Overtime Rule May Result in More Moonlighting

Study also finds there’s no reason to believe the overtime rule will result in better health for employees

By Allen Smith, J.D. Apr 14, 2016
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Updated 5/18/2016 

Employers and their employees are likely to respond to an the controversial overtime rule in unintended ways, according to a new study from the Mercatus Center at George Mason University in Arlington, Va

Tthe proposed rule recommended setting the salary threshold for exempt employees at $50,440 annually, up 113 percent from the current $23,660 annually, and called for annual automatic increases to the salary threshold.

When announced May 17, 2016, by the White House and Department of Labor, the rule set the exempt salary threshold at $47,476 and called for automatic increases every three years. (See SHRM Online's FLSA Overtime Rule Resource Page.)


FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Compliance Checklist · Infographic
In response to the regulation, employers may reduce base salaries, cut overall compensation and replace workers with machines or higher-skilled workers, the April study found.

Rather than increasing the number of people employed by encouraging companies to cut individuals’ hours to avoid paying overtime, the new rule may instead result in more employees taking on second jobs, the study predicted.

Since more moonlighting is likely to result if employees experience a cut in their hours, “for employees who moonlight, no health benefits are gained from working fewer hours at their first job,” the study noted. Moreover, there’s no evidence that reducing workers’ hours to avoid the payment of overtime to newly reclassified nonexempt employees will result in better health for workers, the study found.

Some Fringe Benefits Cut

Employers might cut benefits such as commissions, equity holdings, bonuses and profit-sharing that they used to provide employees, said Liya Palagashvili, assistant professor of Economics at the State University of New York—Purchase College and Law and Economics fellow at the Classical Liberal Institute at New York University School of Law.

A co-author of the study, Palagashvili told SHRM Online that as a result of the rule, employers may hire someone who would usually have a more senior title and who earns more than the exempt salary threshold to take a junior employee’s role plus do some of others’ jobs. And employers may substitute more workers with machines, for example, using self-service check-out lines instead of human cashiers, she said.

However, the study said that bonuses “are an especially effective means of encouraging workers to put forth greater productivity and higher-quality work. By eliminating or reducing these bonuses in response to the expanded overtime pay mandate, employers lose an important tool for better ensuring adequate worker performance. Thus, changing performance bonuses in response to the expanded mandate is likely to be rare and to be a move made only as a last resort.”

No Improvement in Health

One goal of the overtime rule is to improve the health of exempt employees who work long hours. If the employer has to pay an employee overtime, an employer has an incentive to not overwork the employee. The Department of Labor claims its rule will increase employee health by resulting in fewer hours worked and less stress, Palagashvili noted.

However, the study concluded there was no evidence of a negative impact on health from working just a little overtime, as is commonly the case in the United States.

Many of the studies cited by the Department of Labor “permit only cautious comparisons with the current situation in the United States,” the study said.

For example, one study looked at salespeople in a machine manufacturing company in Japan in the 1990s. Working “short hours” during that time was defined as 57 hours a week, while the overtime week was defined as working 61 to 68 hours a week. The study found elevated blood pressure for those working 61 to 68 hours a week.

“It is unclear how comparable these results are to the 21st-century United States, where the average workweek is typically 40 hours and overtime averages to about 3.3 hours,” the Mercatus study said.

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