Timely Topic: UT Dallas Study Contributes to New Regulations on Overtime Pay

07.01.2024

When University of Texas at Dallas researchers published their working paper “Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments,” the news media, industry experts and legislators took notice and reevaluated a major labor law’s outdated guidelines.

The study, published online in 2023 by the National Bureau of Economic Research, was co-written by Naveen Jindal School of Management faculty members Dr. Umit Gurun, the Stan Liebowitz Distinguished Professor of accounting and of finance and managerial economics; Dr. Bugra Ozel, associate professor of accounting; and Dr. Lauren Cohen, professor of business administration at Harvard Business School.

“My co-authors and I are a bit like regulatory detectives, each with our own specialties,” Ozel said. “We realized the Fair Labor Standards Act [FLSA] was a fossil from the 1930s, still lumbering around mostly unchanged and disconnected from today’s working environment.”

At the time their research was conducted, the FLSA’s threshold dictating if a nonexempt worker is eligible for overtime pay was $455 per week – a yearly salary of $23,660. Around that threshold is where they noticed an interesting trend.

“Suddenly, everyone and their dog was a ‘manager,’” Gurun said. “It was like companies were playing dress-up with job titles to avoid paying overtime. The deeper we went, the more we realized this wasn’t just a few companies being cheeky. It was a full-blown phenomenon.”

They came across questionable titles like “Carpet Shampoo Manager” and “Assistant Bingo Manager,” even “Directors of First Impressions” for receptionists.

They estimated an individual firm could avoid paying more than $151 million in overtime payments each year by inflating titles. For an employee paid exactly at the threshold, that’s a loss equal to $3,194 per year, or 13.5% of their salary. For businesses cashing in on the loophole, that’s a combined $4 billion a year gained by avoiding overtime payments.

According to the researchers, in all of 2019, the Department of Labor issued overtime violations totaling $226 million in fines. The practice is most notable in industries where competition for labor is low, such as hotels, food and cleaning services, and retail.

Soon after the researchers published their findings, it was clear regulators and politicians were taking note.

“We were surprised by the rapid media attention it received, appearing in national and even international outlets,” Ozel said. “It even made its way to TikTok and Reddit, revealing the public’s significant interest in the issue. Things escalated when politicians’ offices started contacting us for more information.”

The researchers discovered that their paper had been cited in discussions and comment letters for new regulations, including in a letter from 10 members of Congress to the Department of Labor’s Acting Secretary Julie Su.

The Department of Labor’s new regulations, which have the potential to benefit some 4 million U.S. workers, became effective July 1, when the threshold for overtime eligibility increased to the equivalent of an annual salary of $43,888. On Jan. 1, 2025, the threshold will increase to $58,656.

Gurun said the updates are expected to improve what has historically been a profitable tactic.

“Our research does indicate systemic issues with how some businesses interpret current regulations,” he said. “The goal should be to strike a balance, allowing businesses to operate efficiently while ensuring fair worker treatment.”

–Camille Bowens

Note to journalists: Dr. Bugra Ozel is available for news media interviews. Contact Camille Bowens, 972-883-4361, camille.bowens@utdallas.edu.