A Model of Overtime Compliance With the Fair Labor Standards Act

Abstract

This paper models the decisions that American firms face when deciding whether to comply or not with the overtime pay provisions of the Fair Labor Standards Act. In this work, we analyze the American Time Use Survey and Current Population Survey to make estimates as to the determinants of non-compliance, and make the case that the compliance decision is at the very least a decision partially motivated by economic factors. Nationwide, we find that 18% of workers who are eligible for overtime do not receive the overtime premium pay they are entitled to. We analyze compliance rates both on the individual level and at the state level, finding that workers with lesser preferences for leisure as well as workers who are less likely to report their employers are more likely to be non-compliant with overtime laws. At the state level, we find a significant and negative correlation between the number of compliance actions in a state and that state’s rate of non-compliance, indicating that enforcement efforts have a downward pressure on non-compliance.