Overtime Rules are Killing Businesses (and Jobs)

When the overtime laws were created in the 1930s, businesses had an overwhelmingly strong hand over employees. It was simple: those who had the capital made the rules. In addition, the workforce was largely blue collar. Things are very different today. In many industries, good people are hard to find, even in a tough economy. Also, competition is becoming more fierce by the day. For small businesses, in particular, there is a very thin line between survival and failure.

Current overtime laws require that all non-exempt employees be paid time-and-a-half for every hour they work over 40 hours per week (click here for more details). Non-exempt includes almost all hourly employees, most sales people, and any worker that is not one of the few exceptions, such as executive, administrative, professional, or creative exemptions.

According to Joel Greenwald, a labor and employment law attorney, “even where both employees and employers want the employee to work more hours without overtime pay— the perfect example being commissioned salespeople—the employer and employee cannot agree that the employees will not be paid overtime.” So even if a non exempt employee wanted to work more than 40 hours a week without requesting overtime compensation, they can’t.

Think about 2009 and how businesses struggled. Many firms that needed to layoff staff had employees that were more than happy to put in more hours to ensure the survival of their companies, as well as their jobs. However, employers who cannot afford to pay overtime needed to tell those employees to go home at six. It is not much different today.

To make matters worse the government (Fed and State) are conducting more and more overtime audits of small businesses. It might be time to overhaul the overtime rules so that the definition of non-exempt is much narrower and excludes many white-collar occupations. Firms would need to define exemption status on offer letters so that there was no uncertainty. If firms and willing employees were not subject to overtime rules, employers could count on the productivity they need to hire more aggressively and succeed in today’s world.