Progressives praised the Department of Labor’s new overtime rule as a way to fatten workers’ pockets and a means to strengthen the middle class. If the overtime rule is such a boon to workers, why did Democrats in Congress and the White House agree to a deal, which allows Puerto Rico to restructure its enormous debt, but also exempts Puerto Rican workers and employers from the new overtime requirements?
It is likely because they understand that the overtime rule is unlikely to raise most workers’ wages and undoubtedly burdens job creators. Furthermore, the primary policy objectives in the DOL rule do not mention pay raises as a goal. The purpose of the rule, according to the DOL, is to reduce involuntary unemployment by making work over 40 hours more expensive and to cut back on overwork to protect employee health and safety.
They probably realized with unemployment in Puerto Rico at 11.8 percent in March that making any kind of labor more expensive or burdening employers with greater administrative costs is not going to help.
Employers in the United States have already expressed concerns about the rule that was only finalized this week. The New York Times reports on small businesses concerns and adjustments they will make in the light of the overtime rule. Lior Rachmany, founder of Dumbo Moving & Storage, tells the Times that he would consider “hiring freelancers and independent contractors” to avoid paying overtime during busy seasons. This is a clear unintended consequence, since the DOL recently issued guidance, which intent is limit the proliferation of freelance and independent contractor use.
The tech startup community has been outspoken on the challenges the overtime rule imposes on them. Dan Gelerenter, CEO at Dittach, LLC, a tech startup that improves email searches for attachments, penned a letter to the Senate Committee on Small Business and Entrepreneurship laying out the obstacles the rule places on tech startups that start off with no or very little funds. Gelerenter cites cumulative cost of regulation that larger companies may be able to “cope with,” but “startups do not.” Further, he views the rule as callous since even a modest increase in the cost of doing business may “put some of us out of business.”
It is not just tech startups that have very little room to navigate around government increasing costs of business. Retail and restaurants companies operate on extremely thin margins. Sageworks, a financial information company, finds “more than half of the 15 industries identified are within the retail sector.”
But the new overtime standard, which increases the salary threshold for overtime eligible employees to slightly over $47,000 from $23,660, is not just problematic to employers—employee career prospects are at risk.
As a Competitive Enterprise Institute coalition letter signed by 17 free-market organizations explained, “[B]y increasing the threshold, many workers will lose salaried employment status and the benefits they depend on, like flexible work arrangements and health benefits.”
Millions of workers potentially becoming hourly employees overnight is a terrifying prospect, even though some progressives understand the benefits of salaried careers as opposed to hourly jobs.
Dedrick Muhammad, senior director of the NAACP’s Economic Department, penned an article at The Huffington Post, citing that salaried employment is better in the long run for workers:
It’s also true that some hourly positions can pay more than salaried positions, either due to higher pay or compensation for extra hours. But depending on your long-term plans, a salaried job with benefits, even if it pays less than an hourly job, might ultimately put you in a position of greater financial strength. In other words, it’s not about what pays you more, but rather what gives you more.
President Obama frames the issue of overtime as “making sure you're paid fairly.” If he believed his own words, then why did he agree to a deal that, to him, ensures workers in Puerto Rico are paid unfairly?