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Wage Theft – Should Salaried Workers Get Paid Overtime?

“Wage theft” is just the new fancy term for an issue that has long been apparent, the overworked and underpaid salaried workforce here in the U.S. More specifically, it refers to all of the lost wages a salaried worker incurs due to working a TON of overtime, yet being paid based on a 40 hour work week. The media has chosen to focus on the need for minimum wage increases but very little attention has been paid to the effective hourly rate of a salary worker. Let’s say for example that a worker earns $40,000 a year, but they are not eligible for overtime pay, that comes out to $20 an hour. How you may ask? Well let’s assume that the average employee works 40 hours per week, and 50 weeks per year (2 weeks of vacation), simply multiple the two and you have 2,000 hours worked. Then you divide the $40,000 salary by the 2,000 hours worked, and voila, you have $20 per hour. Not too shabby when you consider the average minimum wage worker earns well below $10 an hour. BUT…let’s consider for a moment that the salary worker actually puts in about 60 hours each week….that would change the effective hourly rate to $13.33. Maybe the worker puts in even more hours than that, or they are unable to take their 2 weeks of “paid” vacation time. It wouldn’t be difficult for a salary employee to wind up with less than a minimum wage rate per hour.

I am a salaried employee myself, and while I make a good salary for my position I also put in a ton of hours each week. In fact, last week I worked all 7 days, and spent 12 to 14 hours each day at work. Let’s say I put in roughly 80 hours last week. Whatever my hourly rate would work out to on a normal 40 hour week is essentially cut in half considering I worked 40 total hours above and beyond the so called normal work week. I’m in corporate finance, so I understand this comes with the territory, but it still doesn’t make it any easier to swallow. Many hourly workers forget the struggle that the salaried employee has to deal with at times. Too often we are looked at as the privileged white collar worker, but everything comes with a price. While I’m certain that my effective hourly rate is still well above minimum wage, it is somewhat disheartening to know that there are several non-degreed professions that will make more per hour despite me having an MBA in Finance, simply because I work so many more hours than all of them.

I actually have a couple of engineer friends who are relatively high up in their respective careers, yet they still earn overtime despite being paid a flat salary. Any hours worked above and beyond 40 each week is paid out at time and half in their bi-weekly checks. They also have an option to accrue additional vacation time instead of cash. Not bad, right? They make pretty decent salaries too. In fact, my one friend is leery of becoming a manager because he will then become an exempt employee….which means exempt from overtime pay. What could equate to a $10,000 annual raise would probably take away $15,000 in overtime income he earns now, and his total hours worked will probably go up even more.

There have been a lot of recent talks about mandating overtime pay for salaried workers. Partly because many companies are taking positions that have historically required 60+ hours each week and turning them into salaried positions. This way they can mask the fact that many of their workers are earning less than an effective minimum wage rate. In fact, there have been several class action lawsuits to date that have tackled this very issue. But this issue extends above and beyond that. The American workers health and well-being has long suffered due to work weeks that becoming seemingly longer and more stressful each year. There are several benefits to providing salary employees with overtime, some benefit the employer, some the employee, and others the economy!

I’ve always said that a happy and fulfilled employee will bring prosperity to the employer. This is the benefit a company receives when it treats their employees right. They will experience higher worker productivity, and lower turnover rates. Too often companies don’t consider the cost of employee turnover each year. There is a cost to hiring and training a worker, and then a cost that goes along with terminating that employee, it’s best to just get it right the first time around. Lastly, hours worked plays into poor health, which in turn can cause expensive medical plans that become unsustainable for a company.

For the employee themselves, being paid fairly is usually the first criteria for choosing where to work.  If you are able to accrue extra vacation time, or stash a few extra dollars away in your retirement account, then working additional hours at least provides you with a silver lining. Meaning, it provides you a way of working less hours down the road.

Make no mistake, the economy would benefit to some reform in this area. TOO OFTEN employers are skating by on having works put in crazy amounts of overtime. If they were forced to pay their salaried employees time-and-a-half they would have to rethink their entire workforce. Either the amount of “unnecessary projects” are prioritized a bit better, or they hire MORE people rather than forcing their current employees to just work more. On one hand they pay overtime and pump more money into the economy through overtime wages, or the other they hire more people and continue a steady decline in the unemployment rate we have been enjoying as of late.  To me this is a no-brainer, and it’s not just because I’m a corporate finance guy who has the effective hourly rate of a fry cook.

What do you think?

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