Obama's Demand for Wage Rules for Salaried Workers Will Have Far More Impact Than Proposed Minimum Wage Changes

The $10.10 minimum wage discussion has gotten a lot of attention.   But in 2011 only 3.8 million workers made at or below the minimum wage, and of these, at least half earn substantially more in reality through tips.

Obama's announcement yesterday that he wanted to substantially change the way salaried workers will likely have far more negative impacts on employment than his minimum wage proposals.

President Barack Obama is expected to order a rule change this week that would require employers to pay overtime to a larger number of salaried workers, two people familiar with the matter said.

Currently, many businesses aren't required to pay overtime to certain salaried workers if they earn more than $455 a week, a level that was set in 2004 and comes to roughly $24,000 a year. The White House is expected to direct the Labor Department to raise that salary threshold, though it is unclear by how much.

Ross Eisenbrey, vice president of the liberal Economic Policy Institute, and Jared Bernstein, a former White House economist, recently proposed the limit be increased to $984 a week, or roughly $50,000 a year.

"That would mean between five- and 10-million people could be affected, but they might choose a lower number," Mr. Eisenbrey said about the White House plans.

5-10 million is potentially 3x or more the people affected by a minimum wage change.  But in some sense, this still underestimates the impact.  Here is one example.  Last year the average starting salary of college graduates is about $45,000.  The median is likely lower.  This means that over half of all college graduates going into the work force will be taking hourly jobs that used to be salaried.   Teachers will be hourly.  Budget analysts will be hourly.  Etc.

So all these folks are saying - Yeah!  I get overtime!   Wrong.  They will be eligible for overtime.  But companies will quickly restructure their work processes to make sure no one works overtime.  And since their new hires are working just a straight 40 hours (with mandatory unpaid lunch break time in CA), they will likely pay less.   If I am paying $40,000 a year for someone who will work extra hours for me, I am not going to pay that amount to someone just punching a time clock.  And the whole psychological relationship is changed - a salaried person is someone on the management team.  A person punching a timeclock may not be treated the same way.

Further, when someone gets switched from salary to hourly, they lose a minimum pay guarantee.  When I get a $3,500 a month offer, I know that no matter how slow things are, until I am fired I get $3500 a month.  There is a floor on my earnings.  As an hourly worker, my hours can be adjusted up or down constantly.  There is no floor at all.

Oh, and by the way, remember Obamacare?  The PPACA penalizes companies who do not provide a health plan that meets certain (expensive) criteria.  But that penalty is not applied for workers who are "part-time" or work less than 30 hours a week.  Salaried workers are automatically full time.  But once you convert all those people to hourly and make sure they are working no more than 40 hours a week, is it really so large a step to getting them under 30 hours a week?

PS-  Well, for those who think schools assign too much homework, this could well be the end of homework.  The most dangerous possible thing with hourly workers is to give them the ability to assign themselves unlimited overtime.  Teachers could do this at home with grading papers.  If I were a school, I would ban teachers from doing any grading or schoolwork prep at home -- after all, it's hourly and probably overtime and they could work unlimited hours at home and how would you get it under control?  The only way to manage it would be to ban it entirely.

PPS- What about travel?  Would you ever let workers paid hourly travel?  You would have to pay all the travel time and maybe part of the hotel time and there would be huge potential for ending up with overtime bills so better to just ban travel all together.  I know this seems knee-jerk to ban something that might impose a lot of extra labor costs seems extreme, but just look at California.  In California, employees have the right to a half-hour lunch break without work.  They can work through lunch if they choose, but courts have imposed enough onerous reporting standards around this that most companies (like mine) have just banned working through lunch.  It is a firing offense in my company, and in many others in CA, to be caught working during lunch.  We are going to see the same thing working from home.  In fact, we already see this, as there are class actions right now against companies who provided employees with cell phones saying that giving them a cell phone put them "on call" and subject to overtime hours that had to paid at home.  Companies are now making it a firing offense to take one's company cell phone home.

Sorry this post is so disorganized, but this initiative caught be by surprise and I have not been thinking about it for very long.  I will try to work out a more rigorous article in the next few weeks.

  • anon

    I'd bet on teachers being salaried above the threshold before I'd bet on homework being abolished.

  • morgan.c.frank

    i do not even understand how this is supposed to work. if i am a salaried employee, how do i get overtime? i mean, who even tracks hours for most salaried employees? at no point since i graduated from college have i even worked someplace that HAS a timeclock.

    if you take a first year analyst job at an ibank, you fully expect to work 80 hours a week.

    no one is going to hire someone who works less. you know that when you take the job. so what will banks do? they will slash your salary by half and then let the overtime take you back to where you were.

    this is totally asinine. it's just complication for the sake of complication.

    also: where do they even get the right to interfere in individual contracts like this?

    what enumerated constitutional power makes this legal and what form of absurdist paternalistic ethics are being sued to claim that this sort of interference in self determination and usurpation of liberty is possibly within the purview of a just state?

  • jdgalt

    At least in California, a minimum-wage worker who receives tips may very well be receiving less than minimum. The amount that has to be paid as wages is allowed to fall to $5.70 if the employer believes, or assumes, that the employee receives enough in tips to reach the minimum wage. (And often the assumption is very unrealistic. For instance, Denny's is well known for "allocating tips" to all wait staff equally, regardless of number of hours worked.)

  • jdgalt

    Unfortunately, Lochner v. New York is no longer accepted precedent. But I agree with you.

  • jdgalt

    My guess is that some sort of lower-paid "aides" or unpaid interns will be brought in to grade the homework.

  • Tim

    Our host is spot on when he talks about the changing relationship between employees and the organization that employs them. As an exempt employee, I get treated like an adult. Need to leave 15 minutes early, or run a couple of errands at lunch? No problem. Work through lunch or catch up on email after the kids are in bed? That's not an issue. We're a global enterprise, so it isn't unusual to have early morning or late afternoon conference calls; or to run late-night testing.

    If I get converted to hourly; lunch now becomes mandatory, errand running becomes impossible, and they'll most likely take away remote access to email. As it stands now, I haven't filled out a time card in 5 years; but that would end. I'd get treated like a wayward teenager; where I have to account for every second of my day.

    My sage guess is that the rule will be *very* complex. The rule that defines exempt vs. non-exempt employees already has carve outs based on roles and education levels; but this seems like a whole lot of either nothing or tampering on defining who is and isn't exempt.

  • Tim

    Just to add to my earlier comment, teachers are explicitly considered exempt professionals under the FLSA, at least for now.

  • http://itsaboutliberty.com/index.php MNHawk

    Retail. The store manager. They don't make $50,000, usually. Or they might, if making a bunch of targets, and get a healthy bonus. So will that bonus be used to determine if they're exempt or not?

    Anyway, let's get back to the store manager. Who's to baby sit them, to make sure they're not working off the clock, working at home, ect? We'll trust them? Fine. What if they work in Crapholifornia, are separated from employment under less than ideal conditions? Nothing will stop them from suing for overtime, and there will be no way to prove innocence.

    It get's back to the never ending argument. Is Obama just a retard, only capable of Poli Sci in college, with the rest of the retards on campus, or is he doing this to America on purpose, due to hatred of country? This is a disaster in every way shape or form. This is truly banana republic stuff.

  • mlhouse

    It is an idiotic move made by a President and party that does not understand labor economics except from a blue collar view point. That is, this is taking blue collar work rules and applying them to a white collar work force. It is dumb, and frankly every time I hear a teacher complain this is the source of their problems.

    And as an employer I totally agree with what the consequences are going to be. If I have a salaried, management employee working more than 40 hours per week I will just make two employees out of the job or "job sharing". THis has been something we had been considering anyways because it eliminates an ObamaCare FTE and by splitting the position we put two sets of eyes on the job and have the coverage for sick kids, vacations, etc.

    THe other aspect is career. As a young professional the hours you put into the job are investments in learning your profession, earning respect, creating accomplishments, and moving up the ladder. A clock puncher that demands overtime is just going to ruin their career.

    The true fact is that the Democrats believe businesses have almost infinite profit margins. The phrase used to justify this is "in a time of record corporate profits". But, in reality for almost every business the profit margins are very slim. THe reason I make a reasonable income isn't because of high profits, but because of volume. I make a small sliver off a lot of transactions. Add them up, it is ok. But if you change the cost structure then a business will either react to maintain the small sliver, or go under. Unfortunately for many workers, the "unintended" consequences to them of these changes is usually very detrimental to them: lost jobs, lower wages, fewer hours, more limited career potential. But, then, this is probably a "feature" of the Democratic plan because unemployed and under employed workers are natural constituents for them: advocate economic policies like increases in the minimum wage and expansion of overtime rules to create unemployed people then advocate an almost infinite extension of unemployment benefits.

  • marque2

    Calforia is also the only state that makes you pay overtime if an employee works more than 8 hours a day - rather than just 40 a week.

    Being classified as an hourly - this causes problems. In other states if I had a doctors appt I could work 6 hours one day and 10 the next to make it up. Where I work now - I just have to eat the time because making up those two hours would cost overtime and the company doesn't want to pay. They get beefed if I am 6 minutes over.

  • mogden

    Employing unpaid interns? Our King has decreed that this is a droneable offense. Off to the gulags to you, in the meantime.

  • ghayward

    There will be a Rube Goldberg Machine of exceptions...Sound familiar??

  • kidmugsy

    "an idiotic move made by a President and party that does not understand labor economics": true. But even worse, has not the slightest idea about the practicalities of the world of work.

  • rst1317

    It's FDR all over again. At least this time the hubris and micro management from the Oval Office is limited to two terms.

  • rst1317

    Sounds like a don't ask, don't tell situation. Since hours are self reported, they can reported in a way that is consonant with the bureaucracy even though in practice they were different.

  • rst1317

    On the other hand, cash tips are still self reported.

  • randian

    Maybe they'll force salaried workers to start punching time clocks. My employer does that. I'm salaried, and don't get overtime pay, but I still have to punch in and punch out. Lame and stupid.

  • Rick C

    "i do not even understand how this is supposed to work. if i am a salaried employee, how do i get overtime?"

    isn't it obvious? The way most damaging to business, i.e., the California way: anything more than 8 hours a day or 40 hours a week.

  • Rick C

    If you've read this very post, let alone the other ones where Warren's talked about the "firing offense to work through lunch" issue, you'll know this can't fly. Some lawyer will be looking for people who adjusted their hours this way, and convince them to sue for lost overtime. Bet on it--it only took me about 3 seconds to think up the idea, and I don't get paid to find creative ways to sue people.

  • johnson85

    If they didn't meet the minimum salary threshold, would their exemption goes away. Can't remember if the minimum wage threshold is just triggers a presumption that an employee is non-exempt, or if it actually makes otherwise exempt employees non-exempt.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    It is an idiotic move made by a president and a party that does not understand labor economics except from a blue collar view point.

    FIFY

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Um, hello President Hitlary.....

    [God help us if that happens]

  • http://devilish-details.blogspot.com/ mesaeconoguy

    This is another unshockingly (due to past actions) bad idea from the worst economic administration in US history, at the worst economic time in US history.

    We're already badly in the hole for the nonexistent recovery, and about to get slammed by entitlements.

    I am now 100% certain Oblunder's agenda is to sabotage the country. There is now no other explanation.

  • Orion Henderson

    Ignorance, arrogance, ineptitude, and cynicism. Not malice. IMHO anyway.

  • Orion Henderson

    Hillary is orders of magnitude better-if not what you or I would want.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Wrong.

    Hitlery understands 1 thing: exercise of power. Her history confirms this.

    A close relative worked with her under Archie Cox (Nixon investigation) and she exhibited all the delusional signs of dictator back then.

    I’d much prefer some drug-dabbling misfit like W who stumbles into power via family connections over a convicted power hungry tyrant (following the biggest tyrant we’ve seen since FDR) who feels entitled and slighted by the previous dictator.

    This is going to get much, much more interesting, quickly.

  • gitarcarver

    "And the whole psychological relationship is changed - a salaried person
    is someone on the management team. A person punching a timeclock may
    not be treated the same way."

    I have worked for two companies both with large numbers of employees where everyone was on the clock. The division of which you speak did not occur. In fact, the opposite did. There was more of a sense of "teamwork" because everyone was on the same pay structure.

    If a person agrees to work for someplace and is told "expect to work 50 hours a week," that is one thing. If they go over a few hours once in awhile, that may be okay too. However, to say "expect to work 50 hours a week" and then demand the employee consistently work 60, 70, or 80 hours a week is wrong on many levels.

    Not only are you diminishing the pay you agreed to with the new hire, you are preventing them from going out and supplementing their income working at other jobs or interests.

    Pay people what they are worth and what you agreed to.

    (And for the record, I am against this coming directly from Obama for any number of reasons.)

  • Joe_Da

    Many others have commented on why this proposal is done by someone that does not understand the dynamics of the labor markets - let me add a couple of points
    1) in many professions a single employee working 40 hours produces greater output than two comparably skilled employees working 25 hours each,
    2) an employee working 15-30 minutes extra to complete a project (so the company can bill and get paid for the work) has tremendous value to the company and eventually to the employee.
    3) In many professions it takes several years to become reasonably competent to perform the work, (What do these guys think - training time for a new position is like a low end hourly position that take a couple of days of training max to become competent).
    4) as some else commented below - do want a workforce that is treated like adults or like teenagers.

  • marque2

    That would be dandy, except for the electronic time card. Can't wink and nudge, because I have to be there to punch in and punch out.

  • marque2

    Yes, this is why a few years ago I could still wink and nudge, but now companies are putting in time clocks that have to be punched online.

    Crazily I would be exempt except if my salary were under $38.90 per hour, but since for some of us CA is a second location the per diem puts the salary well below that rate. (eg you get $60 per hour, but $30 is considered per diem then one is below the cuttoff rate) Company doesn't want to mess with which Software developers have per diem or not, so we are all under the same orders.

  • sch

    There was mention, I believe on Marginal Revolution, to the effect that this will be a disincentive to providing smart or other phones to employees, as accessing the phone "after
    hours" implies the employee is working and thus must be paid. The economics of the bulk buy of phones/phone usage by the company will not transfer to the employees single
    phone purchase and usage.

  • BobSykes

    This is potentially a huge change to the way college and university faculties operate.

    Faculty members spend large amounts of time serving on administrative committees, writing and reviewing research proposals, editing student theses and dissertations, traveling to conferences and giving papers, serving on search and P&T committees, serving on national committees, etc.

    Faculty members routinely claim to work 50 to 60 hours a week, and many of them are not lying. I knew highly successful, driven colleagues who clearly worked well over 60 hours per week, and in fact that kind of work effort is necessary if one is to become famous. Or get hired or be granted tenure.

    Faculty also do much of their work at home to avoid distractions, like students and colleagues. How can this be monitored?

  • CapitalistRoader

    PPS- What about travel? Would you ever let workers paid hourly travel? You would have to pay all the travel time and maybe part of the hotel time and there would be huge potential for ending up with overtime bills so better to just ban travel all together.

    I ran into this during a manufacturing outsourcing project, US to India. Salaried engineers were no problem. But it was valuable to bring one non-exempt employee from the factory floor to Bangalore. One-way flying time alone is >24 hours. He had a buttload of OT on that month's check - which was fine; he earned it - but his timesheet accounting was a nightmare. Doubling the exempt/non-exempt cap would bring junior engineers into the OT rules. They won't be traveling anywhere.

  • Craig Loehle

    While it is true that some companies abuse salaried workers, the top-down approach treats this like one is chained to a job. Find out if people work 80hrs/wk before you take the job or leave if they change it on you.
    Some people work long hours to get promoted. Some because they are not so good at their job and it takes them longer. Some people work for a startup with stock options and have a real chance to become 30 yr old millionaires. The European system is already what Obama wants, and startups like this are almost impossible to do there.

  • Q46

    France is the epitome of Government interference in the labour market, with mandatory 35 hour week, paid lunch and holiday, high minimum wage,hefty payroll taxes for the welfare state, virtually impossible to fire anyone.

    All intended to guarantee employment, and the 35 hour week, because a firm would do less with existing staff would have to hire more, so good for employment right? Wrong.

    France has chronic overall 11% unemployment, 26% in the 16 to 25 age group.

    Many, particularly the young, cannot get full time jobs, or are on short temporary contracts to get round many of the rules so have no job security.

    Result: young, bright people ship out, many to the UK others to Canada and the USA.

    The thing about 'the Left' is no matter how many times its policies fail and cause real hardship, they just keep on trying them out again and again.

  • herdgadfly

    The $455 weekly minimum now in place most likely applies to small businesses with one or two people manning their offices. Pushed too hard and these business folks will go black market and pay cash - if they have not done so already.

    Larger companies will simply and legally classify employees as exempt based upon job descriptions and impose the rule that employees with wages of less than "X" are not to work overtime under any circumstances - and since these employees are "exempt",no time records need to be maintained since DOL regulations 29, C.F.R. 541 do not require such records for exempt employees.

    So tell me again how we will get millions more people getting overtime pay?

  • randian

    I think it's more about enabling arbitrary DoL enforcement actions than about giving people overtime pay.

  • Matthew Slyfield

    "The thing about 'the Left' is no matter how many times its policies fail
    and cause real hardship, they just keep on trying them out again and
    again."

    Part of the problem is that many who flee liberal bastions to get away from such policies will end up voting for the same policies where ever they flee to.

  • Matthew Slyfield

    "do want a workforce that is treated like adults or like teenagers."

    Neither, they want a workforce that is treated like kindergartners.

  • JKB

    No employer in their right mind would do that. It's a class action waiting to destroy you. You think an employee wouldn't claim but they will. You document, document, document. Why do you think doing any work, even answering you phone is a fireable offense. You really have to make them leave the work area.

  • JKB

    Education has nothing to do with it. It is all about duties. You can have a Ph.D. doing clerical work and they are non-exempt.

  • JKB

    Exceptions require documentation. Easier just to put them in the non-exempt pool.

    Uncle Sam gives exempt employees comp time in lieu of overtime. That is time off. Except it is carried on the books and if not used it has to be paid at the OT rate. A big hit if you don't have the Dept of Treasury backstopping you.

  • JKB

    OT is time and a half so the base pay will be less than half. Look on the brightside, you'll be desperate to do the OT to meet your standard of living. Just like the union guy who works the line at GM or Boeing.

  • JKB

    Hey, try doing the timesheet when the guy getting OT crosses the dateline..

  • herdgadfly

    Almost all government enforcement actions are arbitrary. New rules are not required to enable them.

  • herdgadfly

    Big companies with multiple locations worry about being cheated by employees who do not attend work as required. So lack of trust results in time and attendance clocks for everyone. Until you mentioned it, I had forgotten about dumbass management that worries more about being cheated than how much that mistrust costs in employee efficiency and now will ignore the added cost of overtime..

  • obloodyhell

    I SAID back in 2007 that we would appreciate the quivering mound of incompetence that was the Carter Administration.

    I am unhappy to say, "I told you so."

  • joshv

    The original point of overtime was to increase the hiring rate - unions were honest about this originally. Time and a half is meant to give employers an incentive to hire additional workers rather than work existing workers harder.

    So I don't see this having much of any effect on wages, in fact those newly eligible for overtime will find their hours strictly limited, and will possibly have lower take-home wages. Employers will either hire new workers, or invest further in automation.

  • Craig L

    And if your company is too friendly to the GOP, then you will find yourself under investigation for violating overtime rules. But if you are the Democrat leader in the House, the industry your husband makes his money in will be exempt from these rules.

  • David M. Nieporent

    FYI, teachers are categorically exempt from overtime; these proposed rules wouldn't change that.