How the Labor Department Is Killing Workplace Flexibility

Moms, watch out. The Department of Labor has just announced new, complex rules on overtime pay, fulfilling President Obama's 2014 promise to raise the salary level at which employers are required to pay overtime.

The rules, which will limit flexibility in the workplace, will double the existing $23,660 salary level at which employers have to pay overtime to $47,476, unless the employee is in a managerial or supervisory role.

It sounds good to give workers more money. But studies have shown that raising the overtime pay ceiling will generally not raise workers' total pay. Instead, employers will pay a lower base salary so that the total pay packet is about the same. The new workers who will be earning between $23,660 and $47,476 are generally not getting minimum wage, so employers could reduce their base pay.

Plus, being on overtime has a downside, as many moms know. There's no flexibility because workers have to clock in and clock out the office. If you want to leave early to go shopping, or to watch your kid's baseball game, you lose pay. You can't just come in early the next day and catch up.

Also, if you work longer one month, you can't just take time off the next month. You have to be paid overtime — even if you prefer time off.

This is because, under the Fair Labor Standards Act of 1938, workers who must be paid overtime cannot receive comp time — time off in exchange for extra hours worked. If they are paid only for the hours they actually work, they lose money every time they need to leave work early to care for a sick child or attend a school sporting event.

The choice of comp time instead of overtime pay is a valued perk that should be available to everyone. But it is only available to upper-income earners, making their lives easier. It should also be available to lower-paid employees.

That's why many moms — and dads — like being on salary.

Employers prefer offering salaries, too. Under the new rules they will be required to keep careful track of workers' hours to avoid being sued for overtime violations. To make sure they get workers' hours accurate, they are less likely to allow them to telecommute, a valued option for many parents.

These new rules will encourage firms to substitute technology for workers. Robots don't have to be paid tips or overtime — even though the iPad at the airport restaurant in Toronto asked me for a 15 percent tip when I was paying for my coffee.

The rules will encourage outsourcing. Some jobs can be outsourced to other countries with less onerous rules.

Some businesses may find it is not worth providing services at times that would trigger the new rules. Customers will not receive the benefit of services, and workers will not receive the benefit of employment.

These complex regulations may lead to inadvertent mistakes and lawsuits. Many "non-hourly" workers who earn more than $47,476 per year will be eligible for overtime, as salary level is only one requirement for exemption. To be exempt from the overtime regulations, an employee must also meet a set of duties tests for each exemption.

Some examples of salaried employees who routinely make over $47,476 and are not exempt from the overtime rule include inside sales, financial service, engineering technicians and secretaries in cities such as New York and San Francisco.

Those who designed the Fair Labor Standards Act in 1938 could not foresee the Internet, with its possibilities of telecommuting, the movement of women into the workforce and flexible work schedules. The Labor Department should be embracing the 21st century, not returning to the 20th.

This column originally appeared at the Washington Examiner.

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.

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