New labor rule may harm Utah’s economy and increase education costs

The following op-ed, co-authored by our policy analyst Josh Daniels, was published this week in the Deseret News.

Regardless of who is elected as president in November, Utah employers will likely “feel the bern” of increased employment costs thanks to a proposed federal rule from the Obama administration dealing with overtime pay.

The Fair Labor Standards Act currently requires employers to pay overtime rates to non-exempt employees who work over 40 hours per week. Exempt employees are usually white-collar, salaried employees who work in professional or administrative functions, including teachers, a shift manager at a small retail store, or the top executive at a Fortune 500 company. Since 2004, salaried employees earning more than $23,660 have been exempt from overtime laws.

President Obama recently directed the Department of Labor (DOL) to “update”—in other words, increase—this threshold by 113% to $50,440. That “update” is nearly five times the inflation rate since 2004. Such a sweeping change is not in fact an update—it’s an aggressive intervention.

The most recent data from the Bureau of Labor and Statistics place the average Utah wage at $43,108, which means the proposed threshold for exempt status is 17% higher than Utah’s average wage level. This new regulation by the Obama administration could force more than half of all Utah workers to become hourly wage laborers, losing their exempt status as salaried employees.

Even the teacher exemption is deceptive, since non teachers do so much of the critical work in Utah’s public schools. The proposed rule would apply to—and eventually financially punish—a school’s office staff, charter school directors, and others, many of whom often put in far more than 40 hours per week, simply because they care so much about serving their students.

Public schools would also have to begin tracking and managing those employees’ hours, lest they trigger the overtime pay requirements. Working from home—such as responding to school-related emails—would be verboten. And these school employees would be “punching a time clock,” rather than being trusted as professionals to get their job done.

Ostensibly, President Obama wants to ensure that workers are “paid a fair day’s pay for a fair day’s work.” The implicit assumption is that employers abuse overtime exemptions by placing workers on a salary not commensurate with the work required. The reality is that wages and workloads respond to the immutable laws of supply and demand. At its heart, Obama’s proposed rule is just a price control, and as plenty of studies and common sense both indicate, these schemes entail arbitrary manipulation of markets and therefore are doomed to fail.

The consequences of this labor takeover would be far reaching. The last round of overtime rule changes triggered a chain of employment lawsuits, creating huge litigation costs for employers. Instead of paying employees more, employers will likely forego hiring new workers, rearrange existing staff, invest in machinery and automation, hire temporary workers, and ship jobs overseas.

Rather than helping workers earn more, this rule would likely reduce pay for many Utahns. Employers will switch to hourly wages for these salaried workers with current overtime built in—except now the employee would have a lower guaranteed minimum. And if there is a slow month or if the company needs to save money, they will likely cut overtime hours first.

Most Utahns rightly oppose the Obama administration interfering in Utah’s education and health care systems. Now Utahns should be concerned about interventions in our labor market. Utah’s economic engine can’t continue churning with the slowdown in hiring or the wage reductions that President Obama’s proposed rule would create. Utah’s education employees, business leaders, and congressional delegation must unite to stop this proposed rule.