Publication Date

11-2016

Abstract

[Excerpt] The federal Fair Labor Standards Act of 1938 (FLSA) requires employers to provide certain workers with overtime pay when they work more than 40 hours in a week. That overtime pay must be at least 150 percent of the worker’s usual hourly wage. The Department of Labor has issued a rule—set to take effect on December 1, 2016— that substantially raises the salary thresholds below which salaried workers are automatically eligible for overtime pay. By the Congressional Budget Office’s estimate, the new rule extends the FLSA’s overtime requirements to an additional 3.9 million workers (about 3 percent of all workers in the United States). Of those additional workers, about 900,000 regularly or occasionally work overtime and will therefore earn more (or work less) because of the changes.

The changes’ potential economic impact has raised concerns among policymakers. In this report, CBO analyzes how canceling the changes before they come into force would affect employers, employees, and family income in the United States through 2022. CBO finds that canceling the changes would reduce employers’ payroll and compliance costs and increase profits. The cancellation would also decrease employees’ pay, but it would increase real family income—that is, income adjusted to remove the effects of inflation—because an increase in firms’ profits and a decrease in prices would more than offset the reduction in some workers’ earnings.

The estimated effects of canceling the scheduled changes to overtime regulations are close to, but not equivalent to, the effects of the changes themselves with the signs reversed. Employers have already incurred some compliance costs, including some of the costs of familiarizing themselves with and adjusting to the scheduled changes, and would not be able to recover those costs if the changes were canceled.

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Suggested Citation
Congressional Budget Office. (2016). The economic effects of canceling scheduled changes to overtime regulations. Washington, D.C.: Author.

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