Overtime change has unintended consequences

I’ve been going back and forth on this Labor Department proposal that would change overtime rules.

No, it’s not the content of the proposal. It’s ill-conceived and loaded with unintended consequences.

My waffling has been over whether to add my voice to the sometimes hysterical wailing coming from other quarters. Is this proposal real or just a trial balloon, a starting position for a conversation that will end with a less drastic fix?

The Department of Labor recently solved it for me by issuing its “final” order to become effective Dec. 1.


Let’s review:

For years, employers have evaded paying overtime by declaring certain employees as managers or supervisors or professionals. And they generally got away with it for anybody making more than the threshold salary of $23,660.

Periodically, there were state and federal crackdowns — mostly saber-rattling — over whether managers had any real authority to manage or supervisors really supervised anyone.

Were there abuses? Sure.

Is $23,660 a badly outdated number? Absolutely.

So now along comes the Department of Labor with a plan to set right the injustice of decades of employees denied overtime. And the idea is to do it in one grand move by more than doubling that $23,660 threshold to $50,440.

What could possibly go wrong here?

Most employers have some workers in the target zone, but retail and restaurants may be the hardest hit. After all, many entry level jobs in those industries come with a title of assistant manager.

Not every assistant manager is being abused, but in any case, there’s got to be an easier fix than this.

What’s an employer supposed to do? One fix would be to reclassify a lot of managers as hourly employees and start paying gobs of overtime. Another would be to raise all managers’ salaries to maintain the overtime status quo.

Both are nonstarters.

Industry groups have been busy putting together reports showing the cost of such fixes. The National Retail Federation says 2 million employees are affected and it would cost the industry $745 million to fix the problem. The Newspaper Association of America predicts a $130 million problem for its member publications.

Opponents pointed out the proposed $50,440 threshold is more than $10,000 higher than even the highest state’s overtime threshold. That means the federal level is a problem even in California and New York but it’s lunacy in places like Nevada.

With scheduling flexibility and cost containment at stake, the only viable option for many employers would be to hire more part-time employees and pay for it by cutting hours and benefits for existing employees.

The alternative — passing the cost along to the customer — would spread the pain but upset the equilibrium of some whole industries.

A coalition of industry associations and small business interests has been fighting the good fight for months and the Labor Department responded by throwing them a bone late last month.

Yes, $50,440 may be a bit high, they said. We’ll lower that number to $47,476 now and raise it automatically every three years. Certain incentive payments and commissions may be used to calculate salary, which is good news for some.

While the revision changes the numbers a few percent, it still represents a doubling of the threshold and leaves employers with the same painful choices.

The hope is that adults will intervene before this proposal becomes operative.

Still, if your business finds itself under the gun here, this might be a good time to raise your voice. All those members of Congress may be very receptive to calls from the business community as we head into the election season.

Meanwhile, I’m not enjoying admitting I was wrong in not speaking up earlier.

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