From Donald Boudreaux and Liya Palagashvili for Mercatus on a topic we’ve covered a lot. Abstract:
Under the Fair Labor Standards Act, employers must pay workers who work more than 40 hours in a week time-and-a-half for every hour worked over 40. Numerous exemptions to this requirement exist, including for salaried workers who have “executive, administrative, or professional” (EAP) duties and have a annual base salary of more than $23,660. The Department of Labor recently proposed removing the exemption for EAP workers earning an annual base salary of between $23,660 and $50,400, which would extend mandatory overtime pay to an additional 5 million workers. While the Department of Labor claims that this change will encourage additional hiring, improve the well-being of employees, and lead to higher paychecks, economic theory and empirical evidence suggest otherwise.
A new study for the Mercatus Center at George Mason University provides a thorough analysis of the Department of Labor’s proposed overtime rules, finding that the rules will fail to achieve their objectives and will reduce the diversity of labor contracts used across different industries in the United States. Research indicates that the rules will increase compliance costs for firms, and that employers will respond to the new requirements in unintended ways. In particular, employers will be forced to move some employees from salaries to hourly pay or find other ways to clock their work.
One Comment
It makes sense that you shouldn’t be able to make an end-run around the minimum wage laws by making someone salaried. To reach $23,660 at minimum wage (plus applicable overtime), someone would have to work about 55 hours per week. So I can understand a rule saying that if you make less than that, you need to keep track of the overtime and pay it.
But for someone at minimum wage to reach $50,400, they’d have to work over 102 hours per week. Somehow I doubt there’s an epidemic of companies making employees work over 100 hours per week. (Perhaps some people work that much, but probably not for the same job, unless they’re self-employed.)
For companies paying more than the minimum wage… well, they can just decrease their base pay, pay the overtime, and end up paying their employees the same as they always did.