Governor Wolf got some election-year publicity last week with his decree that overtime pay should apply to tens of thousands of additional workers. Highlighting the stories was a catchy, but misleading phrase, the governor used in his announcement: “It’s simple,” he said, “if you work overtime, then you should get paid fairly for it.” Actually, it’s not all that simple.
The policy change is similar to one attempted by President Obama’s Department of Labor in late 2016 that floundered on legal and economic grounds. Both the President and the governor said they were motivated in part by their exasperation over not getting a minimum wage increase through the legislative branches. Political pandering aside, economists and business leaders recognize this sort of government intrusion into the wage market actually reduces income and hinders job creation in the long run.
“Every time the government intervenes in the market, it makes jobs more expensive, and whenever things get more expensive, you get fewer of them,” said PMA President & CEO David N. Taylor.
The Wolf move raises the salary threshold under the so-called “white-collar exemption” of the federal Fair Labor Standards Act of 1938. The white-collar exemption is determined not just by salary thresholds, but also by job descriptions and responsibilities - a lesson the Obama Administration learned the hard way. The law permits states to set their own policies, but nearly all defer to Washington in matters of overtime pay - time and a half for working over 40 hours a week.
The first step of the new Wolf initiative would raise the salary level that covers those now exempt from the federal minimum of $455 per week, $23,660 annually, to $610 per week, $31,720 annually, on Jan. 1, 2020. The threshold will increase to $39,832 on Jan. 1, 2021, followed by $47,892 in 2022, extending overtime eligibility to 370,000 workers and up to 460,000 in four years. It would then rise automatically every three years.
Alfred B. Robinson, Jr., labor and employment law expert with the Washington firm of Ogletree Deakins, said that states out front on overtime changes only complicate matters for employers.
“Many employers of course have locations in multiple states,” Robinson said. “It gets very unwieldy for them to have to deal with different labor standards in the states.”
Doubling the complication, Robinson said, is the fact that the U.S. Department of Labor has recently completed a public comment period on changes its considering to the overtime rule. Draft regulations are expected in October.
“Nearly all states defer to the feds on this because, especially in today’s business world, it makes sense to have uniformity when it comes to overtime pay,” he said.
If the Wolf policy survives the regulatory process, you’ll see thousands of employees effectively being demoted, warns Kevin Shivers, NFIB Pennsylvania Executive State Director. They will have to clock in and out, or even have to go back to hourly wages with no overtime pay.
“When this was considered under the Obama Administration, employers everywhere were scrambling to change job descriptions,” Shivers said.
He added that the change will impact every sector of the economy, including jobs in government and in schools, ranging from high school football coaches to college recruiters.
The minimum wage comparison is a compelling one.
A recent University of Washington study showed that while Seattle’s 2014 increase in the minimum-wage law boosted wages for a range low-paid workers, it also resulted in many workers having their hours cut, or even losing their jobs.
The study further said that a second jump in wages (from $10.50 to $13 in January 2016) had a more profound negative impact on lost hours and jobs. Overall, the change resulted in a six percent drop in what employers collectively pay for lower wage jobs.
Furthermore, a 2015 survey of U.S.-based labor economists conducted by the University of New Hampshire (UNH) found that nearly three quarters of respondents cited job losses as the reason they opposed a $15 minimum wage. The vast majority of responders identified themselves as Democrats.
In November 2016, U.S. District Judge Amos Mazzant III, blocked the Obama overtime change just a week before it was about to take effect. The judge ruled that the proposed increase from the federal minimum of $23,660 to $47,476 a year, without considering the other white-collar factors of duties and job descriptions, amounted to “a de facto salary only test.” The Obama Administration was gone before the Department could challenge the ruling.
Shivers said that the NFIB, which signed onto the case challenging the Obama proposal, was likewise exploring a legal avenue to block the Wolf plan. Or perhaps even better, Wolf – like Obama – could be gone from office before the change takes effect.