Hey salaried middle managers making under $47,500 a year, the Obama Administration just got you overtime pay! However, you might want to wait before you send the president a thank you note. There are likely to be some unintended consequences. Your employer may reduce your base pay, eliminate work flexibility options, or reduce the number of supervisor positions.
Salaried workers are paid for a scope of duties rather than hourly work. Such positions often involve supervision or other responsibilities. It is generally understood that some weeks, salaried employees will work longer than a 40 hour work week in order to get the job done. To compensate, salaried employees may receive comp time or be allowed to work from home.
Under the old Fair Labor Standards Act regulations, salaried employees were exempt from overtime rules unless they made less than $23,660 a year. Thus only 7 percent of salaried workers were eligible for overtime. Now roughly 35 percent of salaried workers must be paid overtime.
The administration no doubt thought it was helping more salaried employees to receive their fair share. This is an example of what Economist Thomas Sowell would call the fallacy of stage one thinking. Such thinking assumes that employees will simply respond to the new rule by paying workers more. Government mandates rarely evoke such an unproblematic response.
While some employers will simply pay for overtime or increase employee salaries to a level above the new threshold, other employers will cut workers base pay to offset the anticipated amount of overtime. When a lawsuit forced IBM to pay overtime to some 7,000 workers, that is exactly what they did to compensate.
Other employers may reduce job flexibility by eliminating the ability to work remotely. Why would they open themselves up to the lawsuit? Employers will want every hour and even minute counted and accountable for.
Still other employers may eliminate middle management positions and other paths for upward mobility. For them it will be a safer bet to hire a part time employee to pick up the slack.
Retail and restaurant management jobs are most likely to be impacted. The National Retail Federation predicts that stores will convert roughly 700,000 workers from salaried positions to hourly positions. Two-thirds of the retail managers will experience some impact. For some, the impact will be positive, for others negative.
Consumers, for their part, can expect to pay higher prices in some sectors as costs are passed along.
Turns out that when Uncle Sam works overtime trying to help us out, we’d be better off if he just took a vacation.
How can we increase take home pay and close the income gap? Check out our solutions to income inequality.
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