Obama labor regulators are touting a plan to boost wages, but unfortunately for people living in the real world, it’s a bill of false goods. In the final months of a lame duck presidency, the Department of Labor is rushing to finish its so-called “overtime rule” by summer. By rushing the rule to the finish line, regulators may not be taking seriously the legitimate objections lodged by a variety of stakeholders.
The rule dramatically expands overtime pay eligibility for salaried employees. Specifically, the rule makes salaried employees earning under $50,440 eligible for overtime pay, which is over a 100 percent from the current salary threshold of $23,660. Secretary of Labor Thomas Perez estimates that around 5 million new workers will suddenly become overtime eligible, and the rule will boost employees’ wages across the country by $1.3 billion.
{mosads}Absent from that rosy calculation is the fact that businesses will be forced to look for cuts in the face of such massive costs. Employers are most likely to respond by reducing wages. Cutting wages would make up for 80 percent of overtime costs, according to U.S Bureau of Labor Statistics economist Anthony Barkume. Or, businesses could hire more part-time employees and hourly workers, limiting workers’ hours to 40 and reducing fringe benefits.
Workers will bear the brunt of the harmful impact of the overtime rule and its unintended consequences. Salaried employees now on a management track may have their work status downgraded to hourly, which will have some impact on their long-term career prospects, earnings, and other benefits, like healthcare and a pension. Perversely, the overtime rule would become a governmental roadblock on aspiration for ambitious employees.
Losing salary status also means a more restrictive work schedule. Salaried employees are paid for getting the job done, not hours worked. If a salaried employee needs to take off work to get a sick child at school, there’s no loss of pay. But an hourly employee faces a tougher choice over such tradeoffs, since only time worked is time paid.
What can be done? Congress needs to step in to protect people from federal labor regulators. Senator Tim Scott recently introduced the Protecting Workplace Advancement and Opportunity Act (PWAOA), which nullifies the Department of Labor’s proposed rule and requires the DOL to go back to the drawing board in regards to analyzing the impact to small business. Unfortunately, such a bill would face a veto from the President.
A Congressional Review Act, which allows Congress 60 days to pass a resolution of disapproval that overrules a regulation, is another possibility to stopping the proposed overtime rule. However, this would likely suffer the same fate as the PWAOA—a presidential veto.
Yet, Congress does possess sole power of the purse. It should use it in the upcoming appropriations process to defund enforcement and implementation of the rule.
Hardworking men and women deserve a raise, but that can’t be doled out by Washington. Using the federal regulatory process to impose overtime pay will backfire, and workers will be the ones left short-changed.
Kovacs is a policy analyst with the Competitive Enterprise Institute.