DOL's New Overtime Proposal A Great Example of Arbitrary Rule-Making Under the Guise of Science

I have only skimmed the new DOL overtime rules, but this bit really hit a nerve:

The Department has long recognized the salary level test as “the best single test” of exempt status. If left at the same amount over time, however, the effectiveness of the salary level test as a means of determining exempt status diminishes as the wages of employees entitled to overtime increase and the real value of the salary threshold falls. In order to maintain the effectiveness of the salary level test, the Department proposes to set the standard salary level equal to the 40th percentile of earnings for full-time salaried workers ($921 per week, or $47,892 annually for a full-year worker, in 2013).

This is exactly the kind of thing that will look scientific to you average journalism major.  See, $921 is not arbitrary, it is set at the 40th percentile of salary earnings.

WTF?  Where did the 40th percentile come from?  Out of someone's butt, that is where.  The Administration started with a number they wanted, between $47K and $50K and then obviously went looking for some round-number metric that landed in this zone to justify their number as somehow analytically based.

Think about it.  The 40% number is meaningless.  In fact it is worse than meaningless, it is astoundingly arrogant.  Basically they are saying arbitrarily that 40% of people earning a salary should not be earning a salary.  What do these people do?  What are their alternatives?  What are the other circumstances of the job that might affect them?  What is the value of their benefits?  None of this stuff is considered.  Some arrogant jerk just drew a line and said, below this line all those folks are paid wrong.


  1. Mole1:

    Wait, what? If the rule remains as described, then very quickly there will be only one salaried person in the nation.

  2. Bistro:

    What if you contract with a subcontractor, agree to pay him/her a given salary and leave it at that?
    I'm also curious about hiring a person to perform specific duties and whether that is lawful.

  3. slocum:

    That would work in some cases. An independent lawn-service guy could work as many hours as he liked without it being a problem for him or his customers. But if you're thinking of turning an employee into a contractor, that may not work at all. There are employee tests -- if the 'subcontractor' works only for you, on your premises, under your direction, and on your schedule, using your equipment, the IRS will declare him an employee.

  4. slocum:

    No. This new rule doesn't convert low-paid salary works to hourly workers, it merely requires they be paid overtime. But you're right that employers may choose convert some of these folks back to hourly, which would push the 40th percentile upward.

  5. Nehemiah:

    slocum, of course this converts salary workers to hourly. If they work more than 40 hours (requires time accounting) they are then paid at an overtime rate of what? Salary is converted to hourly equivalent and then multiplied by an overtime multiplier.

  6. Nehemiah:

    Academics have no concept of the practical impacts of their theories and could be forgiven their naivete when things fall apart. However, there is a hyper-progressive segment that would like nothing better than to overload the system so that more draconian solutions can be implemented. Many people say our current President is incompetent, however, I tell them that presumes his objectives align with theirs. A President that wanted to cripple and lay low this colonizing, bigoted, white privilege dominated aristocracy would be doing what else?

  7. mx:

    Ok, but the threshold used to be greater than the 50th percentile of median weekly full-time earnings as recently as 1980 (see chart in The threshold has never kept up with inflation.

  8. MB:

    Common misconception, but you're confusing the basis of pay (salary vs hourly) and overtime eligibility (exempt vs non-exempt). It is true that overtime pay, if eligible, is calculated on an hourly equivalent rate - but anything 40 hours a week, or for a fluctuating week.

    They're still overtime eligible for anything > 40 hours/week, but the hourly equivalent changes based on how they agreed to be compensated to begin with.

    Remember folks, salaried != exempt (and never did).

  9. marque2:

    The trick is to hire that subcontractor under another company. Form an LLC and get hired through the LLC. The IRS really wants to make sure that you are paying taxes, and prefers taxes to come out of weekly paychecks rather than quarterly, because they believe every who works on their own is cheating. That is why they came up with the rule - in most cases, even using company equipment you can get away with straight 1099 for about 12 months, before it becomes a problem.

  10. marque2:

    If an employer chooses to pay a salaried worker 40 hours when they work less then 40 hours in a week, that is also at the option of the employer. I have worked in such arrangements before as an hourly (worked 6 hours a day, got paid for 8). Also if you are hourly but the boss decided to give you paid vacation, isn't he paying you more than your hourly rate for working less than 40 hours in the week. Many hourly employees also get some time for doctor's appointments and such.

    By making OT mandatory for formerly salaried workers, you are turning them into hourly. There is no way to cover that up. Coming up with some arbitrary statement that under salary you would still get full salary for working less than 40 is false - for the reasons stated above, and otherwise if you test the less than 40 principal too much and you will get fired.

  11. MB:

    Lets use an example... say you hire me at a $500/week salary and our agreement is that covers 50 hours/week. Lets say we had this agreement prior, and I otherwise meet the exempt duties test. Now the new rules take effect, and I am now non-exempt.

    In week 1, I clock 45 hours. Under FLSA (note that there could be local laws that are more stringent), you owe me at least $10 * 40 + $15 * 5 = $475. Our contract specified $500, however, so you'd have to pay me that amount instead.

    In week 2, I clock 55 hours. Now, under FLSA you owe me at least $10 * 40 + $15 * 15 = $625.

    In week 3, you wise up and get me to agree to a new contract for fluctuating hours instead of 50/week. I then work 60 hours that week. FLSA says you owe me at least $8.33 * 40 + $12.50 * 20 = $583.20.

    In week 4, I work 45 hours. FLSA says you owe me at least $11.11 * 40 + $16.67 * 5 = $527.50.

    In week 5, I (smarting form week 3's lower than expected paycheck) get you (smarting about week 4's higher than expected paycheck) try to get back to our old agreement and come up with $10/hr. I am now an "hourly" employee. I then work 45 hours (same as week 1). FLSA says you owe me the same $475, but this time I have no salary agreement so I only get the $475.

    In week 6, you finally bust out a calculator and figure out that I should really be getting $9.10/hour. I then work 50 hours, getting the same $500 as before.
    In week 7, I realize that if I work less than 50 hours I make less than I did before. I quit. Your head hurts from all this math, so you're ok with that. You decide to hire some offshore firm instead, and pay them $100.

  12. marque2:

    Too complicated - in California, I have actually been "living the dream" - With the special note, California forces OT pay at both greater than 8 hours a day and greater than 40 hours a week. A few years back it was determined that companies like Electronic Arts were abusing their programmers (They were, but the programmers were free to leave - they stayed because EA was classy - making video games, especially with young people is considered the prestige position in computer programming) so California came up with a plan that made most programmers salaried rather than exempt. There is a historical list of numbers, but this year it is $47 and some odd cents.

    If I apply for a job, the company will offer me something like $90,000 a year, but they will really calculate this as an hourly rate of $43.27 per hour. They will throw me on a clock, and tell me I am not allowed to work one iota of OT unless given express written permission from management (never happens - they hire contracts to take up the OT slack). Worse if I have to take 3 hours off for a doctor's appointment one day, I can't make it up the next three days, because that would incur OT costs, so I have to make it up that day. If I work less than 40 in a week, I won't be allowed to make it up following weeks either. So I will tend not to see kids recitals, or even go to the doctor, unless it is an severe issue.

    It isn't fun. I appreciate all your math, and how you can mix straight and OT and still get the same number, but no-one wants to deal with that - just doesn't happen. And I don't know if I would go for it, because the employer at any time will tell me, you are no longer doing 50 per week, you are only doing 40, and then I get screwed, because my 40 hour week salary was lowered a bit, to account for the time and a half.

  13. mlhouse:

    I think that modern overtime laws are a significant issue that holds down the income of ordinary citizens. The concept of an "eight hour day" and 40 hour work week are just arbitrary numbers drummed up by the unions.

    Most working people in this country would benefit by working more hours, not less. Many businesses would benefit by having their shifts be longer than 8 hours/day because time is wasted in shift change, set up, etc.

    But most employers won't pay overtime because that has a negative marginal revenue. If a willing employee worked 50 hours per week instead of 40 that would be a 25% increase in their income. But the liberals only can think of 1930 type of "fixes" that cost jobs and hinders career growth.