The DOL is Admitting That New Overtime Rules Won't Lead to Much Extra Pay

Here are some numbers from the DOL draft rule.

They think there are 21.4 million salaried workers subject to the wage test.  Since the new number was set at the 40th percentile of these workers, presumably about 8.6 million will fall below the new number.  But of these, only 4.6 million would be have to be shifted to hourly/overtime rules (not sure why the difference, I guess other tests must still apply as well).

Those 4.6 million are expected to cost employers an additional $1.2 billion in wages, which seems like a lot but equates to an additional $261 per person per year extra.   In other words, a pittance for all this disruption.

The Left is already saying that companies won't adjust and all these folks will get raises.  But the DOL obviously thinks differently.  Either it thinks these folks are only working maybe an hour each of overtime per week, such that the overtime rules will only cost a few bucks a week, or the DOL thinks that a lot of work and wage rates are going to be pared back leaving folks about where they are today, except now as timeclock punchers rather than trusted salaried professionals.

I am still going through all the tables in the back where they generate this stuff, but there are a couple of admissions there you WILL NOT find on liberal blogs today

  1. The DOL expects that base wage rate for regular work hours to fall for the affected workers with this new law.  You heard that right.   See table 21.  The fall from $18.38 to $18.21 after this rule in DOL projections
  2. You will see folks (like Kevin Drum linked above) saying that this ends 60 hour work weeks.  In fact, in table 22 the DOL says the average work week of those affected by the rule is 41.6 hours, which will go down to 41.5 hours by this rule.  In fact, the 60 hour folks are a minority of go-getters who are trying to prove themselves out for upper management.  These are the folks hamstrung by this law, hammering precisely the upwardly mobile folks one would hope to encourage.
  • FelineCannonball

    Seems to be a reading comprehension issue with respect to Kevin Drum. He said to wait till the statistics come out in a year. My guess is small adjustments. More overtime and more employment.

  • slocum

    The other possibility is that there will be an initial boost in wages that dissipates over time. Companies don't like to impose pay cuts, but they'll reduce future raises to compensate. And it takes some time to re-organize work patterns. So in the short term, it may look like this change 'worked', but eventually the affected workers will have lower base salaries and/or be strictly limited to 40 hours.

  • NL7

    I think many people operate on the assumption that if fewer people can work free overtime, then it will be easier to get ahead while working fewer hours. In other words, this is an ambition arms control agreement. People will not be pressured to do overtime if the company must pay for it, and then at least there is compensation.

    I imagine a fair number of people think it's a good thing if there is less pressure to work over time, and that workplace competition will theoretically be dulled.

    It's a pretty regular complaint that work hours are long and that mobile email has let work creep into nights, weekends, and vacations. If only they can force some of the other people to disarm, then they will be able to reduce their off-hours working with less worry of competition or the appearance of slacking.

    Of course, since there's a wage cutoff, the people who do most of the extra work are likely still exempt and so not likely to change. If anything, this just makes for a ruder awakening when somebody crosses into salary.

    Most of the high-hours entry-level jobs in consulting, law, medicine and finance are also going to be exempt. The introductory salaries at those places will mostly exceed the threshold.

  • Matthew Teague

    This rule change as written might actually eliminate my position. I fall several thousand under the new threshold, depending on how much of my bonus-compensation is allowed to count.

    I'm an account/success manager for a firm that provides software/support and lead generation to other companies. I probably work between 45 and 50 hours a week, and my willingness to do the extra work has let me manage our largest and most prestigious accounts, and a nice raise to boot.

    Looking it over, it's likely my entire department will need to be restructured, and perhaps others. Perhaps I will receive a raise to meet the new cap. But it's very likely that my coworkers will be "demoted" from managing accounts into more administrative pooled account work, relegated to hourly employees and perhaps some will be let go.

    This makes me sad/angry.

  • Orion Henderson

    "In fact, the 60 hour folks are a minority of go-getters who are trying to prove themselves out for upper management. These are the folks hamstrung by this law, hammering precisely the upwardly mobile folks one would hope to encourage."
    That right there is exactly why they did this. It's a feature, not a bug.

  • MB

    > Those 4.6 million are expected to cost employers an additional $1.2 billion in wages, which seems like a lot but equates to an additional $261 per person per year extra. In other words, a pittance for all this disruption.

    That's because about 75% of them don't work overtime to begin with, so they'd be virtually unaffected by the new regulations. So you're really looking at about 3.5 million who make $0 extra, and 1.1 million making $1100/year extra.

    > The DOL expects that base wage rate for regular work hours to fall for the affected workers with this new law. You heard that right. See table 21. The fall from $18.38 to $18.21 after this rule in DOL projections.

    That's true as written, but leaves out some important context. Again, 3.5 million are unaffected - their base wage rate stays the same. For the remaining 1.1 million, their *base* rate goes down but since they're now OT eligible their *total compensation* goes up (and their hours go down slightly - making it a win/win for the employee).

  • MB

    You can always take a lower salary....unless your position is so on the margin that the compliance concerns overrides the surplus value you create, I can't think of any rational reason to eliminate a position.

  • mlhouse

    One of the biggest factors inhibiting increased workers income is the overtime laws. Eight is an arbitrary number and there are many workers that would like to work more than 8 hours a day or more than 40 hours per week. It is a rational decision. And in many cases working more hours is more cost effective for the employer. For example, many workers and employers might benefit from 5 ten hour days per week rather than 5 8 hour days. Those extra hours of production versus start up might make significant differences in profitability. For the employee the extra 10 hours or 25% income boost might be even more valuable. If both sides make rational choices it is a win-win, which is the case for all free market exchanges.

    But instead, if the shift goes more than 8 hours the employer is faced with OT costs. Add in the extra FICA, work comp, and other fringe costs the profitability of running the extra hours goes out the door.

  • Not Sure

    Apparently, not everybody wants to wait to comment on what might happen...

    "I'm sure there are some Randian Obama-deranged employers out there who will piss off valuable salaried employees with punch clocks and banned overtime. Probably move all their corporate funds into Somali gold."

    Reading comprehension? If you say so.

  • FelineCannonball

    "The Left is already saying that companies won't adjust and all these folks will get raises."

    I don't see that in the post or in the comments. Even the jokes.

  • Not Sure

    In the first comment, Art says: "Wow! Baby steps, but at least in the right direction." Maybe not in those exact words, but it sounds to me like he thinks people will be getting raises.

  • FelineCannonball

    1) comment, not the main post.
    2) a lot of interpretation there. Other folks clearly think it's good for other reasons, like some commenters lay out here. I don't think I've seen anybody argue "Yay, I get a raise!" I'm pretty ambivalent myself. Not the end of the world. Not ambrosia either. Sort of normal hurdles businesses adjust to all the time.

  • Joe

    A couple of points not previously mentioned.
    1) As a general rule, everyone gets paid based on production, not based on hours work. Compensation will be adjusted to take into account the different levels of productivity of each employee (within a range)
    2) Depending on the type of work, one individual working 45 hours a week will produce more product than two individuals working 25 hours each (total of 50hours). Some type of work, 2 individuals working 20 hours each will produce more work product than one individual working 45 hours. In my profession, one individual working 45 hours will almost all ways out produce two individuals working 25 - 28 hours each. (45 hours vs 50-55 hours)
    3) With a professional attitude, a lot of work is done until the project is completed and delivered - a big plus in productivity. With a 9-5 mentality, work stops 20 minutes before the bell, so a lot of tasks are left uncompleted at the end to the shift.
    4) In many professions, there is a huge long term learning curve, often 3-5 + years to become reasonably proficient (proficient beyond the mere rote tasks of the profession). Therefore the young professional has to spend a lot of time in professional/technical development. Warren has alluded to this factor whereby the young professional is demonstrating that he/she is capable of moving up.

  • Not Sure

    "Other folks clearly think it's good for other reasons..."

    It's easy to be generous with other peoples' money. One wonders, if those other folks really think there's some sort of stash of money earned by businesses that increased payroll expenses can be paid out of, why those other folks don't start up businesses of their own and out-compete existing companies by undercutting them on pricing, seeing as how they seem to believe there are "excess profits" currently being made.

  • Matthew Teague

    I've all but confirmed with our director of operations that our department will be shuttered at business close to prevent overtime costs.

    I'm going to lose some GREAT benefits - being able to arrive 10-15 minutes late, take lunches when and how I choose, ability to plan my work in accordance with my life outside of work. And in return, I will become eligible for overtime that I will not be allowed to accrue.

    I'm happy in my job. I am not being taken advantage of, it is a mutually beneficial situation. But I guess someone in Washington who won't be impacted at all knows better...

  • FelineCannonball

    Some reasons don't have anything to do with any imaginary net increase in payroll expenses. I see a few on this comment thread and the other.

  • Not Sure

    " But I guess someone in Washington who won't be impacted at all knows better..."

    The government's position is that you're an idiot and unable to manage your life without their "help". All together now- your best "Animal House" impressons... "Thank you sir- may I have another?"

  • MB

    Take solace in the fact that you'll be getting about 2 months more of vacation time (7.5 extra hours/week * 50 weeks / 40 hours/week = 9.375 weeks).

  • Craig L

    Except that there are more and more hurdles all the time.

  • Matthew Teague

    Our Account Management department has to be run on the value of our Service Agreements. Currently we use full time employees working between 80-100 dedicated accounts where each account manager becomes the face of our organization. These are salaried employees who started working entry level for our company (As I myself did exactly 2 years ago).

    For smaller accounts, they obviously do not support as high of a salary, and account size/value is tied to earning more money.

    What is likely to happen is that the middle to lower tier accounts will be worked by entry level employees using a support line/support ticket system. That's worse service for our customers (who right now are getting dedicated support from someone who knows their account and business). The company simply cannot allow our position to eat up revenue by accruing overtime hours - we're successful and growing because we have successfully balanced our support costs with our development costs - vital in the software as a service industry.

  • Matthew Teague

    Unpaid vacation time. That I do not want. At the cost of flexibility in when those hours are worked, how easy I can fit my work and non-work life together without losing out on advancement opportunities. And, as originally stated, my ability and desire to put the extra time in has drastically improved my standing and future within the organization.

    I don't know why you feel this is worth bringing up - me staying later or working through lunch is a choice. I have already given you MY preference, which is to be able to work these hours.

    I find your belief that you or any other person know how I should spend my time offensive.