Why ‘Overtime Protection’ Isn’t Necessarily Good for Employees

The NPRM touts that an estimated 3.4 million employees will “gain overtime protection” under the proposed regulations.  As described in our post on October 25, it is unlikely that the new rule will increase compensation of the re-classified employees. Additionally, here are several reasons why employees may be worse off with the proposed rule: 

• Earnings fluctuations - While salaried employees receive the same compensation each pay period, earnings for non-exempt employees change from week to week if the employee does not work the same number of hours each week. If an employee is out sick for a few days during a week, their paycheck will be lower.  This should be made up in other weeks where, for instance, there is a larger workload requiring overtime, but employees cannot control when they get sick or when there is the opportunity to work overtime.  This can matter for employees living from paycheck to paycheck and who count on steady income to pay their bills.
• Loss of benefits and flexibility - Traditionally, exempt employees are eligible for some benefits not available to non-exempt employees. For example, exempt employees often receive paid time off, but hourly employees generally do not.  Also, employers may have annual bonuses for exempt employees.  Although bonuses could still be offered to non-exempt employees, any non-discretionary bonuses would require a true-up payment for all overtime over the year.  That requirement would make bonus programs more expensive and could therefore reduce the likelihood that employers would offer as many bonuses to employees with “overtime protection.”
• Decrease in employee morale – For many employees, exempt classification is viewed as a status symbol, and suddenly being required to clock in and clock out each day may be viewed as a burden. Furthermore, non-exempt status may result in a lack of flexibility.  For example, exempt employees may be able to leave early to pick up a sick child from school and finish work from home, but such systems may not be available to non-exempt employees outside of the office to guard against off-the-clock work.
• Reduced earnings – One way in which employers may guard against costs related to overtime premiums is to hire additional workers. For example, if an employer has four employees in the same position, each of whom work about 45 hours each week (for a total of 180 hours per week), the employer may hire a fourth employee and schedule each employee for 36 hours per week.  The reduced work hours would also result in reduced earnings for those employees.
• May adversely impact inexperienced employees – Employers may be willing to pay the same weekly salary to employees with different amounts of experience knowing it may take more hours to complete the same tasks for less experienced workers who are learning on the job. The same employers may not be willing to pay overtime premiums for the additional hours devoted to learning on the job.  Because off-the-clock work is also not allowed, some employers may be less willing to hire inexperienced workers for a non-exempt white-collar job but would give employees a chance to learn on the job if the position was exempt from the FLSA.