America works too much. Half of salaried workers report putting in at least 50 hours a week, and surveys of white collar professionals report even higher figures. And in exchange for all this work, most workers never see any overtime pay.
Earlier this week the Obama administration announced an executive action aimed at changing that, by making more workers eligible for overtime pay. Supporters hope the rule change will either increase workers’ pay, or at least preserve it while decreasing their hours worked. Firms can choose to keep workers’ hours as they are now, but pay them time-and-a-half for overtime hours, thereby increasing wages. Or they can opt not to require overtime, in which case their employees work shorter days, meaning their hourly compensation increases.
Unfortunately, these aren’t the only options. In practice, the reform’s impact on wages will be less than one might expect, and its impact on overwork may be negligible.
Right now, nearly all hourly workers are eligible for time-and-a-half pay for time worked beyond 40 hours a week. Salaried workers are often exempt, either because of how much money they make or the sort of work that they do. The rule dates back to the passage of the Fair Labor Standards Act in 1938, though it has been changed many times since then, and it exempts “executives, administrators and professionals.” But for many workers, eligibility depends on how much you make: If you earn less than $455 a week ($23,660 a year) and don’t fit in one of the other exemption categories, you’re eligible for overtime.
Obama is raising that threshold to $50,400 a year. As a result, somewhere between 5 million and 15 million additional workers will be eligible for overtime, most in retail and food service, and most of them women.
In the short term, this will likely mean a pay increase for newly eligible workers, at least on an hourly basis. But research suggests that over time, firms will lower salaries in order to get the same amount of work at the same price. Let’s say you make $40,000 a year and work 60 hours a week. Instead of paying you more for overtime, or paying you the same salary for just 40 hours of work, your employer could decide to pay you $23,000 as a base salary, plus time-and-a-half for your 20 hours of overtime, for an annual total of $40,000. Nothing would have changed.
Workers probably wouldn’t stand for this treatment, and for that reason it’s unlikely to happen immediately. Instead, it will kick in over time as firms hire new workers, or as they forgo raises and inflation slowly chips away at existing workers’ pay. One study estimated that this effect offsets about 80% of the additional pay workers would see if they were simply paid for overtime at their current salaries. Advocates of the reform admit as much, but point to the short-term wage increase, as well as the fact that not all of that increase gets wiped out by lower base wages, even in the long term.
Adjusting overtime rules will likely raise some workers pay, and that’s to be applauded. But it won’t do much to curb America’s reliance on long hours. That won’t improve until management starts to realize that overwork isn’t a sign of productivity or achievement, and that in fact it rarely leaves either companies or their employees better off.
(Walter Frick is a senior associate editor at Harvard Business Review.)
© 2015 Harvard Business School Publishing Corp. Distributed by The New York Times Syndica