Do you think you deserve a raise but your boss doesn’t or says s/he can’t afford it? Who doesn’t? The best way to get a raise would be to convince your boss of your worthiness. If all else fails, there is the government.
That seems to be the philosophy of the Obama administration, which recently issued new rules on overtime pay for salaried workers. Starting Dec. 1, anyone drawing a salary of up to $47,476, more than double the current ceiling, will be eligible for time-and-a-half for hours worked in excess of 40 per week. The previous limit was $23,660, so the rules will, in theory, benefit 4.2 million workers and raise wages by $12 billion over the next 10 years.
Now this is a tough one for those of us who have friends and family members who fit into this category. I know lots of salaried people who work more than 40 hours a week — sometimes 50, 60 or more — who deserve additional compensation or, in the absence of overtime pay, more time with their families. But I will try to put aside such personal sympathies. After all, though we sometimes fail, journalists are trained to cast aside our biases.
In examining this issue, the most important question to ask yourself is whether the new rules will actually have the intended effect. I’m a believer in the macroeconomic principle that if you make something more expensive, fewer people will buy it. The same goes for employers. Make labor more expensive and employers will hire fewer workers, or they’ll find a way around the new rules.
Most members of the business community are complaining about the Obama administration edict — and you would expect them to. This makes it more expensive to employ low-level management and can make for a less dynamic and less flexible workforce. And as you might expect, the opinionators at Forbes and the Wall Street Journal editorial page were apoplectic — and with some good reasons.
The Labor Department brags that the new rules will raise the standard of living for millions of workers. But, as one CEO recently said, “This is a static calculation that simply counts up the number of affected employees and mistakenly assumes that employers will accept the increased labor costs associated with such a regulation and make no moves to avoid or offset them.”
The new rules make no distinction between the size of the affected businesses. Most small businesses operate on thin margins and they simply do not have piles of cash on hand to accommodate a substantial increase in their payroll expenses. So they will either cut their payrolls or redistribute the existing funds set aside for wages and benefits. Or turn previously salaried employees into clock-punchers.
Of course, some businesses will simply give salaried employees a raise to $47,476 (or $913 a week) on the premise that it’ll be cheaper than paying overtime to the employee. Other employers will simply bite the bullet, pay the salaried workers overtime and make do with less profits. Those employees will definitely benefit from the new rules.
In Connecticut, the U.S. Labor Department estimates more than 45,000 workers would benefit. No less than Gov. Dannel P. Malloy and Congresswoman Rosa DeLauro said the rules will “lift up America’s working families and give them a fair shot in the workplace.” Perhaps, but how will the government itself comply with the new rules?
At the University of Connecticut, which includes the university’s large health center in Farmington, it’s estimated the overtime rules will affect 2,302 full-time employees and cost the university $1.5 million a year.
“We would have to decide whether to allow them to work over 40 hours and pay them overtime or limit how many hours they work. We are most worried about this impacting research,” Scott Jordan, UConn’s budget chief, told the Connecticut Mirror. “The impact will be that our costs will go up.”
I suspect the effects of the new rules will be felt in much the same way in the private sector. Added payroll expenses will surely make the cost of doing business greater. Employers will also have to dedicate additional resources to keeping careful track of hours worked or face the threat of lawsuits. And many businesses will respond by employing fewer people, cutting back on the benefits of those who remain, or raising prices. Just look at UConn. The money has got to come from somewhere.
I can certainly empathize with those who feel they’re getting a raw deal from employers who take advantage of their salaried workers. And if I thought these new rules would definitely help the overworked and the underpaid, then I would be all for them. But as is the case with too many other government attempts at mandating happiness, I fear the law of unintended consequences will prevail. For every worker helped by the new overtime rules, there could be two or three who will actually be worse off. Is that really what we want?
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