May 9, 2016

Congress and New Labor Laws: What Goes around Comes Around

Veronique de Rugy

Senior Research Fellow
Summary

For months, employers around the country have been sounding the alarm about the Department of Labor’s new regulation to expand overtime pay.

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For months, employers around the country have been sounding the alarm about the Department of Labor’s new regulation to expand overtime pay. Sadly, lawmakers were mostly just standing by and gawking at the approaching train wreck. Some even cheered it along. But now that they realize the new rules will apply to them, too, many want to pump the brakes.

Five million salaried workers will be directly impacted by the Obama administration’s decision to expand overtime pay mandates. Under this new rule, salaried employees making between $23,660 and $50,440 per year will be entitled to time-and-a-half pay if they work more than 40 hours per week. Sounds great for employees, right? That’s only until they realize their base salary may fall, and their hours may be reduced. They will also have to start punching a time clock.

This rule—much like a minimum wage hike—would jack up the cost of employing people. No matter how well-meaning such rules might be, the end result will likely be less work and less base pay. A new study by George Mason University’s Donald Boudreaux and SUNY-Purchase College’s Liya Palagashvili—published by my employer the Mercatus Center—predicts that such rules will lead to fewer hours worked, lower salaries, increased portions of income subject to tax, a less flexible work environment (goodbye telecommuting!), or some combination of these.

And guess who has a large workforce that would fall prey to these rules? Congress. The Congressional Accountability Act of 1995 requires that Congress comply with the overtime pay standards established under the Fair Labor Standards Act (Congressional Accountability  Act, PL. No. 104-1, Sec. 203 citing to 29 U.S.C. 206 (a)(1) and (d), 207, 212(c)). Many who work for Congress—such as staff assistants, press assistants, and legislative aids—more often than not—work long hours and make less than $50,000 annually.

As Rep. Alcee Hasting (D-Fla.) a supporter of the rule, told Bloomberg recently, “We don’t have a set-hour kind of situation here; some kids work 12, 14, 16 hours a day, weekends.” But he adds, “I don’t see how we could pay overtime” for the “17 or 18 people that each of us is allowed to have—that’s problematic for me.”

Irony of all ironies, the feeling is shared by many Democrats who overwhelmingly support the proposed expansion of overtime pay—at least, perhaps, until they realize they may also have to live by it. As the Bloomberg Daily Labor Report notes, it leaves these vocal supporters of the rule in an awkward position of having to acknowledge that “I can’t afford to give raises to the kids” or that “it’s impractical to be paying overtime.”

The newspaper reports that “‘Democratic chiefs of staff are freaking out’ about finding room in their budget for overtime wages” and fear that an overtime mandate will result in having to send staffers home at 5 p.m. 

No kidding. Too expensive and leading to less work for employees is exactly what economists and employers have said about the consequences of the rule from the beginning. That’s also why Republicans opposed the rule based on the increased burden it would place on employers—and are considering legislation to send the DOL back to the drawing board.

Unfortunately, the DOL, which ignored the plea of employers and economists, is rushing to finalize the rule. If it succeeds, employers and their employees around the country will start feeling the pain. Congress, however, may try a different route.

Just like the Los Angeles unions who—after fighting for years to raise the minimum wage to $15 per hour and won—are now trying to be exempt from having to pay the higher wage themselves, would anyone be surprised if Congress tried to find a way around the new overtime rule? If you’ll recall, Congress tried to exempt itself from the Affordable Care Act.

As former Congressman Jim Moran (D-Va.) rightly noted, “The problem is that this is the body that makes the laws that others have to comply with, so it’s a little awkward when you exempt yourself from the very laws that you’re expecting others in the public and private sector to comply with.” Yes, awkward.

Congress could also seek to increase its own budget to cover additional overtime pay. In that scenario, both workers and taxpayers would suffer. With a projected $660 billion deficit this year alone, and over $19 trillion in debt, simply spending more isn’t a great solution, either. However well-intentioned the regulations to make employers pay more for labor may be, their consequences will have the opposite effects on those they aim to help. A better solution is for the DOL to drop its rules and move on.