Millions of salaried workers may soon lose flexibility in how they work. President Obama plans to cover them under federal overtime regulations.
This won’t raise their pay. It will, however, effectively convert them into hourly workers, putting the kibosh on the flexible work arrangements many employees value.
Hourly employees get paid time-and-a-half for working more than 40 hours a week. However, under the “white collar exemption,” businesses can pay many salaried employees for getting the job done, not simply for the hours they’ve logged. To qualify for this exemption, an employee must make more than a minimum salary, work in a professional field and have sufficiently advanced responsibilities.
President Obama plans to raise the salary threshold to expand eligibility. He has not yet said to what level, but observers close to the White House have suggested $51,000 a year. If so, all salaried workers making less than that amount would qualify for overtime and would have to track their hours.
On the surface, this sounds great. Everyone wants workers to earn more. But these regulations will not accomplish this. Changing overtime eligibility does not actually raise workers’ pay. Why not? Most employers will compensate by cutting salaries an offsetting amount.
Businesses responded exactly this way to overtime eligibility lawsuits. IBM, for example, recently gave several thousand salaried technical workers overtime as part of a legal settlement. The company also cut their base salaries by one seventh. The workers take-home pay remained the same.
But while changing overtime regulations will have little effect on workers’ total earnings, it will affect how businesses do their bookkeeping. Unfortunately, these changes will prohibit many popular work arrangements. It would effectively turn millions of salaried employees into hourly workers.
Workers eligible for overtime cannot get paid for their results and productivity. Their employer must log their hours and pay for time on the job. While this presents few difficulties for workers in a fixed workplace (like a store), it makes much less sense for professional employees who can work anywhere. Today millions of salaried employees check their work e-mail on their smartphones, or telework from home.