Like most Americans, my first job was as an hourly worker. I helped teach gymnastics at a local YMCA as a high schooler during the summer and after school. I had a punch card that recorded the time I checked in for work and the time I check out; I was paid roughly whatever the minimum wage was at the time for each hour I spent on the job.
That certainly was just a job, not the beginning of a career. My career began after I graduated college when I was offered a salaried position at an advertising agency. I was no longer punching a clock, but had a junior role on a professional team. I was expected to accomplish specific tasks and help advance our projects, not log hours to accrue pay. I still wasn’t making very much money, but I felt like I was on the path to something bigger.
The Department of Labor just proposed new regulations that would mean that millions of workers will spend more time as hourly employees, rather than on salary. The Fair Labor Standard Act governs the minimum wage and defines which workers must be compensated by the hour and receive overtime pay for time worked in excess of 40 hours per week. Currently, someone who makes a salary of $23,660 can be exempt from the requirement that they receive overtime pay, if they also meet the criteria of having job duties that meet the DOL’s definition of being primarily administrative, executive or “professional.” Under the proposed new rules, the salary threshold for being exempt from overtime would more than double to $47,892. DOL explains that’s currently the 40th percentile of earnings for full-time salaried workers. They propose keeping the salary at that level of earnings permanently, so they will adjust the threshold moving forward.
The DOL estimates the new rules would impact more than 10 million workers. Presumably the regulators believe that this will be a boon to those workers, who would have to begin tracking hours and therefore might become eligible for overtime pay. However, these new regulations would also do significant harm, especially to those in lower-income areas and with more modest incomes.
Most obviously, this new regime would be a big expense for business. Businesses would have to pay more in overtime, but just as significantly, they would face significant new compliance costs in tracking more workers’ hours and monitoring overtime. Overall, the National Retail Federation estimates it will cost employers more than $9 billion per year. Those costs have to come from somewhere, which means some employees may see their hours cut, or their positions refashioned or eliminated. Consumers may also see prices increase and service worsen.
Not all businesses, however, will be impacted equally. The new threshold applies nationwide, which means that areas with lower costs of living will feel by far the most impact. A salary of nearly $50,000 may not sound like much to those in New York City or Washington DC, but that’s pretty good for rural and poorer areas of the country. That means that employers in those areas will face the biggest compliance challenges, and more workers there will find their compensation changing and possibly their economic opportunities constricting. It’s the same old tale time and again: Poorer and more vulnerable employees always end up the biggest losers from wage regulations advanced in their names.
Even some employees who get a few extra buck in their paycheck may not welcome this rules change and their reclassification as hourly workers eligible for overtime. While some employees may prefer tracking their time, others want to be on salary and to feel that they are being compensated for their contributions to the business or organization. They don’t want to have to tell their managers every time they work late and every time they leave early. This may be particularly true for women: As the Independent Women’s Forum and Evolving Strategies found in our own research on women’s workplace preferences, many women place a high value on a flexible work environment that allows them to better balance work and family responsibilities. Women are often willing to trade higher pay in order to have more flexibility.
This loss of autonomy and the potential costs for workers helps explain why many Americans appear skeptical about the new regulations. One survey by WomanTrend found that 58 percent of respondents believe that the new rules may not result in higher pay for workers, and 43 percent won’t support the rules knowing that workers will be moved from hourly to salaried employees. Likewise, a survey by the National Restaurant Association found that 85 percent of restaurant and retail managers believe changing employees from salaried to hourly workers will have a negative impact. Nearly half (45 percent) of those managers believe that the change would hurt morale, making people feel they were in a job rather than a career, and 86 percent think their perceptions of their own positions would deteriorate if they were moved to an hourly status.
Americans ought to reject the very premise of these bureaucratic regulations. Why should the DOL be in the business of creating a one-size-fits-all compensation regime for the American workforce? They ought to focus their efforts on preventing truly exploitive relations between businesses and workers. But the rest of Americans should be free to negotiate work arrangements that make the most sense for them and meet their needs and aspirations, not some arbitrary definition created by a panel of bureaucrats in Washington DC.
The DOL is right on one matter: The antiquated, Depression-era Fair Labor Standards Act needs to be updated. Yet these new proposed regulations would take the law in the wrong direction. Rather than more stringent regulations that will create new costs and administrative red tape for American businesses, and leave workers with fewer options, Congress should take a fresh look at this law and roll back these unnecessary rules and classifications that hardly apply to our modern world.