Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Hire, Outsource, or Automate?
The finalized updated thresholds for the Fair Labor Standards Act (FLSA) rules governing overtime were announced this week. On net, they are only slightly less damaging than was rumored last year, and — true to form with this administration — they are set to take effect December 1, 2016, less than two months before President Obama leaves office. Consider them a parting shot at any successor who, thanks in no small part to the many state and local pushes to raise the minimum wage, will doubtless have to deal with even more anemic employment.
The new rules state that anyone with a gross annual income under $47,476 from a particular job, whether considered management or not, must now be treated as an hourly worker and be paid overtime for any work over 40 hours a week. Further, the new rules automatically ratchet every three years, to make sure that at least 40 percent of all workers are always hourly. The Department Of Labor claims that this will somehow add $12 million into the economy per year (a paltry amount), but ignores how any gains will likely be eaten in added administrative costs for every business out there. This act will likely not add any jobs to the economy and, in fact, provide even more justification for businesses to automate everything they can. They have certainly made my decision to add more automation that much clearer.
As I have previously discussed, I manufacture electronics. Given the growth we have had in sales over the prior couple of years, the Surface Mount (SMT) line we put in four years ago is approaching its capacity. Right now, we only run a single shift. To alleviate our capacity problems we have four options:
- Hire a second-shift crew to keep the line running another eight hours per day. This means adding three additional people: a line operator, a shift manager (you always need a manager present), and a third person to assist (best to have at least three people always around, for security reasons). Factoring in gross salaries, benefits, payroll taxes, insurance, and utilities (keeping the lights on), this would cost my business anywhere from $150,000 to $180,000 extra per year.
- Scheduling overtime would cost only slightly less than hiring a second crew, as I would not have to pay for additional benefits, but a four hour shift at time-and-a-half costs the same as eight hour shifts at net.
- Outsourcing to local contractors has its own issues, particularly as it requires keeping a larger inventory on hand to cover lead teams from contractors, and quality control is one-step removed. There is also the issue of increased costs as, right now, all costs are captured internally and I’m not paying for someone else’s price markups. In essence, the costs would be about the same as adding a second shift, or running overtime.
- Adding additional capacity to the SMT line. Even adding a single extra machine would effectively double throughput, and that machine can be had for $150k, the same price as adding a second shift, or running overtime, or outsourcing.
I run a small business. Counting the owners, there are 15 people working here so, if I do not hire anyone, that’s only three jobs never created. But how many other small businesses are out there? Thousands? Tens of thousands? How many of them are making the same calculations I am? How many other small businesses will see the FLSA updates as just 1 more reason to avoid hiring?
It is a basic principle of micro-economics that, when the costs of a good or service go up, the demand will go down by some amount. The Obama administration has raised employment costs again and again these last seven years, sometimes through major legislation (Dodd-Frank, Obamacare), but more often through rule-making edicts like this and picayune legal harassments. Is it any wonder our economy still seems so bleak? Is it any wonder that middle-class jobs are scarce? Edicts like the latest FLSA ruling just keep piling on the reasons for business to avoid hiring, and automate everything they can.
Published in Culture
I think we know all your existential worries by now…
As always, an expertly written industrial education from Skipsul. If Ricochet had little else than The Skipsul Channel, I’d still line up to pay. The guy was Maker Movement before there was one. Sorry to be late to the party.
I don’t instinctively believe the Club for Growth (anymore), but if Skipsul says he’s getting boxed in, I know the problem is real. In some ways it connects to Concretevol’s post, which is largely about illegal immigration (of course, Skip’s plant is a very different situation), but also touches on one common thread: running a business is vastly harder than it looks on TV. The trade-offs are rarely between obvious good that makes everyone rich and obvious evil that exploits helpless worker-slaves.
Could I have $20.00 til payday?
Can anyone point to anything that the fair labor standards act or OSHA ( or anti Trust for that matter) have done that did more good than harm? It’s a sincere question I don’t know whether we can just repeal the law and abolish or perhaps replace the function with boards that collect and distribute information on the subjects under their jurisdictions.
Agree, always automate. Employees are a pain and best avoided if possible.
Thanks. I didn’t even touch how this new regulation is going to harm all of my employees. I have someone who does inside sales and support, and they are under the new FLSA threshold. Right now, they don’t have to clock in or out for lunch, or if they need to kip off for a couple of hours (they have a daughter getting married next month, and so have needed lots of little breaks here and there recently), and they will frequently stay for an extra 20 minutes here and there to finish work up.
They have also voluntarily taken work home with them.
All of this will now end.
They’ll have to punch out and NOT GET PAID if they take a few hours off for personal business. They’ll have to clock out for lunch, and physically keep away from their desk for that time, even if they would rather eat at their desk. (cont)
In short, this reprehensible edict removes even more flexibility FROM THE EMPLOYEES THEMSELVES to set their own work schedules. Everything must be monitored, logged, tracked, and rigidly enforced.
Flexible scheduling – gone.
Taking work home – gone.
Staying late to finish a job – gone.
Taking informal paid personal time – gone.
Being able to treat every employee as a responsible adult – obliterated.
Cannot. Be said. Too often.
Is the gov’t selling Wiemar or Zimbabwe printing presses?
I’ll echo RightAngles: there seems to be no understanding how business works. Not just in the Oval office but out in the streets. Jeesh!
Exactly. The Department of Labor thinks they are freeing employees from exploitation, but a lot of us like the freedom of being a salaried employee. If we have a couple snowstorms in a week and I spend a few extra hours pushing snow I don’t get paid extra, but I don’t get docked when I have to go to a doctor appointment. I’m satisfied, the company is satisfied, it’s none of Washington’s business.
So does commission/bonus not count against the salary threshold?…even a level of commission that is attained by, for example, 80% of employees in the particular job?
It counts, as long at it does not exceed some percentage of base salary (I think 10%).
People exercising responsibility and making consequential decisions for themselves? If they get into the habit of making decisions, who knows where it could lead? It must be stopped.
I’m genuinely asking here: Is all this regulated by state labor laws? I’ve worked hourly for companies with the (digital) punch clock and companies that had a self-filled and supervisor certified time sheet. Time tracking is a pain, but there are a lot of shades between hourly client billing and Japanese tracking of employee movements.
I’m just wondering how much of this is employer policy vs. labor law.
It’s all driven by labor law. All of it. The DOL has, with one rule change, obliterated a substantial amount of flexibility from employment.
According to USDept of Labor website, you have plenty of options:
but to automate is not one of your options.
They forgot E: Go out of business.
or F:Move production to Mexico.
Not only does Skipsul have it right here, he also explains the reality of the former factory workers who now complain about Mexico and China, and are almost always wrong but have lots of sleazy politicians eager to exploit their frustration.
The Luddities were angry that machine looms would eliminate jobs. The folk song “John Henry” is a paean against a steam drill doing what used to take exceptionally strong people top do less well.
The people who used to work for Western Electric or RCA in Indiana making stodgy old telephones and hand-wiring TV sets that cost $500 in 1955 dollars to buy were displaced first by printed circuit boards, then Integrated Circuits, then ICs packaged on SMT lines and even smaller MCMs.
Job loss is far more due to technology than it is due to outsourcing or off-shoring, and the US is still the largest manufacturing power in the world.
Obama’s crew does not care, as long as they can find some purportedly helpless voters for whom to write rules that destroy the larger economy.
Clearly, the answer is to let machines vote.
I don’t feel like another term of RobotNixon.
Yeah, yeah…but we have a saying on Vulcan: It took Robot Nixon to go to Robot China.
Arooo, maybe so.
We tried it. Entering the parameters into the core of the Demotron 1960–
Adding the dead, subtracting the suburbs, multiplying by Planck’s Constant times Pi, divide….
…and we have a winner!
In the original picture I don’t see the pictures, just the file name. But when I quote them they show up.
Honestly, who’s idea was it to automate?
Skip, I can see your frustration with this as an employer–your team has a harder time organizing their lives to support both work and family (Joe leaves early to watch his kids’ baseball game, brings a folder home with him to complete the work he would have got done had he stayed at home).
Here’s the flip-side: How does the employee who eventually wants your job distinguish himself? Ass-kicking is kind of limited when your only venue is 0800 to 1700, with a mandated hour for lunch. How does one distinguish himself as the man to the boss without the ability to go above and beyond?
That’s some nail you hit there, Boss. Wooeee!
What about hiring independent contractors?
The IRS has very strict rules about classifying ICs vs. employees. If you tell the ICs what time to be on the job, how to do the job, provide the tools/means to do the job, then the ICs are employees. If you haven’t withheld SS/FICA + contributed the employer share and your ICs are reclassified as employees, you pay big penalties.