Many employers mislabelling workers as managers to avoid paying overtime

New evidence shows that many employers are mislabelling rank-and-file workers as managers to avoid paying them overtime

For four years beginning in 2014, Tiffany Palliser worked at Panera Bread in South Florida, making salads and operating the register for shifts that began at 5 am. Palliser estimates that she worked at least 50 hours a week on average. But she says she did not receive overtime pay.

The reason?

Panera officially considered her a manager and paid her an annual salary rather than on an hourly basis. Palliser said she was often told that “this is what you signed up for” by becoming an assistant manager.

Federal law requires employers to pay time-and-a-half overtime to hourly workers after 40 hours, and to most salaried workers whose salary is below a certain amount, currently about $35,500 a year. Companies need not pay overtime to salaried employees who make above that amount if they are bona fide managers.

Many employers say managers who earn relatively modest salaries have genuine responsibility and opportunities to advance. The National Retail Federation has written that such management positions are “key steps on the ladder of professional success, especially for many individuals who do not have college degrees”.

But according to a recent paper, many companies provide salaries just above the federal cut-off to frontline workers and mislabel them as managers to deny them overtime.

Because the legal definition of a manager is vague and little known — the employee’s “primary” job must be management, and the employee must have real authority — the mislabelled managers find it hard to push back, even if they mostly do grunt work.

The paper found that from 2010 to 2018, manager titles in a large database of job postings were nearly 5x as common among workers who were at the federal salary cut-off for mandatory overtime or just above it as they were among workers just below the cut-off.

The practice of mislabelling workers as managers to deny them overtime, which often relies on dubious-sounding titles like ‘lead reservationist’ and ‘food cart manager’, cost the workers about $4 billion per year, or more than $3,000 per mislabelled employee.

Federal data appear to underscore the trend, showing that the number of managers in the labour force increased more than 25 per cent from 2010 to 2019, while the overall number of workers grew roughly half that percentage.

From 2019 to 2021, the workforce shrank by millions while the number of managers did not budge. Lawyers representing workers said they suspected that businesses mislabelled employees as managers even more often during the pandemic to save on overtime while they were short-handed.

Experts say the denial of overtime pay is part of a broader strategy to drive down labour costs in recent decades by staffing stores with as few workers as possible. If a worker calls in sick, or more customers turn up than expected, the misclassified manager is often asked to perform the duties of a rank-and-file worker without additional cost to the employer.

Workers and their lawyers said employers exploited their desire to move up the ranks in order to hold down labour costs.

Companies that are financially strapped are more likely to misclassify regular workers as managers, and this tactic is especially common in low-wage industries like retail, dining, and janitorial services.

The practice appears to have become more difficult to root out in recent years, as more employers have required workers to sign contracts with mandatory arbitration clauses that preclude lawsuits.

“That’s why companies fought it so hard under Obama,” said Aaron, a partner at Winebrake & Santillo, alluding to a 2016 Labor Department rule raising the overtime limit to about $47,500 from about $23,500.

A federal judge suspended the rule, arguing that the Obama administration lacked the authority to raise the salary limit by such a large amount.

The Trump administration later adopted the current cut-off of about $35,500, and the Biden administration has indicated that it will propose raising the cut-off substantially this year. Business groups say such a change will not help many workers because employers are likely to lower base wages to offset overtime pay.

WHEN COMPANIES ARE ESCAPE ARTISTS
 

Employers exploited workers’ desire to move up the ranks in order to hold down labour costs

The practice of mislabelling workers as managers to deny them overtime cost the workers about $4 billion per year, or more than $3,000 per mislabelled employee

Under federal law, employers are required to pay time-and-a-half overtime to salaried workers after 40 hours if they make about $35,500 or less

When companies are financially strapped or in low-wage industries like retail and fast food, they are more likely to misclassify regular workers as managers