News at Smith

Entry-Level Managers in OT Pay Crosshairs

May 19, 2016

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SMITH BRAIN TRUST — Potentially 4.2 million workers are newly eligible for overtime pay when the U.S. Labor Department’s revised rules for the matter take effect Dec. 1, 2016. The White House says the $23,660-to-$47,476 salary threshold rise for overtime pay reinforces the 40-hour workweek as “a pillar of economic security for working families.”

But economist Peter Morici at the University of Maryland’s Robert H. Smith School of Business says the rules now are more complex for employers, which might make them leery of hiring low-level managers. “It’s going to make it difficult to hire young people in professional settings,” he told Fox Business.

“Young lawyers and professors, for example, will be affected, as will employees — at universities, for example — in many administrative positions,” he says. Moreover, the revised rules disrupt the entry-level manager role as “it’s going to turn three jobs into two and the two positions that remain will require very intensive service.”

Morici says the jobs he refers to inherently don’t mesh with the White House-cited 40-hour workweek pillar: “In a lot of these jobs, people are not busy all the time. They have slack periods, and they have periods of intensive work. But we don’t send them home. Instead, they take long lunches or take care of a doctor’s appointment.

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Canam Steel Corp. in Maryland, for example, told the Wall Street Journal the new pay rule will affect as many as 100 lower-level managers — some of whom will get raises to be exempt from overtime pay, while others will be forced to carefully track their hours. But ultimately, the company will cut back on providing for “flexible scheduling and working from home,” and potentially “hold off on hiring new workers.”

As pressure increases on companies to decide whether and how to reclassify workers, “training supervisors and communicating with affected employees also will be important,” says Kathryn M. Bartol, Robert H. Smith Professor of Leadership and Innovation and co-director of Smith’s Center for Leadership, Innovation and Change. She points to guidelines issued May 18, 2016, by the Society of Human Resources Management that include focusing on training nonexempt employees to track and report time, discouraging work after hours and managing overtime.

The last time the U.S. overtime threshold was significantly raised, in 1975, $23,000 covered 61 percent of salaried employees. Now, that figure is just 8 percent. But implications appear significant, for example, in retail. A Maryland CVS store shift supervisor’s recent promotion to assistant store manager came with a $34,000 salary, but also a workweek no longer overtime-protected and averaging upward of 60 hours.

Morici says “a lot of employers have people in the $35,000-to-$50,000 salary range and simply can’t afford overtime pay.”  In a recent op-ed, he writes that changing pay rules falls short in dealing with a bigger, more fundamental problem: “American workers increasingly don’t have the skills to work in the new digital economy.”

About the University of Maryland's Robert H. Smith School of Business

The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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