Earlier this year, President Barack Obama discussed the need to raise the minimum wage. Higher wages, he said, mean more people have more money to spend. And “they, in turn, are most likely to hire more people because they now have more customers who are frequenting their businesses.”
What the president failed to mention is that he also hopes to more than double the income floor above which white-collar workers are exempt from being paid overtime.
This presents startups with a choice. By raising salaries, they will have less money to hire new employees. By restricting overtime work, they will be forced to reduce their speed to market with cutting-edge innovations.
The Department of Labor has proposed an unprecedented 113 percent increase in the minimum salary to qualify as an exempt employee, from $455 per week ($23,660 annually) to $970 per week ($50,440 annually) next year. Just 8 percent of the salaried workforce falls under the current threshold set by the Fair Labor Standards Act. It’s been estimated that the change would make 4.6 million more workers eligible for overtime pay.
Overtime pay and nonexempt status is good policy for certain jobs but not appropriate for all jobs. Exemptions for professional and computer employees are vital for startups to sustain a pipeline of entry-level engineers, programmers and designers. Our nation is making great strides in encouraging students to pursue science, technology, engineering and math careers, yet the Labor Department’s proposal penalizes those students.
Startups — especially tech firms — are a primary source of job creation in the U.S., but most of them cannot pay the higher salaries of more-established companies. Still, startups are an attractive option for recent graduates who accept lower salaries and long hours in exchange for equity — a fair compensation option when a startup does have more cash. This detail has been missed by the administration’s overly broad recommendation.
The revised rule would require companies to either raise annual salaries or ban or restrict overtime. This proposal does a double disservice to recent graduates by increasing the cost of hiring young workers and limiting their ability to gain on-the-job experience through by working extra hours. The result will be fewer available full-time jobs and fewer opportunities to learn on the job.
Ultimately, the Labor Department’s proposal will make U.S. companies less competitive on a global scale. Forcing employers to raise salaries or restrict overtime will reduce America’s strategic advantage of having a flexible, fast-paced and unencumbered workforce. It will encourage startups to outsource labor to fulfill their needs for software development, product design and other services — ironically, the same sort of outsourcing that supporters of this proposal vehemently criticize.
Creativity and passion need room to grow and can’t be saddled with pricey upfront costs. However well-intentioned the administration’s minimum wage plan may be, the proposal stalls and crushes the dreams of young entrepreneurs and startup employees.
If the Labor Department and the administration do not reconsider the consequences of this proposal, everything the president has said about future generations being able to enjoy incredible business opportunities will be compromised. The American economy shines when barriers are low, flexibility exists and people with big dreams can innovate.
Gary Shapiro is president and CEO of the Consumer Technology Association, representing more than 2,000 consumer electronics companies, and author of The New York Times best-selling books, “Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses” and “The Comeback: How Innovation Will Restore the American Dream.” He wrote this for this newspaper.
