Study: Labor Department’s Proposed Overtime Rule To Cost Businesses, Workers

Date: April 08, 2016

Researchers Argue Increased Income Level For Overtime Qualification Will Lead To Job, Pay Cuts

In a study published this month by George Mason University’s Mercatus Center, economics professors Donald Boudreaux and Liya Palagashvili argue that the Labor Department’s proposed overtime rule will harm businesses and workers. The Labor Department’s adjustments to the Fair Labor Standards Act would boost the income levels of workers who qualify for time-and-a-half pay for working more than 40 hours per week from the current annual base salary of $23,660 to $50,400. This change is expected to provide another 5 million US workers with the potential for mandated overtime pay. The study found that rather than aiding workers as the Labor Department argues, the adjustments to the Fair Labor Standards Act are likely to lead to some tough decisions for employers, who will be faced with increased compliance costs. As such, employers may reduce worker salaries or cut benefits and compensation such as health insurance, pensions, or performance-based bonuses. Additionally, some jobs may be cut altogether in place of using automated processes, or in favor of more highly-skilled workers whose salaries fall above the overtime pay cap.

What Happens Next

After an initial comment period on the proposed rule, the Labor Department is expected to issue its final overtime rule sometime in July 2016.

What This Means For Small Businesses

In an op-ed in the Wall Street Journal, Boudreaux and Palagashvili discuss their study, warning that the Labor Department has been spinning the new overtime regulation as a positive, with Labor Secretary Thomas Perez saying it will “put more money in people’s pockets” – up to $1.3 billion. However, based on the increased costs of labor employers would face under the new overtime pay cap, it is more likely that employees will see lower base pay and reduced benefits. Small business owners, who bear the brunt of costs associated with Labor Department regulations, would be faced with tough choices under the Labor Department plan – reduce compensation or hours for their workers, or boost prices for customers.

Additional Reading

NFIB has resources explaining the proposed changes to the overtime rule.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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