Every morning about this time, she gets me out of my bed a-crying. Get a job! After breakfast every day, she throws the want ads right my way, and never fails to say. Get a job! So goes the first verse to the famous 1957 doo-wop song by the Silhouettes. While Get a Job was amazingly successful, reaching the number one spot on both the Billboard pop and R&B charts, those trying to get a job today are likely going to become less successful due to another in a series of rules being announced by the Obama Administration that will make it more expensive to keep marginal employees on payroll.
In May, the Department of Labor published the final rule updating overtime regulations. These rules will automatically extend overtime pay protections to over 4 million workers within the first year of implementation, according to a Department of Labor press release.
Proponents of the rule change predict these measures will lead to increases in pay for the affected workers, helping restore what they call middle class jobs. The Department of Labor suggests that higher pay will encourage currently discouraged workers that are presently not working to reenter the labor force.
Industry groups, meanwhile, are predicting several adverse impacts including job losses, reduced hours or higher prices to consumers.
To effectively understand where this rule change will net out, it is important to understand what the actual rule change will do. First, the main provision of the new rule will be to increase the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt from overtime requirement. Specifically, the change will set the standard salary level below which overtime must be paid to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently about $47,476 annually for a full-year worker). It also establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the 40th percentile.
That's the Department of Labor language, and this translates to the following in layman's terms: Full-time salaried employees can earn overtime if they make up to $47,476 a year, as opposed to the current threshold of $23,660 a year. That's it in a nutshell.
The rule change essentially benefits a very narrow group of employees that are full time and who fall into the salary range of $23,661 to $47,476, which will now receive time and a half for all the hours they work over 40 hours a week. The Department of Labor estimates that this will encompass about 4 million workers out of a labor force of just under 159 million. Secretary of Labor Perez has publically stated that the overtime pay regulation might add as much as $1.3 billion to approximately 4 million workers' pay in the first year. That averages out to a cost increase of just $300 a year per worker. That's the best case scenario if everything works out well.
According to USDA, the agricultural sector of the U.S. economy comprises 4.8% of U.S. GDP, 13% of U.S. consumer budgets and 9.3% of U.S. employment. Food manufacturing accounts for 14% of all U.S. manufacturing employees, or around 1% of U.S. nonfarm employment. So, it is fair to assume that less than 400,000 employees in food related jobs would be in play and much less than 40,000 food manufacturing jobs.
The average amount of overtime hours worked in the manufacturing sector is 3.2 hours per week, according to the Bureau of Labor Statistics (BLS). Additionally, BLS reports in its Occupational Employment Statistics report that the average salary for workers in the Food Manufacturing industry is between $13.95 to $17.12 per hour, which amounts to an annual mean salary of $35,600.
Assuming that the 400,000 affected employees work the industry average 3.2 hours per week (166.4 per year) and their hourly pay is $17.12 ($25.68 assuming time and a half pay) the burden to the food industry alone though higher wage costs would be $1.7 billion, using conservative assumptions, much larger (30%) than the Obama Administration's estimate of $1.3 billion for the national impact.
Do you still have questions about the overtime rules? Join the Food Institute and OFW Law on June 29, 2016 at 12 pm ET for a comprehensive webinar, "Understanding Your Obligations Under the New DOL Overtime Rules." Speaker Elliot Belilos will cover: an overview of the current overtime regulations, including common pitfalls; how the latest revisions impact your obligations; and key implementation dates and steps you should take toward compliance. Elliot has over 25 years of experience representing companies and trade associations on employment matters. Register here
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The Food Institute
John is the President of John Dunham & Associates. John specializes in the economics of how public policy issues affect products and services. He has conducted hundreds of studies on taxes and regulation. He is a regular commentator on U.S. economic conditions. His research has been published in a number of refereed journals including Economic Inquiry.
Prior to starting his own firm, John was the senior U.S. economist with Philip Morris, producing research and information on key issues facing all of the company’s divisions. Before this, John was a senior economist for the New York City Mayor’s Office, the New York City Comptroller’s Office, and the Port Authority of New York and New Jersey where he conducted the economic impact analysis of the World Trade Center.
John received his M.A. in economics from the New School for Social Research and his MBA from Columbia University. He is a member of the American Economics Association and the National Association of Business Economists.
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