Employers Routinely Avoid Paying Overtime

Walk into a restaurant, retail store or hotel, and you might encounter a manager who seems to be doing the same tasks as the people he’s managing. Maybe you’re in one of those jobs.

A lawsuit by employees against a retail store revealed how meaningless the title of manager can be: the store managers were “stocking shelves, running cash registers, unloading trucks and cleaning parking lots, floors and bathrooms.” Hardly the types of responsibilities that go with overseeing one’s coworkers.

The employees were suing for overtime pay under a Depression-era federal law to receive back pay for overtime when they worked more than 40 hours per week.

Employers are exempt from paying overtime under this rule, however, if the employee is a manager earning more than $35,568 per year, rather than an hourly wage. One last requirement to qualify for the overtime exemption is that employers must give the worker executive or administrative duties that include supervising others on the job.

To satisfy the amorphous definition of who qualifies as a manager, new research finds that U.S. employers are much more likely to come up with creative, “fake-sounding” managerial titles – bingo manager, food-cart manager, director of first impressions, carpet-shampoo manager, and lead shower-door installer – for jobs paying just above the overtime pay threshold.

Employers “strategically use job titles to exploit regulatory [pay] thresholds,” which saves more than 13 percent for each manager who qualifies as exempt from the overtime rule, said the researchers, who include a Harvard Business School professor. The practice is “systematic” and saves U.S. employers some $4 billion in payroll costs every year.

The situation for workers used to be worse, however. Millions more became eligible for overtime pay when the pay threshold was increased 50 percent, to $684 per week – or $35,568 per year – in January 2020, from the $455 per week rate in place at the time of this study.

And raising the threshold is in the news again. U.S. Secretary of Labor Marty Walsh is considering increasing the threshold because it is “definitely too low.”

The research study, which was based on nearly half a million job postings online and on employer websites, also looked into the impact state labor laws have on how extensively employers have used the overtime pay exemption to save money.

The strategy of avoiding overtime pay was more common in states with weaker unions and high unemployment and in states that did not have right-to-work laws, which hobble union organizing.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.