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That job listing for a "shampoo manager" might actually be a signal that this carpet cleaner won't get paid for overtime.
That's according to a new study from researchers at Harvard Business School and the University of Texas at Dallas. In a paper for the National Bureau of Economic Research, the researchers look into title inflation and misclassification to get around overtime.
Under the Fair Labor Standards Act (FLSA), workers who make over a certain amount weekly and hold managerial titles are not eligible for overtime. During the period that the researchers focus on — 2010 to 2018 — that threshold was $455 a week (it rose to $684 weekly in 2020).
"Our evidence indicates that firms strategically use job titles to exploit regulatory thresholds to avoid paying for overtime work," the researchers write. "We find that such strategic use of job titles is also strongly associated with the usage of fake managerial titles and future DOL compliance actions and thus can be used as a timely indicator of potential FLSA violations."
They found that, during that time, there was a 485% increase in managerial titles for workers just over that overtime threshold. All told, that adds up to over 151 million hours that companies don't have to pay for — costing workers $4 billion in dodged overtime annually. The practice is more prevalent in states where firms hold more power, as evidenced by lower union membership rates, right-to-work laws, and lower minimum wages.
Some positions that had blurry lines between managers and employees: A grooming manager versus a barber, or a director of first impressions versus a front desk clerk.
And, looking at an employee who's paid exactly at the threshold cut-off, losing 3.6 hours of overtime each week means they're losing out on $3,194, according to the researchers — 13.5% of that hypothetical employee's $23,660 annual salary.
Overtime — or lack thereof — is prevalent in issues of wage theft. Nearly two-thirds of wage theft violations that resulted in fines involved overtime issues, according to the study's analysis of Department of Labor data from 2010 to 2021. Of all back wage fines levied by the agency, over 80% were for overtime.
In recent months, the DOL has recovered millions in back wages for workers not properly paid overtime. Even a worker who was once a victim of wage theft stole $94,177 in tips and overtime from his workers, according to the DOL.
Across salary levels, "title inflation" is also one way that employers try and retain their workers, Insider's Alexandra York reported. In essence, firms give workers title bumps without tacking on new duties — or higher pay. That can actually hurt workers' economic growth for years to come, as they take on what seem to be higher titles without commensurate compensation.
Why, then, do firms try and skirt overtime? Because, according to the study, it pays off. In fiscal year 2019, the DOL ordered firms to pay out $226 million in back wages. That's much less than the $4 billion companies are avoiding paying out annually by using fake titles.
The "incredibly high" return on investment "might explain why we see firms across every industry" still using fake titles, the researchers write – even "with full knowledge of potential litigation."
