Please ensure Javascript is enabled for purposes of website accessibility

Md. economists question impact of new overtime regulations

Two Maryland economists Wednesday questioned the likely impact of new regulations from the U.S. Department of Labor that would expand overtime pay for millions of salaried workers, saying the rules might lead instead to a cutback on employees’ hours.

The federal rules would require overtime pay for some 4.2 million salaried workers, including an estimated 80,000 in Maryland. The regulations are designed to compensate people who are salaried based on a 40 hours per week schedule, but actually work many more hours to the point where their hourly pay is below minimum wage, the labor department said.

But Daraius Irani, director of the Regional Economic Studies Institute in Towson, said that while the rules are well-intentioned they might lead to a smaller labor force, more automated tasks and limits or delays to promotion opportunities for entry- and mid-level managers.

“I have misgivings about this from an economic sense,” Irani said, suggesting that firms might hold back on promoting young employees to entry-level management positions to get around paying overtime.

“It may preclude individuals from getting that first management opportunity for a few years,” said Irani.

It may also make employers consider switching their salaried employees to hourly, though the hourly workforce typically doesn’t include managers, he said.

Irani also questioned whether the problem of overwork among the salaried workforce has reached the point where there needs to be intervention from the federal government.

“I suspect there are many people who abuse it on a case-by-case basis,” he said. However, Irani said, he sees it as part of the career ladder people need to climb.

“You put your dues in and you rise up.” he said.

The new regulations double the salary threshold under which workers have to be paid overtime, from $23,660 to $47,476. Workers who make less than that must be paid time and a half if they work over 40 hours. The new rules go into effect on Dec. 1.  Some occupations continue to be exempted from the rules

Anirban Basu, economist and CEO of Sage Policy Group, said he recognizes that there is an increasing wage disparity, which is why he can understand the Obama administration’s desire to put forth this regulation.

“Wealth and income inequality in America have become deeply problematic. That is a fact,” he said.

However, this regulation may slow job growth and in turn, widen that gap, he said.

“We all want people to make more money,” said Basu. “The disagreement here is always about the means, not the ends.”

The regulation, which includes exemptions for certain administrative jobs and teachers, will be particularly applicable to people in the service industry in Maryland, from government contracting to restaurants and hotels.

In Maryland, a lot of the affected overtime workers are in government contracting, where hours vary depending on when firms are working on a contract, said Basu.

“The world of government contracting is associated with boom-and-bust cycles,” said Basu, “As a result of this … the number of hours people work can shift markedly.”

Maryland’s unemployment rate is just under 5 percent and the labor market is tighter than usual, said Basu. In this environment, workers have more negotiating power.

“In an environment where workers have significant negotiating power, such as intrusion into the labor markets is not warranted,” said Basu.

The regulation will be locally enforced by the Employment Standards Service within the Maryland Department of Labor, Licensing and Regulation’s Division of Labor and Industry.

“The Division has a strong record of educating employers on all wage and employment laws including overtime and will continue our efforts to reach out to local chambers, trade associations and employers to answer questions concerning the new rule,” said department spokeswoman Summar Goodman.

Across the country, some small-business owners said the new rules were forcing them to make hard choices.

Ben Walker is cutting his marketing budget to come up with the money he’ll need for overtime for the four staffers at his phone call transcription service. Walker, owner of Transcription Outsourcing in Denver, decided not to wait for the regulations; he put his workers on hourly pay last November after asking them what they thought would be a fair wage. The change has resulted in staffers getting higher pay and slightly fewer hours. His payroll costs, which account for half his expenses, have gone up 15 percent.

“I guess I could be angry about it, but it’s the way it goes — and they’re happier,” Walker says. The staffers are team leaders at the company, overseeing freelancers who transcribe phone calls for doctors, lawyers and law enforcement agencies.

Automation is the answer for Deborah Sweeney. She’s investing in customer service software for her online business services company, MyCorporation, because she expects higher overtime costs to limit her ability to hire more staffers. Thirty of the 43 employees at the Calabasas, California-based company will be affected by the new regulations. Software programs will help handle MyCorporation’s growing workload.

In the Pittsburgh area, Chad Brooks expects to switch managers at his eight franchise restaurants to hourly pay, and plans to send them home as soon as their shifts are over. Other staffers at the Qdoba and Burger 21 franchises will have to pitch in to handle their work.

Brooks has warned his managers that the change is coming. They’re not happy because they’ll work fewer hours and take home less pay. And hourly pay in the restaurant business is seen as entry-level compensation, not the salary that managers get as they move up the ladder.

The Associated Press contributed to this story.