Deep Impact: New Overtime Rules Will Change Work, Not Overtime Pay
I’m going to say it: wage and hour laws can be a little boring. The vagaries of how to determine a fluctuating workweek, or the DOL’s hyper-specific rules about how much an employer can subdivide time for purposes of reducing pay before an employee starts to look non-exempt from the overtime rules (is it half a day? Two hours?) has, to me, more of the arbitrary feel of a tax code or ERISA than the human-driven, narrative feel that makes being an employment lawyer so interesting.
Every once in a while, though, wage and hour regulation proves me wrong. And so it is with the new Fair Labor Standards Act overtime rules promulgated by the Department of Labor on May 23.
Superficially, the new rule—which changes the FLSA overtime exemption rule by raising the minimum salary threshold to qualify for the white collar overtime exemption to $47,476—has the usual arbitrary feel. $47,476? That’s the magic threshold that makes someone more like an overtime-eligible factory worker than a non-overtime-eligible professional who uses independent judgment and discretion?
The new rule, however, does more than just update the law to match current wage levels to the cost of living. As I commented in Employment Law 360, it will have a profound impact on the very way employers are willing to utilize a workforce. It does that by changing the cost of the labor resource, the human resource, that employers use to run a business. And the impact won’t be more overtime. It will be less work.
The New York Times noticed this today, reporting that, for example, “with the Obama administration moving to require time-and-a-half overtime pay for most salaried employees making less than $47,476 a year,” the business model in which aspiring professionals labor long hours to earn their stripes “is suddenly under assault.” (We’re happy to have beaten the New York Times to press with these observations.) But regardless of who noticed this first in the 13 days since the new regulation went into effect, what’s far more significant is how employment itself—that is, a paid relationship in which an employee is compensated for the fundamentally valuable resource of his or her labor—is likely to be impacted.
Now, instead of employers squeezing efficiencies out of a vast class of frontline supervisors by having them pick up hour after hour of slack at non-overtime rates, employers either have to start paying a lot more overtime, or start having managers and other employees work a lot less. In other words, the way that labor is used as a resource must necessarily change now if employers want to control costs.
So here’s another early call by Kelley Drye’s labor and employment group: overtime pay won’t generally increase. Rather, the impact of the new rule will be that employers will hire more people, have them work less, and the amount of overtime worked by individual employees will be less, not more, than before. Why pay Jim 20 hours at time-and-a-half for a 60-hour workweeks when you can pay Jim and Jane at straight rates for 30-hour workweeks each? Whether you like the new rule or not, the Obama administration seems a bit naive about how workplaces actually work: employers can, and must, control costs however they can, whether it’s the cost of materials, infrastructure, facilities, administration—and possibly most importantly, labor.
Given the choice of higher labor costs, or less work for individual employees to control labor costs, it’s a safe bet to assume that U.S. employers will do what employers always strive to do: keep labor costs down. And the kind of work we’re talking about isn’t unique. It’s not something that major retail chains can’t train more people to do. It’s not something that the Big Four accounting firms aren’t willing to hire more people to cover.
Employment advisors like us will tell their clients that managing work hours downward has become even more important since millions of additional workers are now overtime-eligible. And employers, given the choice between ballooning labor costs or the administrative burdens of tracking hours more closely, will choose the less expensive alternative.
So the new overtime rule isn’t an administrative change. It’s a sea change in how a fundamental resource—the human resource—has to be structured if employers want to keep control over their labor costs. And the overall impact will not be more pay, more costs; it will be less work for individual employees.