Business

Here’s The Likely Effect Obama’s Overtime Rule Will Have On America’s Most Booming Sector

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Federal officials have worked to expand overtime to more workers, but their approach has the potential to disproportionately harm millennials.

President Barack Obama has targeted overtime compensation as a key area in need of reform. The Department of Labor (DOL) is prepared to change overtime regulations so more workers can qualify, but critics say the plan goes too far and will hurt businesses. Manhattan Institute Fellow Jared Meyer warns the impact will be especially bad for students and young entrepreneurs.

“Millennials have been called the startup generation, and they have these entrepreneurial dreams,” Meyer said to The Daily Caller News Foundation. “Even a successful, well funded startup can’t afford to pay their employees over $50,000, that’s the reason they pay them in equity. Anyone who has worked for a startup knows you work far more than 40 hours a week.”

Those classified as managers cannot qualify for overtime if they make $23,660 annually. The rule change will increase the overtime exemption threshold to about to $52,000 so more people can qualify. Startups almost always require long hours and low-wages in the hopes the company becomes big and stable. They often offer their workers equity shares so they profit if the company does well.

“It going to harm startup businesses, its going to slow economic growth,” Meyer said. “We’re not going to go into a recession but my point it it’s chipping away at sectors of the economy that we really need to foster growth over the long term.”

The economy is changing in very significant ways and young entrepreneurs have helped to drive it. Millennials wanting to be their own boss or earn some extra cash have helped make personalized digital ventures like Uber popular. Additionally the personal loan service Earnest found in a report last year that millennials are flocking to Silicon Valley to be part of the tech boom.

“If you get government funding to do your post-doc somewhere, the crazy thing is the government funding is actually lower than what the exemption level will be usually,” Meyer said. “Sometimes you have to put in 20 hour days to get your research done, now you can’t do that. Universities aren’t just flush with money to pay these post-docs time and a half.”

University of Michigan Human Resource Manager Laurita Thomas believes the overtime rule is in need of an update, but warns the current approach is problematic. She told congressional lawmakers March 29 the new rule could force the university to cutback on research positions and other critical roles.

“The whole purpose of this law is because some fast-food restaurants have taken advantage of the system,” Meyer said. “They put people as managers and pay them $25,000 a year. So that’s the target but instead of making it a targeted proposal to stop that from happening, they are more than doubling the exemption level.”

Meyer notes the administration should have taken a gradual or targeted approach to fix the problem instead of putting undue stress on everyone. Nevertheless the new overtime rule has still gotten plenty of support. Unions assert the change is a much needed update to federal law and over a hundred congressional Democrats sent a letter to the president in support of the new rule.

The president signed a memo March 2014 compelling the DOL to increase the exemption threshold. The department released its proposed rule change June 30 but provided businesses and lawmakers only sixty days to comment and seemed to ignore critics who suggest exemptions for small businesses and startups.

Republican congressional leadership introduced a bill Mar. 17 aimed at blocking a proposed overtime rule. Republicans also issued a stern letter to federal labor officials Feb. 9 expressing their concerns. The letter was signed by 112 Republicans, while Democratic Representatives Collin Peterson and Brad Ashford also signed.

The DOL did not respond to a request for comment by TheDCNF.

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