Obama’s new overtime rule could sting workers

F. Vincent Vernuccio and Jeremy Lott

Congratulations! You are now eligible for overtime.

And condolences because, in exchange, you may lose flexibility and your pay could actually stay the same or even go down.

The first sentiment comes straight from President Barack Obama’s mouth. “I’m going to do what I can on my own to raise wages for more hardworking Americans,” Obama said in a March signing ceremony of his new overtime rules at the White House.

“Today, I’m going to use my pen to give more Americans the chance to earn the overtime pay that they deserve.”

Obama was putting ink to paper on a rule which changed the overtime exemption for salaried workers. Previously, salaried workers making more than $23,660 a year were not eligible for overtime pay when they worked more than 40 hours a week.

As of Dec. 1 — just in time for Christmas! — all employees making up to $47,476 are eligible for overtime pay, as are some employees with total compensation (salary and benefits) up to $134,004 a year.

The second, more sobering impact is what employers are saying will happen in reality. According to Bloomberg financial columnist Noah Smith, “We can almost certainly expect overtime to push base wages down” and anticipate that companies will “restrain base wages from growing” to make any overtime less costly. That would place raises and other compensation for the millions of Americans in jeopardy.

Obama may be touting the raises he hopes his rule will create, but the text of the regulations fail to mention giving workers a raise, notes Trey Kovacs, labor policy analyst for the Competitive Enterprise Institute. Rather, the two main objectives are to “spread employment ... by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours,” and to “reduce overwork and its detrimental effect on the health and well-being of workers.”

Analysts at Goldman Sachs agree that American companies will likely respond by restricting hours and hiring more part-time workers. This will be costly for the companies and frustrating for many workers.

The new rule may also mean much less flexibility for salaried workers. If many more of them are compensated based on hours, employers will have to watch those hours much more closely if for no other reason than to better weather employee lawsuits, which have risen sharply in the last few years. The rule is a potential bonanza for trial lawyers and companies know this. A 2014 survey of HR, management and in-house counsel by the Littler labor law practice found that nearly half of those surveyed were worried about a spike in employee-driven court appearance. The risk of new overtime lawsuits could make it much harder for the salaried to work from home a few days a week, say, or check the office email from home.

To head off these things, along with additional inefficiencies and headaches for businesses, schools and nonprofits, Republicans in Congress are sponsoring two competing resolutions: one that would kill the regulation in it entirely VIA the Congressional Review Act and another that would send the Labor Department back to the drawing board.

The drawing board bill, Protecting Workplace Advancement and Opportunity Act “stops the Department of Labor from irresponsibly redefining the overtime threshold without understanding the real world consequences. It will also require them to start over and ensure that any new regulation on overtime considers the daily impact on our nation’s economy” according to Sen. Tim Scott, R-S.C., who introduced the bill in the Senate alongside Rep. Tim Walberg, R-Mich., who introduced it in the House.

Either bill would stop the Department of Labor from doubling the overtime threshold mere months after Obama’s pen stroke. If Congress fails to rein this overtime rule in, a bit of advice to salaried American workers: Don’t bank on that Christmas bonus.

F. Vincent Vernuccio is Director of Labor Policy at the Mackinac Center for Public Policy. Jeremy Lott is an adjunct fellow at the Center.