According to a study by researchers from the University of Texas at Dallas and Harvard Business School, American companies are avoiding paying approximately $4 billion annually in overtime wages by exploiting a federal labor law. The companies achieve this by artificially increasing job titles so that workers can be classified as salaried managers instead of hourly employees, who are eligible for overtime pay. The Fair Labor Standards Act, the law that governs overtime pay, has been in existence for over 80 years.
According to the law, salaried employees are exempt from overtime pay. There are criteria for workers to be exempt from overtime rules, including a minimum salary requirement. In 2020, the minimum weekly salary increased to $684. However, between 2004 and 2019, the minimum weekly salary was $455, which is equivalent to an annual salary of $23,660. Researchers conducted a study by analyzing millions of job postings from 2010 to 2018 when the salary floor was still $455 a week. They found a significant increase in jobs with managerial-sounding titles near the legal threshold of $455 a week. The authors of the study stated that this phenomenon had never been documented before.
According to Umit Gurun, a professor of finance and accounting at the University of Texas at Dallas, the findings suggest that corporations are engaging in strategic behavior. The researchers found a 485% increase in the usage of managerial titles for salaried employees just above the $455 weekly salary threshold. They also noted that many of these managerial titles, such as "Directors of First Impression," appear questionable and are essentially equivalent to non-managerial positions (e.g., front desk assistant). The researchers claim that this is widespread evidence of companies taking advantage of federal law to avoid paying overtime to workers.
The researchers estimate that companies avoid paying approximately 13.5% in overtime expenses for each salaried hire, which adds up to roughly $4 billion per year. Co-author N. Bugra Ozel of the University of Texas at Dallas stated that there is no other explanation for the sudden increase in the usage of managerial titles just above the $455 weekly salary threshold. The study's third author, Lauren Cohen of Harvard Business School, concurred with this observation. The researchers did not find a similar spike in the usage of managerial titles for salaried employees at any other pay level, including in the five states that have augmented the Fair Labor Standards Act (FLSA) - Alaska, Connecticut, California, New York, and Maine. The FLSA includes duty requirements for salaried employees, but the researchers claim that it is difficult to verify from the outside. Ozel stated that this puts employees in a vulnerable position, as they may either be unaware of the exploitation or feel unable to complain about it. The researchers cited the example of Family Dollar, which was ordered to pay 1,424 employees $35 million in unpaid overtime from a class-action lawsuit filed in 2008. The court ruled that workers who performed manual labor tasks, such as stocking shelves, running cash registers, unloading trucks, and cleaning parking lots, were given managerial titles that did not accurately reflect their daily routines. The researchers noted that such lawsuits are not uncommon and that their study results were strongest in low-wage industries, where violations have historically been more prevalent, but were not limited to those industries. According to Ozel, this is happening across the spectrum.
