How overtime changes may impact employees, employers

Jul 8, 2016

Credit Dave Dugdale via Wikimedia | CC BY 2.0 / wikimedia.org

Yesterday, WGVU took a look at a new labor rule raising overtime eligibility for certain salaried employees. Today, we explore that rule’s potential impact on employees and employers.

“It can potentially mean a pretty good wage increase for quite a few number of people – and that’s really the motivation for the change in the regulation.”

Paul Sicilian is an economics professor at Grand Valley State University, with an emphasis on labor standards.

He’s discussing a May U.S. Department of Labor change raising the salary for overtime-exempt employees from $23,660 to $47,476.

Sicilian says the point of the increase is to mirror what the salary range is supposed to be for a middle-managerial-type job or higher – and to boost stability for low to middle-income wages.

But will it have that effect?

“That’s where there’s some controversy. I think reasonably, the answer is yeah, for a lot of people. But the concerns – or at least what critics will raise, is several issues. One is it’s going to cause employers to hire less workers.”

Sicilian says the classic example there is a fast-food worker – who he says in most cases as an hourly employee, wouldn’t be exempt in the first place.

He says other concerns include employers cutting wages – the employee would then earn a smaller 'hourly' amount, and make up the difference with overtime.

Sicilian says this scenario isn’t very likely, although it’s possible wages may rise more slowly over time.

“And there is – actually, some people have suggested that people close to the new cut-off – that are now exempt but would (with the new rule) qualify for overtime – they might get a raise. Just so they’re exempt again.”

Sicilian says even if slower wage growth plays out, the new overtime rule still ultimately benefits employees in that pay grade.

He says he does see a heavier burden on employers, particularly in hiring costs.

“So in that sense I think in a lot of cases, the employer might make some adjustments to wages, but they won’t be real big. And they’re not going to respond by hiring lots of workers to avoid overtime.

“And I think the ability to substitute capital for labor is going to be kind of limited in a lot of these jobs.”

The rule goes into effect in December.