New Overtime Requirement Could Cause Lower Base Pay

The Obama Administration has announced plans to require overtime pay for salaried employees who earn less than $50,440 a year. Economic research shows that employers will offset new overtime costs by lowering base salaries. As a result, these regulations will have little effect on total weekly earnings or hours worked. They will require employers to rigidly monitor salaried employees’ hours. This would proscribe the flexible working arrangements that many salaried employees value. Effectively, these regulations will limit workplace flexibility without improving pay.

Under the existing regulations, employers must pay overtime to all hourly workers. Employers must also pay overtime to salaried employees who either earn less than a certain amount (the salary test) or do not have sufficiently advanced job duties (the duties test). Employers must track the hours of any salaried employee eligible for overtime.

The Obama Administration has proposed significantly increasing the salary test from $455 a week ($23,660 a year) to $970 a week ($50,440 a year). Employers would have to track the hours and pay overtime to any salaried employee making less than this amount.

These regulations will effectively convert millions of salaried professional employees into hourly workers required to clock their time. Millions of workers will find that their employers can no longer pay them for a job completed instead of hours worked. While this makes little difference for employees with a fixed-job site, it will hurt those capable of working remotely. It will severely limit their use of the flexible work arrangements and telecommuting options that many rely on to balance their work and family lives. Expanding overtime regulations to more salaried employees will hurt the workers the White House wants to help.

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