If it seems like everyone is a manager these days, you may be onto something.
Not only is there a profusion of assistant managers, there are also now carpet shampoo and food cart managers, directors of first impressions, assistant bingo managers, and price scanning coordinators, according to new research out of Harvard Business School.
In fact, these are just a handful of suspect titles companies are using to classify hourly workers as supervisors and avoid paying an estimated $4 billion in overtime a year, finds a study by Lauren Cohen, a professor of business administration at HBS.
“I can see it happening at the Gap and Pizza Hut, but we also see it happening at Facebook, JPMorgan, and health care firms.”
There are now hundreds of thousands of workers across the US with dubious managerial titles doing jobs that would otherwise be considered hourly work under federal labor regulations, the study estimates.
Cohen’s study emerges as record inflation and chronic staffing shortages collide making compensation a top challenge in human resources. While the trend is most heavily concentrated in lower-paying sectors like retail, food service, and hospitality, companies across the economic spectrum are creating faux management jobs, pointing to wage cases filed by workers at tech and financial services giants.
The team found a five-fold increase in manager titles like “directors of first impressions” (aka front-desk assistants) with salaries just over the federal weekly threshold of $455, above which companies must pay extra for more than 40 hours of work. Cohen conducted the research with Umit Gurun and N. Bugra Ozel, a professor and associate professor of accounting, respectively, at the Naveen Jindal School of Management at the University of Texas at Dallas.
“We see it happening at big firms and small firms,” Cohen says. “It happens across industries. I can see it happening at the Gap and Pizza Hut, but we also see it happening at Facebook, JPMorgan, and health care firms.”
Name games
As part of the research, Cohen and his co-authors collected tens of thousands of managerial titles and then analyzed a subset of 830 jobs. That, in turn, yielded 256 “fake-sounding” job titles, with most clustered just above the federal pay threshold separating hourly workers from managers.
To check this connection, the researchers looked at a handful of states that define overtime exemption based on different criteria than the federal regulations. In these states, there was not the same explosion of made-up sounding management titles at the $455 threshold.
Cohen also looked at the practices of companies with regional and national operations, finding the same state-by-state pattern when it came to strange-sounding management titles and overtime laws.
He found a “strong” association between enforcement actions by the US Department of Labor’s hours and wage division and complaints stemming from management jobs that pay just above the overtime threshold.
In a 2008 case involving the Family Dollar chain, a court awarded $35 million to 1,425 employees who missed out on overtime pay due to “fabricated job titles,” the study notes. While many employees had titles like “store manager,” they were actually spending as much as 60 to 90 hours a week “stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors, and bathrooms,” the study notes, citing the original lawsuit. They weren’t actually managing people.
Phony titles, big corporate savings
This is no niche phenomenon. There were an estimated 2.65 million workers, as of 2019, holding down jobs with management titles but making less than $50,000 a year, Cohen reports, citing Bureau of Labor Statistics data.
Based on the assumption that about a third of these roles weren’t management positions, the study estimates that companies avoided paying for 151 million hours of overtime in a single year.
“The firms have an incentive—and a very real incentive—to put you just over the line.”
That amounts to $4 billion dollars in savings for the companies—and a substantially smaller paycheck for workers. For a cashier or carpet cleaner making $23,660, that equals $3,194 in lost wages.
For companies, that represents a savings of 14 percent in compensation for each employee they can move up into a phony management position, so to speak, Cohen and his co-authors report.
And companies apparently believe that misclassifying workers as managers is worth it, even with the risk of getting hit by a lawsuit and facing enforcement action by federal labor regulators.
“The firms have an incentive—and a very real incentive—to put you just over the line,” Cohen says.
Fixing the problem
Looking ahead, one solution would be an overhaul of the New Deal-era Fair Labor Standards Act. The FLSA was written nearly a century ago, when the distinction between hourly workers and management was much sharper, Cohen points out.
One idea would be to determine whether employees should be paid a fixed salary or by the hour based on the type of work they are doing.
“We are now nearly 100 years beyond when this regulation was passed, and the world has changed,” Cohen says. “We can actually pay people for what they do, instead of who they are.”
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Image: iStockphoto/EvgeniiAnd