Last week, House Small Business Committee Chairman Steve Chabot (R-OH) and the Department of Labor (DOL) began the process of reconsidering the Obama Administration’s harmful “overtime rule.” A federal judge blocked the rule change in November of 2016, delaying implementation and it’s been left in regulatory limbo ever since. Given the enormous impact of the rule, a delay is not enough. Congress and the DOL must act to stop the rule altogether - before it can strike again!
The rule would be a massive expansion of the Fair Labor Standard Act’s overtime regulations, increasing the threshold for one and a half times pay from $23,660 to $47,467 with automatic increases every three years. This change would re-classify a large number of workers, who will suddenly find themselves back at an hourly wage, which often lacks other benefits reserved for exempt employees. At the same time, the rule would undermine the prevailing merit-based pay scale, which rewards working for good performance and experience.
Supporters of the rule claim it would protect the American worker and increase take-home pay. But a growing body of academic work paints a more dire picture.
In a study by the Mercatus Center, researchers found that the new overtime rule would indeed raise the pay of a salaried employee who works around 240 hours of overtime a year by about $7,000. Because this increase is arbitrary, the Mercatus Center concluded that:
... The proposed overtime pay mandate for workers... increases affected workers’ total pay but not their productivity, their employers will find it unprofitable to keep all such workers on the payroll at their current salaries.
The likely outcome of the overtime rule? Lost jobs.
Proponents of the rule dispute these claims, suggesting that employers would just cut hours and hire more people, but this is not necessarily the case. For instance, employers, forced to pay overtime could cut base salaries making room in the budget for overtime hours, but sending employees home with the same amount of money.
This flies in the face of one of the main goals of the overtime rule: giving people more time to do other activities. Newly non-exempt employees will have to work additional overtime hours in order to ensure their previous stable salary. This forces employees to work overtime when previously they were guaranteed the same money for the same job regardless of hours on the clock.
The rule disproportionately affects low-skilled workers, who often work hourly jobs and aspire to more. Implementation would result in increased automation, leaving fewer job opportunities for those who need them most. Ironically, under the guise of increasing worker pay, the overtime rule adds insult to injury in the form of lower wages and longer hours.
Small businesses, the engine of our economy, also are hit particularly hard by the overtime rule and other new regulations. A Small Business Administration study shows that small businesses bear the majority of the regulatory burden. In the case of the “overtime rule”, while the DOL can give workers a raise in private businesses, they cannot force revenue to rise. So while the supporters of the “overtime rule” congratulate themselves for “helping” the American worker, small businesses necessarily look for ways to make up for the increased expenses by limiting “employees’ hours and career opportunities.”
As more and more employees seek flexible working arrangements, such as telecommuting and independent contracting jobs, the overtime rule is incompatible with a modern workforce and could hurt competitiveness. The best thing Congress - and the DOL - can do, is to get government out of the way of the vast economic potential of our changing world.