Politics & Policy

How Obama’s New Overtime Regulations Will Make It Harder for Americans to Balance Work and Family

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Should salaried employees have to log their hours? President Obama thinks so. He just proposed regulations requiring salaried employees making less than $50,000 a year to track their work time. Most news coverage has not highlighted this aspect of the new overtime regulations. Unfortunately, they will reduce salaried workers’ flexibility — without raising pay.

Federal law guarantees hourly workers overtime pay for working more than 40 hours a week. The regulations currently exempt many salaried employees. Executive, administrative, and professional employees frequently get paid for the work that is done, not the hours that are logged.

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These employees get a flat salary no matter how many hours they put in. In exchange, they get flexibility in where and when they work. For example, millions of salaried employees work part-time from home. Many others can leave work early in the afternoon, provided they get their tasks done.

This flexibility makes balancing work and family life easier. Many salaried employees can make their child’s soccer game or take care of a sick kid without losing paid hours. They just do that work at a different time.

Regulations intended to raise wages will instead make juggling work and family life more difficult.

Surveys show workers with this flexibility like their jobs more. They are also more productive and less likely to quit. Flexible schedules benefit both employees and employers.

So why would the federal government restrict them for salaried employees making less than $50,000 a year?

The Obama administration touts its new overtime regulations as a way to boost pay. Sadly, they will not have this effect. Economists have thoroughly studied how employers react to overtime laws. They find that employers inevitably cut base wages to offset the extra costs such laws impose.

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Research shows that employers and employees care deeply about total number of hours worked and total pay. They care much less about pay for individual hours. When the government requires overtime, employers do not pay more for the same work. They pay overtime and cut base pay by an equivalent amount — leaving the total employment package unchanged.

This is exactly what happened when Japan’s courts recently expanded overtime eligibility. Japanese businesses cut their employees’ pay by an amount equal to the expected overtime. Total earnings did not change.

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Study after study comes to this conclusion. Even liberal economists agree. Jared Bernstein, the former chief economist to Vice President Joe Biden, recently wrote that the “costs of increased coverage would ultimately be borne by workers as employers set base wages taking expected overtime pay into account.”

While the overtime regulations will not raise total pay, they will force businesses to track the hours of salaried employees making less than $50,000 a year. Even if those employees do not work more than 40 hours a week, businesses still have to track their hours to prove it.

#related#This will strongly discourage employers from giving these employees flexible schedules. Businesses can easily track hours that are worked in the office. It is much harder to track hours worked at home. But if they don’t, they risk getting sued. Trial lawyers have brought thousands of suits against companies for improperly tracking hours worked remotely.

Businesses have responded by sharply limiting workplace flexibility for employees eligible for overtime. As the head of human resources for Pitney Bowes explained, the company turned down overtime-eligible employees’ requests to work from home because: “You just don’t take the [legal] risk.”

Of course, many salaried employees make more than this threshold; the regulations won’t affect them. But across the country, and especially in places with lower costs of living, many entry- and mid-level salaried employees will soon have to track their hours. This will mean losing flexibility over when and where they work. Regulations intended to raise wages will instead make juggling work and family life more difficult.

—James Sherk is a research fellow in labor economics at the Heritage Foundation.

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