The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
July 15, 2016
How Will Employers Respond to New Overtime Regulations?
As of December 1, 2016, employers will face expanded coverage of overtime regulations. Most hourly workers are already, and will continue to be, eligible to receive overtime pay for work over 40 hours a week. However, under the new rules, most salaried workers making less than $47,476 ($22.83 per hour for a full-time, full-year worker) will be eligible for overtime pay. Currently, the maximum salary for qualifying for overtime pay is $23,660, or $11.38 per hour.
The Labor Department estimates that the new rule would currently apply to about 4.2 million salaried workers who earn above the old threshold but below the new one. But how many workers are actually affected by the new rule and what happens to the overall demand for labor will depend a lot on how employers respond.
At this stage, it's not clear just how employers will respond. But based on our conversations with local businesses, employers seem to be considering several options for workers whom the new rule would cover. These include:
- Keeping their salary the same but monitoring and paying for the overtime hours worked.
- Increasing their salary to just above the threshold to avoid paying overtime.
- Splitting the hours worked for the job across more people, possibly by hiring additional staff to work the overtime hours.
- Converting salaried employees to hourly and reducing their base hourly rate so that their total pay will remain the same as under their current salary.
- Curtailing certain business activities, such as networking and training activities, that might occur outside of the standard eight-hour day.
- Reducing staff levels elsewhere in the business and/or cutting other employee expenses to offset the increased cost of overtime.
The first two responses outlined above will result in additional employee costs. But trying to avoid these higher costs could itself prove to be expensive. For example, hiring additional workers to cover the overtime comes with fixed staffing costs—including state and federal unemployment insurance tax on new workers, and perhaps benefits—not to mention any hiring and training costs involved in recruiting new workers. In addition, there is a risk that splitting a job between multiple workers or hiring less experienced workers to cover the extra hours will reduce productivity. Also, staff morale could suffer as a result of any actions perceived as infringing on employee rights or status.
These new rules have many dimensions and potential implications (see, for example, here, here, and here for some discussion), and getting a handle on the effects is complicated by the fact that employer responses will likely differ across industries and possibly even across jobs within a firm. Hopefully, a somewhat clearer picture of the ramifications of the new overtime rule will begin to emerge as the time of implementation gets nearer.
July 15, 2016 | Permalink
- What the Wage Growth of Hourly Workers Is Telling Us
- Making Analysis of the Current Population Survey Easier
- Mapping the Financial Frontier at the Financial Markets Conference
- The Tax Cut and Jobs Act, SALT, and the Blue State Blues: It's All Relative
- Improving Labor Force Participation
- Young Hispanic Women Investing More in Education: Good News for Labor Force Participation
- A Different Type of Tax Reform
- X Factor: Hispanic Women Drive the Labor-Force Comeback
- Tariff Worries and U.S. Business Investment, Take Two
- Trends in Hispanic Labor Force Participation
- August 2019
- July 2019
- June 2019
- May 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth