This Rule Can Put You Out of Business
October 31, 2016
In a little more than six weeks, a new labor rule governing overtime pay for salaried workers is set to take effect. Like many of his economic policies, this is another example of the President’s fundamental lack of understanding of the free market and the job killing aspects of overbearing federal regulations. While he may think this new rule will result in a higher take home pay for middle class workers, it is more likely to force many workers to “punch a clock” and lose the flexibility that a salary provides.
Contrary to what this administration seems to believe, businesses, especially small businesses, are not charities. Entrepreneurs know that keeping up morale among their employees is essential to their success. But they also know that making a profit is as well. No profits mean fewer jobs and lower pay.
Current overtime rules require any salaried employee making less than $23,660 annually, or approximately $11.38 cents per hour based on a 40 hour week, to be paid time and a half for every hour over 40 hours that they work in a week - approximately $17.07 per additional hour. The new overtime rule set to go into effect on December 1st will increase that salary threshold to $47,476, or approximately $22.82 per hour. Overtime pay for these employees will be $34.24 per hour.
For many salaried American workers this may initially look like a good thing. It will undoubtedly put more take home pay in their pockets - but at what cost? One of the unintended consequences of this rule will be the additional cost to employers to keep meticulous records of exactly how much time their employees making less than $47,476 are working each week. That money comes out of the business owners' profit so there will be less money to pay their workers.
More onerously however is the fact that these employees now will have to “punch a clock,” and employers will be incentivized to make sure as few as possible of their salaried employees, many of whom are managers, work no more than 40 hours per week. Furthermore, the flexibility that many salaried employees enjoy will be curtailed. For example, many salaried workers have the flexibility to take time off to attend to personal priorities like doctors' appointments, children sports and school activities, even being stuck in traffic on their way into work - without being docked any of their pay. Under President Obama’s new overtime rules if you are not at work and on the clock, you are not getting paid. This could actually result in workers making less income as employers strive to maintain a payroll level that allows them to stay in business.
As the Chairman of the House Appropriations subcommittee on Labor, Health and Human Services, which funds the Department of Labor annually, I have included language in the 2017 appropriations bill which would prevent the overtime rule from going into effect for Fiscal Year 2017.
I am a strong supporter of small business in America, and I am also a strong advocate for improving the lives and livelihood of middle class families. Unfortunately, these new overtime rules do damage to both of these groups. Congress would be wise to pump the brakes on this proposal and to advance proven, free-market economic policies which help small businesses thrive, and their workers prosper.