Yesterday, the Trump Administration updated labor laws to expand overtime pay to over a million workers.
While a bigger paycheck is great for some, there could be a negative impact on flexibility and other benefits that other workers–especially women–value.
The Labor Department finalized a rule that will lift the salary cap for workers who can qualify for overtime (time-and-a-half) from the current ceiling of $23,660 a year ($455 per week) to $35,568 ($684 per week). The government estimates that as a result,1.3 million more workers will begin to qualify for overtime when the rule kicks on January 1, 2020. The industries expected to be affected include fast food, retail, home health, and other lower-income jobs which tend to be well-staffed, if not dominated, by women.
Some employers think this effort is overdue. Although they know labor costs will rise for them, they are grateful that the Trump Administration did not double the salary threshold as the Obama Administration proposed in the final days of President Obama’s term. He wanted to hike it to $47,476 a year with little concern for the harm it would do to employment.
This more modest increase is viewed positively.
It still comes at a cost. The Department of Labor estimated it will lead to approximately $120.5 million per year in direct employer costs over the first ten years. In addition to complying with the new regulations, there are litigation costs if an employer is sued for noncompliance.
Employers will respond in ways that could reduce opportunities, benefits, pay, and flexible work arrangements for their employees.
As I explained in this policy focus, employers may:
Lower base pay rates. (One study found that employers covered as much as 80 percent of overtime costs by lowering wages.)
Reclassify workers as non-exempt from overtime, resulting in them losing benefits such as health, dental, and vision coverage.
Limit hours and demand that workers complete the same workload in less time to avoid overtime.
Substitute workers with automation and robots.
End flexible work arrangements such as telework and remote working options.
Flexibility is increasingly a benefit that American workers demand. Moms and dads may, for example, appreciate being able to work from home to shuttle children to school and appointments. Others may prefer to work during late night/early mornings and weekends.
Trouble arises if employers now have to track and pay overtime for everything employees do outside of the office, such as responding to emails and conducting phone calls. Not only is tracking a headache but the overtime costs could add up quickly. In that environment, some of those flexible arrangements may disappear.
Expanding pay for workers is a worthy goal, but there are tradeoffs to expanding overtime in order to accomplish that.
Read more: Policy Focus: Overtime Pay