The question “Do Federal Regulations Really Kill Jobs?” is the title of an article from the November 14th Washington Post. When author Jia Lynn Yang consulted some economists they declared the overall effect of regulations on employment is minimal. There was no mention of the millions of jobs wiped out with the overtime exemptions in the Fair Labor Standards Act rules and regulations.
Fair Labor Standards Act rules define overtime pay as not less than one and half times regular pay rates after 40 hours a week. Any use of overtime means more work for some that could go for more jobs to others. Requiring higher overtime pay for employers gives financial incentive to avoid the added expense of overtime and hire more employees at regular pay, which helps spread available work to more people.
The incentives will be more effective if overtime rules apply to all employment, which is what Secretary of Labor, Frances Perkins intended back in 1938 when the law was passed. Exemptions from overtime rules started back in the 1940’s but new rules drafted during the Bush administration and adopted in August 2004 revised Fair Labor Standards Act rules. The new regulations in Title 29 Code of Federal Regulations Part 541 have pages and pages of new wording that allows business to exempt millions of employees from overtime.
The terminology of rules for exemption typically includes an employee “. . . compensated on a salary basis at a rate not less than $455 per week …” The managerial exemption also includes an employee “… whose primary duty is management of the enterprise … or a customarily recognized department or subdivision … who customarily directs the work of two or more employees … who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight …” (1)
Exempting executive managers from overtime pay converts three managers working 40 hour weeks into two managers working 60 hour weeks. Using overtime rules to turn three jobs into two makes it easier for employers to economize on wage costs but guarantees fewer jobs in the exempted occupations.
The administrative exemption includes an employee “… whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers . . . and whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.” (2)
Terminology in the regulations explains “. . . . ‘primary duty’ means the principal, main, major or most important duty that the employee performs. . . . Factors to consider . . . include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee's relative freedom from direct supervision; and the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee. . . . Time alone, however, is not the sole test, and nothing in this section requires that exempt employees spend more than 50 percent of their time performing exempt work. . . .” and on and on in this fashion until it dawns on everyone that primary duties can be drafted to fit definitions as long as employees are paid on a salary basis.
Executive and administrative rules for managers represent a small portion of overtime pay exemptions. Pages of regulations define exemptions for creative and learned professionals, everyone in education short of the custodians, both hourly and salaried computer employees, outside sales employees and a few more categories that allow business to avoid overtime pay for anyone they choose to eliminate.
Terminology for creative and learned professionals makes it easy to exempt doctors, lawyers, and scientists but example occupations in the regulations name specific occupations as learned and creative: certified medical technologists, registered nurses, dental hygienists, physician assistants, accountants, paralegals, athletic trainers, funeral directors, embalmers, chefs.
Chefs?
When the Bush administration expanded overtime exemptions to suite business demands, they eliminated the financial incentive to restrict overtime and spread work to more people. Salary and fee basis requirements in Title 29 Code of Federal Regulations part 541 does not permit exempt status for most hourly paid jobs. There are exceptions like computer employees but as a practical matter hourly pay will be preferred for some jobs, especially where work fluctuates, or work has intermittent weeks with less than forty hour schedules.
The Current Population Survey reports the number and percentage of wage and salary workers paid at hourly rates. (3) In 2006, hourly rated employees were 76.5 million and 59.7 percent of wage and salary workers. By 2010 the numbers were down to 72.9 million with 58.8 percent wage and salary workers. Having 58.8 percent paid hourly rates leaves 41.2 percent paid on a salary, fee or other basis, which comes to 51.1 million jobs.
No agency has a count of salary or fee based employees with exempt status, but the 51.1 million includes the total of employment reported in the Bureau of Labor Statistics Occupational Employment Survey for management, business operations, financial administration, and professional occupations. A little over 12 million work in managerial occupations, business operations and other financial administration and the broad wording in the regulations give reason to believe they all qualify, or could easily be adjusted to qualify, for exempt status.
The rules that regulate exempt status for overtime pay are in addition to Fair Labor Standards rules for compensable work. Employees are legally entitled to be compensated for hours worked. Exempt status means exemption from overtime pay at time and half, not exemption from pay for time worked.
Compensable time has a definition and a regulation because disputes can arise over compensable time as well as overtime. If an employee is asked to do an errand on the way to work reasonable people might disagree whether errands on the way to work are compensable time. When disputes occur new and amended definitions are drafted, adopted and published as they have been over the years for many different work disputes under the Fair Labor Standards Act. However, employers are still expected to pay wages and salary for compensable time worked up to and over forty hours if that occurs. Employers cannot legally expect employees to work for free or to work free overtime hours.
Still we have to expect free overtime hours happen anyway. In education, millions work evenings and weekends without compensation. In office based occupations pressure to get the job done and be part of the team make it easy to ignore some extra hours. Salaried employees are not always encouraged to clock their overtime hours and those who do might be reluctant to request additional pay. Employees may choose not to complain about free overtime as bad for career advancement. Legal rules mean nothing when employees accept pressure to go along or feel good at being dedicated, even without pay.
Each hour per week of overtime equals a 2.5 percent (1/40) loss of work toward another job. With 51.1 million people working in salaried or fee based jobs, an average of one hour a week of overtime for exempt jobs translates into 1.28 million jobs lost. Complaints in the managerial and professional ranks of 50 and 60 hour weeks suggest exempt hours eliminate more than 1.28 millions of jobs.
Federal overtime exemptions under the Fair Labor Standards Act kill millions of jobs. Even with all overtime hours clocked and paid at time and a half the financial incentives to make new hires remain weak. America will need to curtail overtime exemptions to solve its job problems but there is not a word about overtime exemptions from either party.
Notes
(1) Title 29 Code of Federal Regulations, part 541.100
(2) Title 29 Code of Federal Regulations, part 541.200
(3) Characteristics of Minimum Wage Workers: 2006, 2010, Bureau of Labor Statistics, U.S. Department of Labor