Employers Misclassify Job Titles to Avoid Overtime Pay, Study Shows

A new study from the National Bureau of Economic Research suggests that employers misclassify their employees' job titles to avoid paying overtime wages. This loophole in federal labor law allows companies to pay their employees' fixed salaries, even when they exceed their designated working hours. The study reveals examples of employees such as barbers being labeled as "grooming managers" and front desk attendants as "Directors of First Impressions" despite having no managerial responsibilities. The study also references a 2008 lawsuit against Family Dollar Store, in which store managers who were misclassified as managers, and denied overtime pay, were awarded $35 million in addition to unpaid overtime. The study indicates that such wage theft violations related to overtime pay are common and becoming increasingly prevalent.
 

The widespread issue of employers misclassifying their employees' job titles to avoid paying overtime wages is highlighted in a paper by Lauren Cohen, an economist at Harvard Business School, and Umit Gurun and N. Bugra Ozel, finance professors at the University of Texas. The researchers discovered a 485% increase in the use of managerial titles in online job postings for employees earning at or slightly above the Federal Labor Standards Act's minimum salary of $455/week, which exempts workers from overtime pay. The study suggests that this increase is a deliberate attempt by firms to avoid paying for overtime. In workplaces where workers have fewer bargaining rights, "overtime avoidance" is more prevalent. The researchers note that these practices are used to evade paying employees for their work and not for job classifications that do not have overtime rules. The issue has become more visible as bosses misclassify other employees as contractors and as workers' bargaining power increases due to the current labor shortage.
 
The growing concentration of large firms in various industries and their increasing share of overall profits have led to a changing dynamic that must be carefully monitored, according to researchers. While this trend may be beneficial for the economy as a whole, it is important to keep track of the balance of power between firms and employees and the potential transfers that occur as a result. This balance of power is especially precarious in states with less protective worker rights, where the manipulation of managerial titles is significantly higher, particularly in the retail, food, janitorial, and hotel sectors. Misclassifications of employees as "gig workers" have also become a prevalent issue, resulting in lost pay and benefits for workers in these same industries, such as janitors, cleaners, and construction workers. Employees should be aware of their exempt or non-exempt classification under the Fair Labor Standards Act, and whether they are being denied overtime pay or having their hours reduced for "non-work activities," as employers may use intentionally confusing explanations to avoid paying fair wages.