Companies save billions of dollars by giving employees fake
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Would you rather be a front-desk clerk or "Director of First Impressions"? A barber or a "Grooming Manager"?
How you answer could mean a significant difference in annual earnings. That's because companies routinely inflate workers' titles to avoid paying them in full for overtime work, according to researchers from the University of Texas and Harvard Business School.
It's no secret companies go to great lengths to keep their labor costs down. What the new working paper reveals is that firms save a total of $4 billion in overtime payments a year simply by getting creative with titles. For employees, however, these inflated titles result in 13% less pay than they might otherwise get.
"If you're relying on cheap labor — you're a labor-intensive company and you can get away with it — this becomes a tool that you can use to lower your costs," said Umit Gurun, professor of accounting and finance at the University of Texas at Dallas and one of the report's authors.
Gurun said he and coauthor N. Bugra Ozel hit on the idea for the study, published by the National Bureau for Economic Research, while they were traveling through an airport and overheard two workers talking about a delayed flight.
"One said, 'I don't complain because I get overtime.' The other guy was a manager, so he didn't," Gurun recalled. "But they were doing exactly the same job."
After that discussion, the researchers started noticing dozens of examples in the news. It wasn't hard: Workers have filed lawsuits against some of the largest employers in the U.S., including Bank of America, Family Dollar, JPMorgan Chase, Starbucks and UPS. Companies are sued for wage theft more than almost anything else, with the exception of workplace safety and health violations.
Falling through the cracks
These lawsuits focus on a quirk in U.S. wage laws. Generally, companies are required to pay workers one-and-a-half times their hourly rate anytime they work more than 40 hours in a week. But there's an exemption for salaried managers, who receive the same amount of pay each week, as long as they earn above a certain minimum amount. During the time period analyzed by the authors, that cutoff to qualify for OT was $455 a week — equivalent to an annual salary of $23,660.
For the paper, Gurun and his co-authors analyzed a database of job postings from labor analytics firm Burning Glass Technologies between 2010 and 2018, paying particular attention to which ones listed managerial titles. They found that the incidence of fake-sounding manager titles spiked at the legal threshold of $455 a week — exactly the cutoff at which a company would be allowed to put workers on salary and sidestep OT payment laws.
"There is a systematic, robust and sharp increase in firms' use of managerial titles around the federal regulatory threshold that allows them to avoid paying for overtime," the paper concluded.
Some of these unconventional manager titles, according to the researchers: food cart manager, price scanning coordinator, carpet shampoo manager, lead shower door installer, director of first impressions, guest experience leader and grooming manager.
Notably, this pattern didn't exist in states that set a different salary threshold for OT, nor with managerial titles that were paid hourly, reinforcing the idea that companies are doing this strategically to avoid paying overtime. The paper also found that inflated manager titles were more common in states with weaker labor laws, low union membership and higher unemployment.
Fuzzy titles
Hourly workers are well aware that fancy titles can be used to mask insufficient pay — and so are regulators. As far back as 1940, the Department of Labor warned that companies are likely to game the system if they are allowed to exempt particular titles from their full legal pay.
"Titles can be had cheaply," one official wrote. "[I]t is not hard to call a janitor a 'superintendent' or a 'superintendent of maintenance' if some result desirable to the employer will flow therefrom."
But companies continue strategic title-fudging because, well, it pays. In 2019, a year when the Department of Labor won $226 million in back wages for cheated workers, companies saved roughly 18 times that amount by calling frontline workers doing ordinary jobs "managers," the paper found.
"The incredibly high [return on investment] on this activity of avoiding overtime wages might explain why we see firms across every industry — from Staples to JPMorgan, to Facebook, to Walmart, to Verizon, to Avis, to Lowes — engaging in this activity even up through the present day," the paper said.
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