With strict new rules mandating overtime pay for aspiring professionals and others in mid-level managerial positions, the Obama administration is asking employers to hang out a sign that says, in effect: “We don’t want any go-getters around here. You are strictly forbidden to make any special efforts for this company on unpaid time.”
The U.S. Labor Department has extended mandatory overtime pay to more than four million white-collar workers, including some 100,000 workers in Missouri. A new ruling from the department more than doubles the weekly threshold for salaried workers exempt from overtime pay to $913 a week (or $47,476 a year), and it requires employers to pay time and a half to employees at or below the threshold for any week in which they work more than 40 hours.
With five hours of overtime pay, a salaried worker at the threshold level will go from making $913 in a week to $1,172.
That may sound good, but it reflects a fundamental lack of understanding of what leads to wage and job growth and upward mobility for workers. It sets a new high-water mark in government meddling in other people’s business—or businesses.
As the CEO of one restaurant chain points out, the new ruling will demote thousands of mid-level managers into “glorified crew members” whose overriding incentive is to log more time rather than get results and be rewarded with bonuses and promotions.
In calling for cumbersome timekeeping systems that will rein in those who see showing initiative and always doing more than the required minimum as a ticket to success, the new ruling restricts the freedom and flexibility of employers and a large portion of their front-line managers to come to mutually beneficial agreements on compensation and working hours.
Other unfortunate side-effects will also follow. According to a National Retail Federation study, the rule will cause employers to move about a third of salaried retail and restaurant workers to hourly status. Further, it will lead to reduced hours for many of those workers and a shift to hiring more temps.
The idea that government can force businesses to take money out of profits in order to pay more to different classes of workers is itself delusional. To force any business to pay more to a worker than his or her value to the enterprise is to ensure that the business will do its best to keep employment of such workers at an absolute minimum. Unlike governments, companies that can’t make money are unable to expand, and are subject to extinction. That is especially true for low-margin, hypercompetitive businesses such as hotels, restaurants, and retailing that have been especially critical of the ruling.
The White House is saying that millions of salaried workers will get a raise under the new overtime rule. However, according to the Federation of Independent Businesses, that is contradicted by the Labor Department’s forecasts of a decline in average pay rates of newly covered salaried workers of about 5.3% in 2017.
To paraphrase Churchill, the Obama administration’s plan to order up a raise for middle-class Americans through an administrative edict is as foolish as the man who stands in a bucket and expects to lift himself up by pulling on the handle.
In fact, the administration’s plan is worse than that. At least the man who pulls on the bucket handle does not descend to a lower level. But that is exactly what will happen through the ministrations of our know-it-all government.
