The Corner

Federal Judge’s Ruling against Obama’s Overtime Rule Is Good News for Workers

Thanksgiving came early this week for HR managers. Yesterday a district court judge issued an injunction against the Obama administration’s overtime rule. Consequently these regulations will probably never take effect. Despite the Obama administration’s protestations, this is good news for both companies and working families.

Under federal law hourly employees get time-and-a-half overtime rates if they work more than 40 hours a week. There are a few exceptions for jobs like lawyers, but generally speaking almost all hourly workers qualify for overtime. Some salaried workers do too. 

Federal law has two tests for whether overtime covers salaried workers: 1) the salary test: Do they make more than a basic level, currently about $24,000 a year; and 2) the duties test: Do they have sufficiently advanced job duties? If the answer to either question is “no” then salaried employees are eligible for overtime. 

The Obama administration proposed raising the salary test to about $47,500. Any salaried worker making less than that would automatically qualify for overtime. This would effectively convert them into hourly workers, requiring their employers to log their hours (whether or not they actually work overtime). 

A coalition of states filed suit against these new regulations. They argued that such a high salary threshold effectively rendered the duties test superfluous: Many workers would qualify for overtime no matter what their job description. But Congress required the Labor Department to look at both salary levels and job duties. Hence, they argued, the Obama administration overstepped its authority. The district court judge (a recent Obama appointee) agreed. He ordered the Obama administration not to implement the rule until the case can go to trial.

This effectively kills the regulation. Now it will not take effect before Trump takes office. His Labor Department will probably either settle the case or roll the regulations back. HR managers across the country no longer have to worry about tracking roughly 4 million salaried workers’ every minute.

The Obama administration and its supporters claim this will hurt working families. Their argument seems intuitive, but it is wrong. This regulation would have lowered family incomes.

Expanding overtime wasn’t going to affect many workers’ paychecks. Yes, employers would have paid the extra overtime. But economic studies show they would have also reduced base earnings by an offsetting amount. Workers’ total weekly pay and hours would have remained roughly the same.

Moreover, monitoring many salaried workers’ time is difficult. Employers want to pay them to do a job, not figure how much time they worked outside the office. Businesses would have to spend a lot to track salaried time had these regulations taken effect. Those costs would have gotten passed on to American families through higher prices. On net the Congressional Budget Office estimates the overtime regulations would have reduced family incomes by roughly a billion dollars a year. Good intentions don’t overrule the law of unintended consequences. 

Counterintuitively, regulations intended to help workers get ahead would have done the opposite. Thanks to an Obama-appointed judge they won’t. For workers and their employers, that should be cause for Thanksgiving.

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