The Fair Labor Standards Act

Worker Misclassification and the Hours and Earnings Effects of Expanded Coverage

by Susann Rohwedder, Jeffrey B. Wenger

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Using data from the RAND American Life Panel we quantify the frequency that employers violate the U.S. Fair Labor Standards Act's overtime rules. Among employees paid by the hour who work over 40 hours in a week, 19.0 percent were paid less than the "time-and-a half" standard for overtime. Among salaried workers, those purportedly earning above a specified threshold and having professional-level duties that together exempt them from overtime compensation rules, 11.5 percent did not actually meet the exemption criteria. Using data from the Census Bureau's 2013 Current Population Survey; we estimate the effects of increasing the salary threshold for exemption. At the population mean for hours worked, we find no statistically significant effects on hours or earnings. However, workers above the 72nd percentile of the hours distribution would lose between 5 and 10 overtime hours per week.

This paper series made possible by the RAND Center for the Study of Aging and the RAND Population Research Center.

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