Changes in overtime pay likely to have some effect
Stopping short of an executive order to update and modernize overtime pay regulations, President Barack Obama recently signed a memorandum directing the secretary of labor to look into so-called white-collar exemptions, a move that may clean up the rules, but could ultimately result in no change to the bottom line for employers or workers.
The Fair Labor Standards Act calls for most workers in the U.S. to be paid at a rate of 1.5 times their regular pay rate for any hours worked beyond 40 in a week. There are exemptions for employees in certain executive, administrative or professional positions. Salaried employees in those types of positions receive a set amount of compensation, regardless of hours worked.
Obama, in his March 13 memorandum, called the regulations “outdated” adding that “millions of Americans lack the protections of overtime and even the right to the minimum wage.”
Dr. Paul Hettler, professor of economics at California University of Pennsylvania, opined that the fundamental impact of such revisions would probably fall somewhere between the concerns of the right that employers hire fewer people, thus negatively impacting an already troubled economy, and the hopefulness of the left that more people will be hired to cover the excess hours currently being worked by managers.
There’s some validity to either side of the argument, according to Hettler.
“The only way to reduce labor input is to reduce output,” he explained. An employer might think to her- or himself, “I can’t hire fewer people and produce the same amount of product,” he said, whether that’s widgets in a factory or plates served to tables in a restaurant.
As such, employers will try to maintain the same labor input, while also avoiding a net increase in labor costs.
“They might not hire, they might cut back hours, they might reduce base pay,” Hettler said.
On the other hand, Hettler said it’s true that if people make more money, they will spend some fraction of it, resulting in a boon for the economy overall. “That is more true the farther down the income scale you go,” he added.
But the trouble with making a prediction, Hettler said, is that there’s no historical example with which to compare the likely outcomes of revising overtime rules.
One woman who is among the class of employees most likely to be affected by overtime pay revisions said she expects the change would be beneficial on paper, but workers like her probably won’t see much of a difference in their paychecks.
Ellen Gonzales is a salaried manager at a local restaurant that is part of a national chain. The 23-year-old said she was an hourly paid manager for four years, until February when she was offered a salaried position.
She said the difference in how she is paid has made a huge impact.
“As an hourly manager, I was also serving tables and bartending,” said Gonzales.
She took home tips every day, plus her weekly pay, she said, but now she’s dealing with a set amount of money on a biweekly basis, which has forced her to create a budget and stick to it.
As an hourly manager, she was also working at another restaurant, but she had to quit that position when she took the salaried job. Her hours are still the same, though.
Now she’s working close to 60 hours a week, Gonzales said, and not always making as much.
“I feel like it’s part of the job description,” she said.
Gonzales said she thinks it’s necessary for people to get paid for the time they put in, but since salaried managers don’t clock in and out, it’s hard to know whether they get paid at an acceptable hourly rate for the work they do.
As for whether overtime pay revisions would be beneficial for workers like her, Gonzales said, “I don’t know if it would be beneficial, but it would be fair.”
Hettler said that it will likely take a year for the Labor Department to come up with a proposal per the president’s request, and that the effects of changes in the law will not be immediately noticeable.
“The net impact on the economy will take years to fully play out,” said Hettler.