Removing taxes on overtime would have only marginal impact

Republican presidential nominee Donald Trump's proposal to remove the taxes on overtime would likely have little effect on the workers and the economy. It wouldn't necessarily be a bad idea - there are some workers out there who would likely get a boost - but, overall, it is not likely to make that much of a difference to most workers because overtime isn't that common.

The Fair Labor Standards Act (FLSA) requires that most workers get paid time and a half when their official week exceeds 40 hours. That's very expensive for employers. Most schedule their workers for less than 40 hours in a week specifically to avoid potential situations where, if something unexpected happens, they may have to pay overtime. The Department of Labor (DOL) reports that the average private sector worker was on the job for just 34.3 hours a week.

The caveat here is that we don't have that much precise data relating to those who do overtime. Manufacturing workers average three hours of overtime a week, according to DOL. There are 13 million people who work in manufacturing. No other employment sector is tracked by the department, however, and reliable outside data is hard to find.

A recent Gallup survey found that 42 percent of workers claimed to work 45 or more hours in a week. Those workers weren't necessarily eligible for overtime, however.

Workers are exempt from the FLSA's overtime requirements if their duties are managerial in nature. The overtime rule also doesn't apply to the self-employed or to freelance workers. Most so-called "gig economy" jobs, like rideshare driving, fall into the latter category. Finally, overtime only applies if it is 40 hours at the same job. A person working two or more jobs in a week can easily exceed 40 hours total without getting close to the 40-hour threshold at either job. It's likely that most of the people currently working more than 40 hours in a week fall under one or more of these exceptions.

In any event, Trump's proposal isn't likely to change any of this much. It gives employees an incentive to ask their boss for more hours, but if they aren't already getting overtime, that probably won't change. Removing the income tax doesn't benefit (or penalize) employers, since it is workers who pay the tax. Employers therefore have no new incentive to offer their workers more time, something they already avoid doing precisely because the FLSA's overtime rule makes that expensive for them.

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