Employers prepare for OT pay changes

New federal overtime regulations intended to help white-collar workers make a livable wage have the Cedar Park business community buzzing.

“Companies are already on a slim margin today,” said Ed Trevis, president and CEO of Cedar Park-based manufacturer Corvalent. “They cannot take the hit.”

But Jose Garza, executive director of Austin-based nonprofit Workers Defense Project, said the new regulations are common-sense measures to protect employees.

“They are going to either result in a pay increase or result in having more time to spend with their families,” he said.

The U.S. Department of Labor’s final overtime rule, signed May 18 by President Barack Obama, changes the salary threshold for workers who are exempt from receiving overtime pay. Full-time, salaried workers making $23,660 or more per year do not currently qualify for overtime pay.

On Dec. 1 that salary level changes to $47,476 or more per year, forcing some businesses to re-examine their payroll.

Payroll options, potential pitfalls
Businesses that are engaged in commerce, have a gross annual income of $500,000 or more, public agencies, schools and health care facilities must comply with the new regulations, according to the DOL.

The Workers Defense Project has employees who will benefit from the new regulations, Garza said.

“Our staff is quite excited about it,” he said.

Garza said the new regulations allow businesses the flexibility to decide how to adapt to the new overtime threshold. He said options include hiring additional staff to cut down on overtime, raising annual salaries to $47,476 or more, or categorizing employees as nonexempt, which means they would be paid hourly and would be entitled to time-and-a-half pay for every hour they work in excess of 40 per week.

Trevis argued many employees would not accept going from a salary to an hourly wage.

“You’re going to lose those people,” Trevis said.

Corvalent plans to increase employees’ salaries to meet the new exemption threshold, he said.

“I’m not going to put them on hourly,” he said. “I think it would be a big mistake for a business to do so.”

A salaried, exempt employee is paid to do a job, and the hours she or he puts in each week fluctuate; whereas an hourly employee is paid for the amount of time they put in at work—two completely different philosophies, Trevis said.

“We’re going to take care of the employees like we always do,” he said. “But it does put pressure on our organization.”

Elements Massage franchise owner Levi Murray, who operates the location at Lakeline Boulevard and US 183 in Austin, said a salary symbolizes trust between the worker and the employer.

“That person will go the extra mile,” he said. “They feel like they’re part of the business.”

Switching employees to an hourly wage puts the trust dynamic in jeopardy and limits an employer’s hiring pool, he said.

For franchises, in which many owners hire a salaried manager to run day-to-day operations, the new overtime regulations could force owners to take a more active role in the business, he said.

Under the new regulations, nondiscretionary bonuses and commissions can make up 10 percent of the new salary requirement for exempt employees. Murray said employers could choose to take away bonuses and commissions to make up for the threshold increase, which could disincentivize workers.

The new regulations could also affect someone’s decision to open a small
business, he said.

“At the end of the day, it’s all about the numbers,” Murray said. “The numbers have to add up.”

Garza said profitability depends on how many hours it takes to achieve a certain goal.

“A lot of this is about numbers and math,” he said. “This rule doesn’t change any of that.”

If an employer is paying a worker $24,000 a year and expecting him or her to devote 60 hours a week, the new law will likely cut into the employer’s profit margin, he said. But most employers are intelligent and business-savvy and will find a way to comply with the new regulations without letting it affect their bottom line, Garza said.

Ripple effect
Some business owners also say the new regulations could impact consumer prices and unemployment rates.

Though he does not anticipate having to raise prices at Elements, Murray said many businesses will not be able to absorb the higher payroll costs and could pass the buck to consumers.

Trevis said the law could cause the price of goods to rise at Corvalent.

“That cost is going to have to be passed somewhere,” he said. “[Consumers are] going to pay more for products.”

Trevis said the new regulations would be easier to absorb if they took effect worldwide, but instead they impact only businesses in the United States, which will make it difficult to compete in the global marketplace.

“We’re not competing just in the United States. We’re competing with the world,” Trevis said.

The DOL said it expects the new regulations to create new jobs due to the financial incentive for employers to distribute what would have been overtime hours to new employees, but the DOL stated it “did not attempt to quantify the number of new jobs created due to data limitations.”

Bruce Butler, president of ETS Lindgren, an electronics and electrical manufacturing company in Cedar Park, said ETS plans to consider hiring overseas for any new positions going forward. He also said some overtime work that is currently done in Cedar Park could be completed overseas to cut costs.

ETS could also cut training programs and marketing campaigns that could tip employee hours past the 40-hour mark, he said.

Butler said the new regulations only affect about a dozen of the nearly 300 employees at ETS’ Cedar Park location, and the company does not plan to make any blanket changes.

“We treat all of these changes on a case-by-case basis,” he said.

Although Butler said the new regulations would not have a huge impact on ETS, he said he is concerned about the DOL becoming more aggressive in its standards.

Suing the DOL
The Cedar Park Chamber of Commerce joined more than 50 Texas business organizations in filing a lawsuit Sept. 20 in U.S. District Court against the DOL’s overtime rule.

The Round Rock Chamber is also involved in the lawsuit. The Leander Chamber of Commerce has not taken a position on the issue, according to President and CEO Bridget Brandt.

The lawsuit, led by the U.S. Chamber of Commerce, National Association of Manufacturers and the Texas Association of Business, claims the federal government “went too far in the new overtime regulation.”

The suit states that by setting an “excessively high” salary threshold for determining who qualifies as executive, administrative and professional employees, the rule departs from the intent established by Congress in the Fair Labor Standards Act. Tony Moline, president and CEO of the Cedar Park Chamber of Commerce, said the chamber board voted to actively oppose the new law in April.

“It more than doubles the salary threshold for exempt employees overnight, and it will not only have a negative impact on business, but it will have a negative impact on the morale of the employees it will affect,” Moline said.

Moline said both large and small business members of the Cedar Park chamber have said the law will affect wages, employee hours and raise the overall cost of doing business. He also said having to “punch the clock” could feel like a demotion to many employees.

“This stops business flexibility and could potentially hurt employee morale,” he said.

For now, Moline said the chamber will educate its members about the law and encourage them to start tracking hours immediately so they are not caught off-guard when the law goes into effect.

“Around 70 percent of all businesses [in the country] are currently out of compliance and will be impacted by these new regulations. They need to start planning now,” he said.

The state of Texas filed its own federal lawsuit against the pending regulations Sept. 20, joining a coalition of 21 states.

Garza with WDP said he is disappointed Texas would fight a federal rule that benefits working people.

“I don’t think this lawsuit is in line with Texas values,” he said. “We think that ... the lawsuit is going to fail.”

Opposing viewpoints
Garza said Texas workers are some of the most highly trained in the world and, regardless of regulations, employers will continue to do business in the state. He also said the new overtime rule is narrow, and it does not affect any sector that relies on blue-collar workers.

“I think that most Texans believe that if you work hard … you should be compensated for it,” Garza said.

Murray said he agrees with law’s intent.

“I think it’s a good wake-up call  to make sure we all are treating our employees fairly,” he said.

But, he said, good employers will treat workers well regardless of the law; bad employers will continue to take advantage of workers despite it.

If the federal government wanted to raise salaries, Trevis said, it should have enabled corporations and employers to thrive and provided workers with more training opportunities.

“Kill the law,” he said. “This is not something the government should put their nose in.”


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