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Crunching the costs and benefits of overtime pay reform

March 13, 2014 at 6:09 PM EDT
President Obama has directed the Labor Department to update overtime pay rules for an estimated 5 million workers, but some business owners and Republicans are worried about economic effects for employers. Hari Sreenivasan gets debate on the overtime bump from Jared Bernstein of the Center on Budget and Policy Priorities and Dan Bosch of the National Federation of Independent Business.

JUDY WOODRUFF: It’s been nearly a decade since the Bush administration changed the threshold for when overtime pay kicks in. President Obama announced his own plan today to revise those regulations. It could mean higher pay for millions of workers, but some businesses are worried about the costs.

Hari Sreenivasan has the story.


PRESIDENT BARACK OBAMA: Thank you. Thank you.

HARI SREENIVASAN: For the president, it’s a new attempt to address pay equity without going through Congress, where his economic agenda is largely stalled. He’s directing the Labor Department to update overtime pay rules for an estimated five million workers.

PRESIDENT BARACK OBAMA: Today, I’m going to use my pen to give more Americans the chance to earn the overtime pay that they deserve. Now, overtime’s a pretty simple idea. If you have to work more, you should get paid more.

HARI SREENIVASAN: The focus is on salaried workers, including shift leaders and managers at fast food restaurants and stores who are designated as supervisory and make at least $455 a week. The president wants to raise that salary threshold and change the definition of supervisor.

PRESIDENT BARACK OBAMA: It doesn’t make sense that, in some cases, this rule actually makes it possible for salaried workers to be paid less than the minimum wage. It’s not right when business owners who treat their employees fairly can be undercut by competitors who aren’t treating their employees right. If you’re working hard, you’re barely making ends meet, you should be paid overtime, period.

HARI SREENIVASAN: The U.S. Chamber of Commerce has rejected the plan. It issued a statement that said, in part: “Changing the rules for overtime eligibility will, just like increasing the minimum wage, make employees more expensive and will force employers to look for ways to cover these increased costs.”

Republicans also protested, the Obama plan will cost jobs.

House Speaker John Boehner:

REP. JOHN BOEHNER, R-Ohio, Speaker of the House: If you don’t have a job, you don’t qualify for overtime. So what do you get out of it? You get nothing. The president’s policies are making it difficult for employers to expand employment. And until the president’s policies get out of the way, employers are going to continue to sit on their hands.

HARI SREENIVASAN: The president is leaving it to the Labor Department to work out the details, and any proposed rule will be subject to public comment. That means a new overtime standard might take effect some time in 2015.

We get views from two camps deeply immersed in the debate.

Jared Bernstein is a former chief economist to Vice President Biden. He’s written on this and is a senior fellow at the Center on Budget and Policy Priorities. And Dan Bosch is the manager of regulatory policy at the National Federation of Independent Business, a trade group opposed to the move.

So, Dan, let me start with you.

Why is reforming overtime going cost to jobs?  How does it hurt small businesses?

DAN BOSCH, National Federation of Independent Business: Well, for small businesses, this is just the latest in a long line of government mandates that have been coming out of Washington lately. This is on top of a proposed minimum wage increase, rising health care cost, and a tidal wave of government regulation. These burdens are disproportionately troubling to small businesses.

HARI SREENIVASAN: What about this idea that this is just part of a larger onslaught that small businesses are feeling?

JARED BERNSTEIN, Center on Budget and Policy Priorities: I don’t think so.

And, in fact, in this case, it’s uniquely different from some of the other policies that Dan mentioned. For example, if an employer doesn’t want to pay overtime to someone, that is time-and-a-half to a worker, they can hire a worker at a straight time wage, and that does two things. It actually saves the employer overtime costs and it creates more jobs, which is something that we could use about now.

And that was actually one of the motivations for the overtime rules originally in the Fair Labor Standards Act that is now about 75 years old.

HARI SREENIVASAN: Is that a possibility, that actually straight time workers or non-overtime employee could actually put a dent into this unemployment range or problem that everyone is trying to tackle?

DAN BOSCH: Well, I think the smallest businesses, which is who I represent, usually around five to 10 employees per business, they’re not going to have the capital to be able to bring on a new employee.

What is going to happen is, the business owner will take on the added responsibility of the worker who should potentially be getting overtime now. And they will cap the overtime worker at 40 hours.

HARI SREENIVASAN: So, is there a way that this could backfire?

JARED BERNSTEIN: Well, I don’t really understand the logic that Dan is espousing there, because the capital is actually — the capital, the labor cost has actually diminished.

Remember, you would have to pay time-and-a-half for your overtime worker newly covered by this idea. And, remember, let’s not lose the fact that we’re talking about adjusting a threshold for inflation that hasn’t been adjusted for 10 years. That threshold, below which you automatically get overtime right now, is about equal to the poverty level for a family of four.

So I think President Obama has a case when he talks about making this more fair for people who are working long hours. And, again, employers can avoid higher labor cost. That’s not the same as with the minimum wage.

HARI SREENIVASAN: And what about this idea that the threshold hasn’t been adjusted for inflation even in the last nine years, that it’s been flat?

DAN BOSCH:  Well, small businesses today, they’re not rolling around in cash.

Our small business optimism index that we release monthly shows small businesses see the economy at a recessionary level or a subpar growth level, so they are not in a position right now to be increasing their labor costs.

JARED BERNSTEIN: Let me say something about that. The reason you work someone for overtime, the reason you have somebody work overtime is because the demand for the goods and services that you are providing is very strong.

And you can’t meet that based on simply straight time pay. If the story that Dan is telling is true — and I certainly believe him — then you’re not seeing the kinds of pressures in terms of demand for what it is these small business folks are providing that they would need to use overtime.

And if they don’t need to use overtime, this doesn’t affect them. If they do need to use overtime workers and they don’t want to, they can hire someone at straight time and save themselves some salary there.

HARI SREENIVASAN: Is that true, that if you’re having to…

DAN BOSCH:  I think the only point I would make there is, I don’t know that the smallest businesses are going to bring on additional people.

I think the small business owner will try to take over that additional work that needs to be done his or her self.

JARED BERNSTEIN: So, here’s the thing. Any time you get into this kind of discussion about what a mandate would do, you have to look back at the empirical evidence.

And what it showed time and again, whether you’re talking about minimum wages or even overtime rules, because we have raised this threshold in the past, businesses small and large, they hire when they need to, and they don’t hire when they don’t need to. And when we have increased this overtime threshold in the past, we haven’t seen anything like the kinds of disemployment or job loss effects that Dan is suggesting we would.

HARI SREENIVASAN: Dan, what about this idea that there are supervisors in name only, that perhaps some small employers are cheating the system by saying, hey, you know what, you are a supervisor, you are not eligible for overtime, even though they might not be making that much money?

DAN BOSCH:  I can’t speak to whether or not companies are actually doing that. I’m sure it happens somewhere. I don’t know how prevalent it is.

But I would say that something that we have seen as a possible element that might come out of this proposal is that small businesses would have to calculate a percentage of what task you perform as an employee or supervisor and what you aren’t. That, if that comes to fruition, is going to be extremely burdensome on small businesses. That is a very complicated calculation to have to make for every employee every week, every year.

JARED BERNSTEIN: Well, in fact, that has always been part of the law. Part of the — this part of — this white-collar part of the Fair Labor Standards Act has always asked employers, how much of your time does your employee spend in a supervisory position?

And that’s — so there is nothing new about that. What is different here is that the way the law was changed in 2004, to the detriment — to the detriment of overtime workers, is that if you — if 95 percent of your time is spent doing the type of work that would be covered by overtime pay, and then for an hour a week, you supervise someone else, you can be exempted from overtime pay just based on that one little chunk of your week.

And that’s wrong. What you could end up with — in the current situation, what we have that is too many of these workers don’t look like executives, managers, professional supervisors at all, but are treated that way under this law, and, therefore, don’t get the overtime pay they should.

HARI SREENIVASAN: Now, one of your concerns is, going forward, that this creates a climate of uncertainty for small businesses. Explain.

DAN BOSCH:  Well, this process is not going to just, you know, happen this week or even, you know, in a couple of weeks or months, what have you.

This is going to be an extremely lengthy process. And I actually think, personally, that I think you said in your piece that 2015 might be the time frame for this. I think that is extremely advanced. I don’t know that this can happen that quickly, if the Department of Labor goes through the proper processes that it’s supposed to.

HARI SREENIVASAN: Can the administration get this done by the time they’re out of office?

JARED BERNSTEIN: Yes. I mean, this could be done in a matter of months.

There is a comment period where the administration, I think very justifiably, asks stakeholders to weigh in, what they think. And then — then the administration will step in and change the rules, much as we have been discussing so far.

So I can see this happening in a matter of months. In fact, if you go back to the 2004 changes, I think they took about six months, as I recall.


Jared Bernstein from the Center on Budget and Policy Priorities, Dan Bosch from the Business — Federation of Independent Business, thanks so much for joining me.

DAN BOSCH: Thank you.