

but that the United States undervalues science research

This gem caught my eye. Science research is valued EXACTLY as it should be. In a free market demand and supply set prices, and the demand/supply of scientists is at the level where their pay is what it should be.

[Buckeye McFrog]

Donning Asbestos Suit:

When I was young I spent some time in management in the retail industry. They would routinely work you 60 hours/week on salary, often running around doing mundane jobs that had nothing to do with managing anybody. The weeks got a lot longer at Christmastime. Break it down per hour and you were making less than the minimum wage.

I got smart and left that business when I realized that the impending birth of a child would qualify me for food stamps. But my former employers played WAY too fast and loose with the rules. As one of my former colleagues in that business was fond of saying “you gotta draw the line SOMEWHERE.”

[precisionshootist]

NEW RULE?

When did we become a nation of "rules"?

How can the labor department make rules that have the force of law?

Employers with the help of State Governors need to tell the labor dept to fuck off until congress votes and this is signed into law.

If I'm reading this correctly this is no little thing. This is going to have MAJOR impact on peoples lives.

[RoosterRedux]

Companies will circumvent these rules by outsourcing more work to subcontractors.

I often work as a subcontractor and get paid for the work completed regardless of the hours it took to get the job done.

On some projects, I make less than minimum wage (I make it up on other projects).

I prefer working this way.

[Buckeye McFrog]

The rule has been in existence for about half a century.
Obama just moved the threshold for being considered exempt from $22K up to $47K.

[ChildOfThe60s]

This begs the question I have asked many times since Herr leader took office.

Why doesn’t he just dissolve congress like happens in 3rd world dictatorships? Clearly, no legislative action is necessary to make law in the US. That is why we have the executive branch, regulatory agencies, and a royal judiciary.

[expat_panama]

 

 

Good morning!  Stocks (left) flat/up in mixed volume.  Gold &silver going nowhere (beats going broke). Futures looking grim all around...

Reports:

8:30 AM Initial Claims
8:30 AM Continuing Claims
8:30 AM Philadelphia Fed
10:00 AM Leading Indicators
10:30 AM Natural Gas Inventories
 

Meanwhile we got all the news fit to line the birdcage:

Hillary Loves The '90s, But Can't Bring Them Back - Jim Pethokoukis, TW
Good Thing Investors Don't Believe Mr. Trump - Andrew Stuttaford, TWS
The Harsh Reality of Regulating Overtime Pay - Andy Puzder, Forbes
New Obama Regulations Will Make Overtime Fair Again - Editorial, NYT
5 Quick Takeaways From the Fed Minutes - Mohamed El-Erian, Bloomberg
Why London Could Decide Whether the Fed Hikes - Patti Domm, CNBC
Fed Keeps Investors Guessing On Rate Hike - John Crudele, New York Post
Is Bond Selloff a 'Taper Tantrum' Repeat? - Ellie Ismailidou, MarketWatch
Looking Into Future of Fossil-Fuel Divestment - Chloe Maxmin, The Nation
In Venezuela, Socialism Is Actually Killing the People - Jose Cardenas, NR

[Fai Mao]

“When I was young I spent some time in management in the retail industry. They would routinely work you 60 hours/week on salary”

The same thing happened to me when I worked in Hotels as a Front Desk manager. Not only would the manager give me piles of work beyond my job description but I was at the mercy of the regular desk clerks. If Belinda the single mothers 4th baby was sick guess who got to work her shift? When John the doper was arrested for DUI who had to work the shift? The minimum wage clerks had more freedom than I did

[Stosh]

The article mentions the effect of this mandate on NIH and post-doctoral research associates.

At most research institutions, post-docs in the sciences work random hours, like graduate students - work weeks much longer that 40 hours are not unusual, but nobody keeps count, because you do what you’ve got to do to complete whatever project you’re on. It will be amusing to see how research groups deal with this decree - are they going to install time clocks for Ph.D.’s to punch in every time they come into lab? Or will they keep daily records of their time at the bench? Any way you cut it, it will be an accounting nightmare for academic scientific research groups across the country.

[ProtectOurFreedom]

It seems you are not feeling the Bern. If the government in all its wisdom says all scientists are worth $1 million per year, then that is their worth. I think it will be written into Bernie’s first Five Year Plan.

You and your antiquated notions about the invisible hand...bah!

[TomGuy]

One employer interviewed on a local radio news program was asked how it would impact him. He responded, ‘probably by reducing employee hours.’

[Who doesn’t see that coming? Oh, yeah, Liberals.]

[jalisco555]

My son is in precisely this position. His employer told him and his fellows that their hours will be reduced to avoid paying overtime.

[Chewbarkah]

Among a LOT of other unpaid work for a charity, I do payroll for 16 paid employees. Obama’s latest diktat, and another hundred miles of red tape discouraging employment, steal my time, using the charitable mission as a hostage.

Obama just increased the already massive pressure on private business to get rid of employees. Besides that, I can see two purposes behind this “overtime” rule: to increase violations the feds can use to shake down employers; and, to drive another wedge between labor and management by destroying the “management mentality” of salaried employees. FUBO!

[MisterArtery]

My wife has a white collar position and makes less than 47K. She works a lot of extra hours (at no compensation) at month-end closing. If this ozero edict is allowed to stand, she’ll have to punch a time clock and will be sorely pissed. She’d rather have the freedom to come and go.

[PJammers]

Was in the same situation. Worked in retail management on the logistics side. They would save on payroll by sending hourly home and making all the managers throw freight. You stayed until you were finished. Sometimes this took 18 hours.

During holiday season it was not uncommon to work 70-80 hours in 4 days, then you had mandatory volunteer time.

When you added up the hours, you actually made less per hour than the hourlys. I got sick and they fired me. Best thing that ever happened.

[Red Badger]

It’s amazing that people who have NEVER EVER RUN A BUSINESS IN THEIR ENTIRE LIVES THINK THAT THEY CAN TELL THOSE WHO DO AND HAVE FOR DECADES HOW TO RUN THEIR BUSINESSES........................