Every economist knows that there’s no such thing as a free lunch. That’s as true in the labor market as in any other area of the economy, but you’d hardly know that by reading the DOL’s publications promoting its new overtime exemption rules. For example, in a recent blog post, Dr. David Weil, Administrator of the DOL’s Wage and Hour Division, set out to debunk some purported “myths” about the new rules. Reading this post, one is left with the impression that the new rules will benefit pretty much every affected employee with no real burden on employers. Here are some thoughts on these “myths” and the “truths” that Dr. Weil offers in response to each:
Myth: You’re hurting the very people you’re trying to help.
Dr. Weil’s Truth: The people who will benefit from this rule have been working extra hours without seeing a dime of overtime pay. Thanks to the rule, they’ll be paid when they put in more than 40 hours per week, get a bump up to the new salary threshold ($47,476 per year), or get that extra time back − which could go toward family time, the gym, classes or much more.
My thoughts: There will be winners and losers from this rule, and some of the losers will be employees. Even if you think that the new salary threshold is good policy, it’s hard to deny that lots of workplaces are going to change between now and December 1. There will be new rules and restrictions on employees. Some will see salaries converted into hourly rates. Some may see extra pay, but others will see less as employers set conservative hourly rates to hedge against overtime. Some employers will restructure, limit work hours and even eliminate jobs. Yes, there will probably be some winners among employees, but let’s not pretend this will be an easy or painless transition for everyone.
Myth: Telework and flexible schedules will be eliminated. And everyone will punch a time clock.
Dr. Weil’s Truth: The FLSA is a nimble law. Employers have flexibility to choose the options that work best for their workplace, including how to keep track of hours. There’s nothing that says workers have to punch time clocks. There’s nothing that says workers have to work specific hours or in specific places.
My thoughts: “Nimble” is not the word most employment lawyers would use to describe the FLSA. “Outdated,” “confusing,” “complicated,” “counterintuitive,” maybe, but not nimble.
It’s ironic to see the DOL continue pushing this line that employers don’t have to make employees punch in and punch out, when DOL investigators and plaintiffs’ lawyers regularly pursue claims against employers for maintaining time records that they contend are inadequate. Sure, you don’t have to make employees punch a clock, but if you don’t you’d better find some other way to make darn sure that time sheet is accurate. (See my prior post for an extended discussion of this topic.)
As for flexible work arrangements, it is either naive or disingenuous to suggest that employers who now have to worry about the expense of overtime won’t exercise greater control over when, where and how employees perform their work. In workplaces where employees aren’t used to having to account for their time, this is going to be a tough and likely unwelcome adjustment.
Myth: Workers will be demoted. Full-time professional careers and incentives will go the way of the dodo.
Dr. Weil’s Truth: There is nothing in the overtime rule that would require an employer to shift an employee from salaried to hourly, or to part-time, or to eliminate bonuses which can now be counted towards the salary threshold for the first time. Employers can continue to pay overtime-eligible workers a salary if they choose, and they can continue to provide the same level of responsibilities, benefits, flexibility, training and advancement opportunities as they do now.
My thoughts: I agree that of all the concerns about the new rules this idea of status is probably the least well-founded, at least in terms of how most employers are thinking about the issues. But good luck explaining that to employees who equate having to keep track of their work hours with being an “hourly” employee, and equate that with being demoted from a more “professional” exempt status. And in some cases, employees actually will be demoted as employers divide and restructure job classifications to deal with the new rules.
Myth: Worker morale will hit an all-time low.
Dr. Weil’s Truth: You know what’s bad for morale? Working 50, 60 or even 70 hours a week without additional pay. This rule will fix that, and the extra pay will help workers pay their bills, or even take a vacation.
My thoughts: You know what else is bad for morale? Promising workers that they’re all in for a giant pay increase, when in fact employers have a great deal of flexibility to maintain current work hours without paying anyone a dime more than they currently do. Take someone who usually works 60 hours per week. At the current federal minimum wage, that’s just $435 ($7.25 x 60 hours) plus $72.50 in overtime premiums ($7.25 x 0.5 x 20 hours), or a total of $507.50. That’s obviously well under the new minimum exempt salary of $913 per week. Many employers can and will simply calculate an hourly rate that allows them to maintain current work hours without any significant increase in pay.
Even those whose hours are reduced with no reduction in pay may not be that happy about it. Employees who are used to being able to spend whatever time they need on a task or project may face additional pressure to get their work done in 40 hours or less. This means more oversight, stricter deadlines, and less flexibility to chat with coworkers, deal with personal business during the day, or work at one’s own pace. Some employees will think this is a good tradeoff for working fewer hours, but others may not be so thrilled about the prospect.
Myth: The new rule will just cause more litigation.
Dr. Weil’s Truth: Because the salary threshold has eroded so far over time, people who currently are entitled to overtime protection often don’t receive it. By raising the threshold and creating a brighter line for overtime eligibility, the new rule will protect the almost three-quarters of a million overtime-eligible workers who we estimate do not get overtime pay when they work more than 40 hours a week. That brighter line means more protection and less need for costly litigation to receive it. Increased clarity is good for workers — and for employers who want to comply with the law.
My thoughts: Don’t believe it. Yes, the new rules will remove any question as to whether at least some lower-paid workers are eligible for overtime. But it’s not as though misclassification is the only problem employers face in complying with the FLSA. Even if there is a reduction in the number of misclassification lawsuits – a pretty dubious proposition in itself – there is every reason to expect an uptick in lawsuits alleging “off the clock” work and other errors in tracking hours worked or calculating overtime pay. And remember, the FLSA has a two year statute of limitations, which is extended to three years for willful violations. Given the intense focus the new rules place on employee classification issues, the smart money is on an increase, not a decrease, in wage and hour litigation.
Myth: This rule was rushed, the department didn’t listen to the comments, and now employers have little time to get ready for the new requirements.
Dr. Weil’s Truth: We’ve been working on this update since President Obama’s March 2014 directive. We spent more than a year meeting with stakeholders before issuing the proposed rule in July 2015. And then we reviewed more than 270,000 comments received during the 60-day comment period. These comments led to significant changes in the final rule, such as a lower salary threshold than proposed and a delayed effective date. Employers have more than six months to get ready for the rule to become effective. That’s two months longer than employers were given in 2004 when the rule was last changed.
My thoughts: Yes, the DOL’s proposal has been out there for the better part of a year, and the DOL did make some adjustments before the rules were finalized. But again, let’s not pretend that this is an easy thing for employers to implement. Most organizations budget more than six months in advance. Public sector and non-profit employers will have a particularly difficult task in figuring out how to deal with these changes in the few months between now and the December 1 effective date. Organizations don’t turn on a dime. The DOL easily could have proposed a more gradual increase in the minimum salary threshold. Maybe that would have been good policy, maybe it wouldn’t, but again let’s not pretend that the necessary changes will be easy or that the December 1 effective date won’t pose serious challenges for at least some employers.
Dr. Weil’s Truth: Here’s the basic truth about the overtime rule: It’s about more money in the pockets of some workers who work long hours or more time for some to spend with their families. And it’s about greater clarity and flexibility for employers and workers alike.
My thoughts: Notice that key word: “some.” Some employees will see more money, and some will work fewer hours. But some will also have to work harder, with less discretion about how to spend their work time. Some will see less pay. Some will lose their jobs altogether.
No doubt the new rule will provide greater “clarity” about exempt classification in some cases. But the assertion that it will offer “greater … flexibility for employers and workers alike” is simply wrong. Employers and workers currently have flexibility. The whole point of these rules is to remove flexibility from the employment relationship. Employers and employees can no longer choose to treat some jobs as exempt from overtime.
Reasonable people can disagree about whether the new rules are a good idea, and whether on balance they’ll benefit the economy and the workforce. But there’s no such thing as a free lunch.