April 18, 2005

The TRUTH on Overtime Pay:  Wall Street Journal Article Demonstrates American Workers are Benefiting from New Overtime Protections

Dear Colleague:

We’d like to draw your attention to a story in today’s Wall Street Journal (“Forecasters May Have Misjudged the Effect of Overtime Overhaul,” Maher, April 18, pg. A2) that demonstrates very clearly that more and more workers are benefiting from new overtime protections put in place by the U.S. Department of Labor (DOL) last year.

The opening line of the article says it all: “Now that the dust has settled from last year’s acrimonious overtime debate, one thing has become clearer:  More workers appear to have gained overtime protections than lost them as a result of the Bush administration's broad revision of the Fair Labor Standards Act’s white-collar overtime rules.”

Last year, critics of the new overtime protections repeatedly made misleading and erroneous claims, falsely insisting that millions of workers would lose overtime pay.  Now those distorted claims can be laid to rest.  As the Wall Street Journal article highlights, the new DOL protections immediately made more low-income workers eligible for overtime pay and have benefited a wide variety of workers with new overtime rights and increased pay.  This is great news for all American workers.

Sincerely,

/s/    John Boehner (R-OH)  Chairman  Education & the Workforce Committee

/s/   Charlie Norwood (R-GA) Chairman Workforce Protections Subcommittee

 

April 18, 2005

 

ECONOMY

 

Forecasters May Have Misjudged the Effect of Overtime Overhaul

By KRIS MAHER
Staff Reporter of THE WALL STREET JOURNAL
April 18, 2005; Page A2

PITTSBURGH -- Now that the dust has settled from last year's acrimonious overtime debate, one thing has become clearer: More workers appear to have gained overtime protections than lost them as a result of the Bush administration's broad revision of the Fair Labor Standards Act's white-collar overtime rules.

That should come as a surprise to many people who predicted the opposite would occur. When the Labor Department rewrote overtime rules, it more clearly defined which workers are entitled to receive overtime pay and which ones aren't. The new rules reclassified many higher-paid workers as professionals and managers, meaning they no longer automatically qualify to receive time-and-a-half pay for working longer than 40 hours a week. Workers earning less than $23,660 and many white-collar office workers who previously were excluded from overtime, now are entitled to receive it.

At the time, labor groups and some liberal economists said far more workers would be excluded from overtime than would gain it and that incomes for millions of workers would fall. The Economic Policy Institute in Washington estimated that as many as six million workers would lose overtime pay under the rules. Government officials said 1.3 million workers would gain overtime protection.

So far, it appears that many companies have paid out more overtime to more eligible workers since the new rules went into effect, according to executives and consultants. A February survey by Business & Legal Reports Inc. of 400 U.S. companies -- large and small and across industries -- also found that 40% of companies gave overtime protection to some workers who didn't have it before. Only 13% of respondents eliminated overtime eligibility for workers. In each case, fewer than 50 people were reclassified one way or the other.

Likewise, Hewitt Associates, a human-resource consulting firm based in Lincolnshire, Ill., consulted with about 40 large employers over the new rules and found that few, if any, reclassified any employees as exempt from overtime. "It's either zero, or maybe one company, that had to take away anybody's overtime," says Tom Farmer, a senior consultant. But many of these employers, he said, gave overtime to workers who hadn't received it before, including paralegals, executive assistants, administrative assistants, cooks and certain technicians.

But it's not clear whether that trend will continue. Some analysts say it's partly a timing issue. For now, companies have found it easier to give overtime protection to workers who clearly qualify than to take it away from those who no longer qualify, a move that could damage morale. Moreover, some companies may feel it's better to leave some overtime protections in place for questionable job categories, rather than risk lawsuits.

Opponents of last year's overhaul steadfastly maintain that more workers will lose overtime in the long run. "I think we're years away from knowing what the effect is going to be," says Ross Eisenbrey, vice president and policy director at the Economic Policy Institute. "The rights have changed. How people actually get paid may not have changed and may not change for a couple years." Mr. Eisenbrey says many workers who recently gained overtime likely earn less than the $23,660 salary cutoff for overtime. Others should have had overtime all along but had been illegally denied it in the past, he suggests.

Making more people eligible for overtime has increased labor costs for some companies, particularly banks, retailers and technology companies, says Nadine Winter, a compensation consultant with Watson Wyatt Worldwide. Some employers may respond by reducing the work hours of full-time employees and hiring more part-time or temporary workers. "Employers will find a way to manage their costs," she says.

Meanwhile, other efforts have been launched affecting overtime. Last month, Congress considered adding further overtime-rules changes to the bankruptcy bill. Under the so-called flextime proposal, workers could shift up to 10 hours of work over an 80-hour two-week period -- say, work 50 hours one week and 30 the next. A second proposal would allow workers to choose comp time in place of overtime pay -- one-and-a-half hours of time off for every hour of overtime. The proposals, which had been tied to legislation to raise the minimum wage, were voted down but could be revived at some point.

Lonnie Golden, associate professor of economics and labor studies at Penn State University-Abington College, believes those changes would lead to a longer workweek on average. That would improve employers' labor costs in the short run, but could hurt productivity, since accident and error rates tend to increase along with hours worked.

On the other hand, Daniel S. Hamermesh, a professor of economics at the University of Texas at Austin, who has studied overtime extensively, says the recent proposals could boost efficiency by allowing companies to schedule workers when needed within an 80-hour period.

Overtime rules have changed so infrequently that it's difficult for economists to measure what, if any, impact they have on the economy. That is changing. And if the last year is any indication, the expected consequences of change are often wrong, at least in the short run.

Write to Kris Maher at kris.maher@wsj.com

 

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