The High Cost of Obama’s Overtime Edict

The Obama administration this week announced final regulations doubling the salary threshold (from $23,660 to $47,476) at which most employers must pay time-and-a-half overtime to white-collar workers, and indexing future thresholds to advances in the wage level. Employees 25-34 and those with a bachelor’s degree are expected to be the most heavily affected groups; among sectors expected to be hard hit are not only retail chains, restaurants, and small businesses that hire on-site managers, but also colleges and even food co-ops.

As colleague Jeffrey Miron observed in this space on Wednesday, the notional paycheck benefits to employees reassigned to hourly status are likely to prove temporary, since employers have many ways over the medium term of dodging a permanent upward jump in payroll costs: they can forbid employees to clock more than 40 hours a week, lay off those who regularly do so, cut back on non-cash perks for the salaried, and so forth, not to mention suppressing the level of base pay itself.

The final version slightly softens some of the worst features of last year’s proposal, knocking down the pay threshold a bit, allowing bonuses and commissions to count toward 10 percent of the sum, and dropping a scheme to expand the range of duties forbidden to salaried managers. But overall, it’s still impractical in the extreme - as House Democrats, of all people, discovered when they tried to comply with the spirit of the rules in their own offices. The result, as I noted in this space last month, turned out to be a series of headaches including the prospect of unanswered phones and other gaps in constituent service, layoffs, and even closure of some district offices.

Two years ago, when the administration announced its plans, I pointed out in this space that the proposal, part of President Obama’s “binge” of executive orders and unilateral decrees to bypass Congress, posed very large compliance costs, aside from giant class action payouts by employers unlucky enough to guess wrong about the law’s requirements. It would also “frustrate ambitious individuals who willingly tackle long hours to rise into management ranks.” Perhaps most significant, it would force millions of workers into time-clock or hour-tracking arrangements even if they themselves prefer the freedom and perks of salaried status. The hassles of this system, when stringently enforced by law, are major:

For years, some lawyers have been advising clients not to hand out company-paid cellphones to any workers who lack a lawful overtime exemption, lest a claim later be made that work was done on the phones during evenings and weekends. Where the law is particularly stringent about calculation of lunch breaks, as in California, some lawyers have advised employers to make it a firing offense to do any work during the allotted break.

Many workers will also lose the option of “comp time” arrangements, often valued as family-friendly, by which extra hours worked one week are offset by a paid day off in the next. Much more on the likely constriction of workplace flexibility is to be found in Donald Boudreaux and Liya Palagashvili’s recent Mercatus Center paper, which discusses the menace posed by the rules for the practice of telecommuting (which by its nature makes it hard to track work hours).

I’ve covered the regulations extensively over the past two years at Overlawyered, including the tactics (such as lowballing costs and fast-walking comment periods) by which the intensely ideologized Department of Labor of Thomas Perez has sought to evade scrutiny of the measure’s costs. Along the way,  I also noted that “one big if unstated aim” of the rules is one of ideological transformation of the American workforce itself: “with more people punching clocks at work, there’ll be fewer with the politically unproductive ‘management mentality’ of salaried types.”