Are you a receptionist, or are you a director of first impressions? Although the job duties might be identical, that second title could cost you, University of Texas at Dallas and Harvard University researchers described in a new report.
According to the study, employees with inflated, managerial-sounding titles might be missing out on overtime pay — a practice that increases sharply right around the federal pay threshold that allows companies to avoid paying for overtime.
The research, published online by the National Bureau of Economic Research in January, was compiled by Naveen Jindal School of Management faculty members Dr. Umit Gurun, the Stan Liebowitz Professor of accounting and of finance and managerial economics, and Dr. Bugra Ozel, associate professor of accounting; and Dr. Lauren Cohen, professor of finance at Harvard Business School.
It’s all about the bottom line, Ozel said. Firms save $4 billion in overtime costs per year by inflating titles. For workers, however, the loss of overtime results in 13.5% less pay than they might earn as a nonsalaried employee.
And unfortunately, Ozel said, the fines companies pay when they are caught by federal regulators amount to far less than the savings they realize by misclassifying workers who should be paid overtime.
“That’s exactly the problem,” he said. “Companies do it because it’s beneficial for them. They do the calculation and realize that even if they get caught, it will still probably have been worth doing.”
Because the workers affected by these fake titles tend to make low wages, it’s hard for them to fight for their lost pay.
“It’s difficult for the employees — they’re probably losing $2,000 to $3,000 a year because of this. Is it worth hiring a lawyer and fighting the company for it? There has to be a mass of enough employees who are all suffering from this thing,” Ozel said.
Generally, nonsalaried workers are required to be paid one-and-a-half times their hourly wage for any time worked over 40 hours in a week. But a federal threshold for avoiding overtime pay for managers — first set in 1938 — has only rarely been increased, Ozel said.
The researchers found a systematic, robust and sharp increase in firms’ use of managerial titles around the federally set salary cap, which was $455 per week at the time the paper’s data set was collected.
Ozel and Gurun think the regulation is outdated.
“The regulation has changed very little, but the economy and conditions have changed a lot, and sometimes regulations do not keep up with the changing conditions. This is an example of that,” Ozel said.
Many of the “managerial” titles they identified are obviously questionable, such as “grooming manager” and “assistant bingo manager,” but the practice of inflating job names is incredibly common, Gurun said.
“In all sorts of industries, this one thing happens to be a trick on the laborers that corporations seem to be playing,” he said.
“It’s difficult for the employees — they’re probably losing $2,000 to $3,000 a year because of this.”
Dr. Bugra Ozel, associate professor of accounting in the Naveen Jindal School of Management
Based on numbers from the Bureau of Labor Statistics, Gurun said, only one out of 50 people should be classified as a manager.
“But around the salary threshold, you see this go up to three or four out of 50 people,” he said. “So you have to think, ‘Is there anything else going on here?’”
The proof appears to lie in the exceptions: The researchers observed no similar jumps in managerial titles around any other monetary threshold besides the one that regulates overtime pay.
In addition, the five states that have the tightest regulations around overtime pay showed no such spikes in managerial titles around the federal pay threshold.
The best solution is to change the federal regulation and simply pay people for time worked, regardless of title, Gurun said.
“We can easily see what time you clocked in and how much you performed. So it doesn’t matter what the title is. It doesn’t matter if you have a fictitious managerial title,” he said. “We should pay people for what they do, instead of who they are.”