There is a range of versions that states and Congress are considering recently, to enact a reduction in the standard work week. One version, working 40 hours in four days, has been an option for employers for many years, as long as the employees agree to it as well. This allows the overtime rules to still apply to “non-exempt” roles, i.e., those which are paid for hours worked and must be given overtime pay rates when working more than the daily or weekly standards.
For positions that are “exempt” from wage and hour laws–those that are the type of role which qualifies for the exemption, and which must be paid a fixed salary above a certain threshold–there are no wage and hour rules for working hours per day or week. An exempt role gets paid for results, not for hours worked. Such roles include those that are generally termed “professional” or “knowledge” positions, leadership roles and sales jobs.
European countries like France and Germany have established standard work weeks, even for what would be called exempt roles in the U.S., that are less than this country. France’s standard work week is 35 hours, even if it spreads over five days. Germany’s is 34.2 hours per week. The U.K. has been experimenting with a similar approach. Employees at 61 companies across Britain worked an average of 34 hours over four days between June and December 2022, while earning their existing salary. Of those, 56 companies, or 92%, opted to continue like that, 18 of them permanently. This experiment is lending support for politicians in the U.S. who would like to legislate a change.
The promoters of the reduced work hours (and days) say that it will help with attraction and retention in a tight labor market. That might be true, until the labor market isn’t tight anymore. And if every employer has to do it by law, then there’s no differential advantage for any company competing for talent.
The real issue is a practical one. When I was running my consulting business, HRG Inc., in the 1990s, we tried a four day schedule for several months. It didn’t work because our clients weren’t on the same plan. Being a service business, we had to be accessible to clients when they were working; they couldn’t be expected to delay their needs to match ours. They would soon find someone else who could do the work when they needed it done.
Another practical issue with the proposal is faced by product companies who have demand that requires a certain manufacturing rate, and therefore a certain amount of applied labor hours. If the hours are reduced by 20% (from five to four days per week, and from 40 hours to 32), then the population of employees must increase by 20% as well, to maintain constant production to meet demand. Coupled with the proposed feature in some currently drafted legislation that employees would earn the same compensation (wages plus benefits) in fewer hours, it is equivalent to a 20% pay increase from the current state. Combining those two dynamics results in a 40% increase in labor costs, for the same rate of production.
If such companies cannot pass on that cost increase to consumers through raising prices, then profits are reduced by an equivalent amount, which will affect investment funding for growth and shareholder returns. If those companies are publicly held, then shareholders will see their assets shrink in value significantly. It must be remembered that more than 70% of public company equity is owned by institutional investors, e.g., pension plans, funds held in 401(k) retirement accounts and insurance companies (1). That means most of the equity held is to provide retirement funds for people like you and me, and to provide solvency for insurance companies so they can pay our claims when our house burns down, our car is totaled or we fall seriously ill. Forcing a reduced work week on companies whose nature of business equates those hours directly to production of revenue will guarantee an economic calamity that will affect everyone negatively, especially the employees’ longer-term financial security.
The real issue, in my view, is that people are being burned out in their roles by how they are required to spend the time they do devote. Leaders can cure that burnout in a heartbeat (see my article on this subject: https://www.stansewitch.com/leaders-can-cure-burnout-in-a-heartbeat/). Step one is eliminating the meetings that are called just so the leaders can feel like they have a “handle” on things. Most meetings are poorly planned, not necessary, take too much time and produce very little tangible results. We get in the habit of meeting, and it becomes a crutch rather than an accelerator of progress, in many cases.
Step two is creating a work culture where people actually enjoy what they do and why they do it. Easy to say, very difficult to do. This article isn’t about that, but a lot has been written and should be read on the subject. Suffice it to say that how leaders behave as leaders determines most of whether people feel stressed and over-burdened at work, or not.
When politicians start making proclamations about how things in business “ought to be”, I get worried. They don’t know how to create economic value; they’ve likely never started a company or led one. While their intentions might be good, we all know what the rode to Hell is paved with.
(1) De La Cruz, A., A. Medina and Y. Tang (2019), “Owners of the World’s Listed Companies”, OECD Capital Market Series, Paris, www.oecd.org/corporate/Owners-of-the-Worlds