A federal judge in Texas has spoken: the overtime rule is unlawful. The Department of Labor does not have the power to decide which workers are eligible for overtime pay based solely on salary levels. The rule, which would amend the Fair Labor Standards Act (FLSA) to mandate overtime pay for all workers who earn less than $47,892 per year, is estimated to affect the pay of about 4.2 million employees.
U.S. District Judge Amos Mazzant filed the injunction on November 22, putting Obama’s unilateral changes to the FLSA at a halt. In his filing, Mazzant recognizes that the changes would be damaging to the States, “coercing them to adopt wage policy choices that adversely affect the States’ priorities, budgets, and services.” The president, meanwhile, claims to be seeking an update to the dated law, and says the new rule will “simplify and modernize the rules so they’re easier for workers and businesses to understand and apply.”
Ironically, the Department of Labor’s website description of the overtime changes gets one thing right: “The department has issued a final rule that will put more money in the pockets of middle class workers—or give them more free time.”
If the rule changes were to be enacted, quite a few workers would have more free time indeed—they would be put out of work.
This Will Really Hurt Small Businesses’ Employees
While some employers would give raises to avoid getting hit by expenses related to paying and tracking overtime, the rule would damage the economy and harm the prospects of the very employees the administration seeks to help.
Small businesses such as restaurants that are unable to pay increased salaries or overtime wages would be forced into a difficult situation. These employers could go underneath the lower bound of the mandate by reducing the wages and hours of all their workers while hiring more employees to fill the void. This is a difficult option, because current employees may not be able to accept lower wages, forcing the business to hire all new employees with less skill or experience. Even if current employees accepted reduced wages, this is clearly the opposite of the rule’s intended effects.
Many affected businesses with low or seasonal profit margins could shutter due to the increased costs associated with tracking time, wage and salary requirements, and complying with the law’s updated standards. Entry-level managers would likely be reclassified as hourly employees, which would force employers to adopt costly hourly pay rules for more of their employees. Businesses unable to skirt the law would be forced to cut benefits to pay for increased overtime wages, lower wage rates for hourly workers, or reduce the total size of their workforce.
Passing A Law Won’t ‘Give America A Raise’
The Department of Labor’s claim that the rule would give workers more free time is a slap in the face of working single mothers and other working-class employees. The administration failed to realize that these people were free to arrange their own wage agreements, and that rather than having more time, some workers might need the extra income they earn from working more than 40 hours per week—even if those hours are not considered overtime. Even if half those workers benefited from extra income, if the other half had their hours reduced and could not make ends meet, would the rule be worth it?
Workers who value their flexibility should not be punished so that Democrats can feel good about themselves and have a political talking point to feed constituents.
In referencing changes to the FLSA, President Obama has bragged, “it’s time to give America a raise.” Now, thanks to this injunction, his administration’s lack of economic sense will likely not be injected into the labor market. Hopefully the next administration will realize that they cannot simply “give America a raise” by passing a law.
