More and More Employers Are Using an Overtime Loophole to Pay People Less

Congratulations on your new role as manager. But before you celebrate, you may want to ask your boss a few questions—and do some quick math.

Employers are increasingly giving workers phony job promotions and creating lofty-sounding managerial titles to avoid paying overtime wages. That’s according to new research from a trio of economists at Harvard University and the University of Texas-Dallas who reviewed online job postings and compensation data from 2010 through 2019.

The same Depression-era law that established a national minimum wage and a 40-hour work week created overtime pay regulations to discourage companies from overburdening employees and encourage job creation. There’s a bit of a loophole in the Fair Labor Standards Act, however, and in its current form the regulation allows businesses not to pay overtime wages to employees who are salaried managers, making more than $455 per week (or $23,660 per year).

Over the 10-year period, researchers found a 485% surge in the use of misleading managerial titles for salaried positions with earnings only slightly above the $455-a-week threshold. “Our results suggest broad usage of overtime avoidance using job titles across locations and over time, persisting through the present day,” the study concludes.

This use of deceptive job titles ends up saving companies nearly 14% in overtime expenses for each so-called manager, the researchers found.

Some examples of potentially sketchy job-listing language, according to the study:

“We were surprised by the prevalence and magnitude of this,” says Lauren Cohen, a professor of finance and innovation at the Harvard Business School who co-authored the research. He says the 85-year-old law should be updated so that all employees—managers included—are eligible for overtime pay. “People should be paid for what they actually do, not who they are or what they’re called,” he tells TIME.

Lawsuits over alleged overtime pay avoidance are fairly common, occurring across a range of industries. Cohen and his colleagues cite a 2008 class-action lawsuit against Family Dollar Stores, in which 1,424 store managers alleged that they performed managerial duties only occasionally, while working 60 to 90 hours a week performing tasks such as “stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors and bathrooms,” according to court filings. In the end, the court awarded the employees $35.6 million for their unpaid overtime work.

In 2020, Facebook said it would pay $1.65 million to resolve a case in which 63 of its “client solution managers” alleged they were wrongfully classified as exempt from overtime pay. Staples agreed to pay $42 million in 2010 to settle a handful of lawsuits alleging that the retail chain misused the job title “assistant store manager” to avoid paying some employees for overtime work. JPMorgan Chase agreed to pay $16.7 million in 2017 to settle a lawsuit that alleged it misclassified assistant branch managers at some of its retail bank locations and failed to pay them overtime wages.

Cohen and his co-authors say they’re eager to see whether the trend abated during the pandemic. Their next move will be to issue a set of proposals for ways to modernize the Fair Labor Standards Act. Their concern is wide-ranging: “This situation is not in the best interest of pushing innovation and value creation in our economy,” Cohen says.