The Obama administration’s new law requiring companies to pay white-collar workers overtime if they earn less than $47,476 per year may cause problems for the very people that are supposed to benefit. Businesses are also expected to suffer. That has prompted 21 states — and dozens of business groups — to file suit to overturn the law, which takes effect Dec. 1. The law’s intentions are certainly good; unfortunately, many of these salaried workers are finding they may face lower pay, greater job uncertainty, and less flexibility in work hours. Businesses face extensive new costs to document their compliance. How could a law with such good intentions pose such unexpected harm for workers?
Workers May Enjoy Less Freedom and Flexibility
While white-collar employees won’t be expected to clock in and out now, companies are still required to carefully track their employees’ hours. And that burden will fall on the employees. If they are not in the office to log their hours they may be required to download an app so they can remotely clock out. Some workers are already complaining that at least one such app has a GPS tracking function, so the company can determine their whereabouts.
Another burden may fall on workers with family obligations. Many workers willingly work long hours one week, in exchange for comp time, or time off, to take care of family business at some later date. That will no longer be legal.
Many Workers Will Not Get a Raise, and Some May See Cuts
President Barack Obama in 2014 ordered the Department of Labor to “revise” the Fair Labor Standards Act’s overtime exemption for executive, administrative and professional employees. In essence, the revision updated the salary level exempt from overtime pay from $23,660 to $47,476. That exemption level had not been raised since 2004 and was overdue for revision. But critics argue that doubling it could cause more harm than good. The Labor Department estimated some 4.2 million workers would qualify for overtime under the new law.
How many workers actually see extra pay remains to be seen. Some workers, especially in the retail and food service industries, will likely earn overtime just as the law intended. However, many analysts say the majority of workers probably will not see any additional money. They predict many companies will adjust workers’ base salary so they have a lower hourly rate, and reclassify them as hourly workers; even if they work overtime, they’d still be making the same pay they made before. If they don’t work overtime, they’ll actually see less pay.
Many companies will balk at paying more money for essentially the same amount of work, and will try to limit employees to 40 hours. They might do that by bringing in part-time or freelance workers. Finally, other companies might decide to pay overtime, but they might reduce employee benefits to balance their budget. “Our research shows that the managers who would supposedly benefit oppose this plan, and that few workers would actually see more take-home pay,” says National Retail Federation Senior Vice President David French. “There simply isn’t any magic pot of money that lets employers pay more just because the government says so.”
Workers May Face More Job Insecurity, Stress
Everyone has sympathy for the assistant manager at a fast food restaurant working 50-plus hours per week to earn $27,000 per year. But at the same time, many white-collar workers are happy logging 45 or so hours in busy weeks and getting comp time in slower periods. Now, many of these employees will be required to carefully monitor their time and not exceed 40 hours — while still performing all the tasks that once took them 45 hours. Trying to do the same amount of work in less time will add stress for many workers.
As noted earlier, some employees may find themselves converted from exempt to salaried status; some workers will see that as a loss of prestige. And the effort by some companies to avoid paying overtime will actually leave these employees with unpredictable and/or less pay, making it more stressful to meet their monthly budget.
Here’s a link to a Department of Labor FAQ page on the overtime law.