Obama’s Overtime Disaster

Obama’s Overtime Rule Tried at IBM, and It Didn’t Work, by James Sherk / @JamesBSherk / May 19, 2016 / 276 comments

Juggling work and family life is hard. On Wednesday the Labor Department made it even harder for millions of salaried workers. The administration’s new overtime regulations will effectively turn them into hourly employees.

The regulation won’t increase their earnings, but it will greatly reduce their control over their schedules. The Fair Labor Standards Act requires employers to pay hourly workers overtime for working over 40 hours a week.

But the Fair Labor Standards Act regulations exempt many salaried employees. This makes sense: Salaried employees get paid to do a particular job, not work particular hours. They also generally have more control over when and where they work.

Many salaried employees have the flexibility to do things like take off early in the afternoon to attend a child’s soccer game, and then finish their work from home in the evening when their child has gone to sleep. Similarly, millions of salaried employees telecommute at least once a month.

The Labor Department just restricted this flexibility. On Wednesday it raised the overtime “threshold” test for salaried employees to $47,500 a year. All salaried employees making less than that—no matter how advanced their job duties—now qualify for overtime. Their employers must pay time and a half when they work more than 40 hours a week.

On the surface this seems appealing. Why shouldn’t workers get extra pay for working longer hours? However, economic research shows that is unlikely to happen. Most employers respond to overtime laws by reducing base pay an offsetting amount. Combining new overtime pay and lower salaries, most workers will earn almost exactly what they made before.

This is what happened when IBM reclassified 7,000 salaried and technical-support workers as overtime-eligible in a lawsuit settlement. It also cut their base pay by 15 percent, leaving total earnings unaffected. Even liberal supporters of the rule concede that the “wage offer reflects expected overtime hours” and so there will be “no change at the margin” in pay.

The rule will change how employees work. Overtime-eligible salaried employees must carefully log their hours. Each time they respond to a work e-mail, take a work phone call, or do any other work from home, their employer must track and pay them for it. If they do not, they risk getting sued. Trial lawyers filed 8,800 Fair Labor Standards Act lawsuits in 2015, many of them for employers who did not compensate overtime-eligible employees for work done remotely.

In order to avoid lawsuits, many employers deny flexible work arrangements to overtime-eligible employees. Virtually all employers who permit remote work and flexible work arrangements allow overtime-exempt employees to use them.

Only about half allow workers covered by overtime regulations to do so. As the head of human resources for Pitney Bowes explained to reporters, the company turned down requests from overtime-eligible staff to work from home because: “You just don’t take the [legal] risk.”

The Labor Department says this regulation will help workers. It is much more likely to make balancing work and family even more difficult.

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