The U.S. Department of Labor has proposed a new rule that would extend overtime pay to nearly 5 million additional white-collar salaried workers across the country.
The rule would change the salary threshold for those exempt from receiving overtime pay from $23,660 or more per year to $50,440 or more. The DOL is expected to make a final decision on the rule by July and implement the new laws within a 60-day period.
Those familiar with the proposed rule say it has the potential to help employees and hurt businesses. The DOL estimates 4.6 million employees currently exempt from overtime pay would receive mandatory overtime pay under the proposed rule, which the department argues would help workers get fair compensation for their work. In addition, employers would hire part-time workers to take over any extra hours that current full-time exempt employees were working, said Ross Eisenbrey, Economic Policy Institute vice president and DOL expert.
On the other hand, the U.S. Chamber of Commerce predicts businesses—especially small and mid-size businesses—would struggle to absorb the increased salaries and litigation costs. The National Retail Federation estimates the proposed overtime changes would cost restaurants and retailers between $5 billion and $9 billion per year.
“If [employers] think that paying time and a half for overtime is too expensive, the answer is don’t do it. Don’t work people long hours,” Eisenbrey said. “It’s bad for their families; it’s bad for their productivity; it’s bad for their health. It’s a bad idea.”
The Plano Chamber of Commerce sent out a survey via email to the city’s business owners seeking their opinions on how the proposed changes might impact local companies. Board Chairwoman Kim Moore said the chamber wanted to take concerns and comments to the U.S. Chamber of Commerce and elected officials to find a suitable solution for Plano’s employees and business owners.
“There is still a lot of uncertainty about when this might become a reality—we just don’t know,” Moore said. “And that’s why being prepared is important. Why businesses being prepared is so essential is because you may have really short notice if you are a business owner about when this proposed rule may become a reality for your business.”
As an employment lawyer at Strasburger & Price LLP in Frisco, Moore said she has been asked several questions from business owners wanting to know if the proposed rule would apply to them and if so, how.
Time for change?
President Barack Obama in 2014 signed a presidential memorandum directing the DOL to update regulations under the Fair Labor Standards Act that define how white-collar workers are protected under the minimum wage and overtime standards. The memorandum instructed the DOL to find ways to modernize and simplify the regulations, accordingly, the department proposed changing the salary threshold in 2015.
“The basic rule under the Fair Labor Standards Act is that everybody is entitled to overtime,” Eisenbrey said. “The policy is that people shouldn’t work more than 40 hours a week. If they work over 40 hours a week, they should be paid extra, and that discourages employers from working people long hours because they do have to pay extra.”
As it stands, the FLSA guarantees salaried workers a minimum wage and an overtime pay of 1.5 times the regular rate for those working more than 40 hours per week. The minimum salary threshold was last updated in 2004 at $23,660 per year. Salary levels had not been updated prior to that since 1975. The DOL has changed the salary threshold seven times since the implementation of the overtime rules.
“[Companies need to know] how that is going to affect essentially the bottom line because the proposed rule, if passed, will have a financial effect.”
—Kim Moore, Plano Chamber of Commerce Board Chairwoman
The DOL argues the current salary threshold falls below the poverty level for a family of four, which is $24,250 per year. However, the current salary threshold is also nearly $12,000 more than the poverty level for one person.
The DOL also proposes updating the salary level every year to maintain the effectiveness of choosing the 40th percentile which the department believes is the most simple method.
Effect on businesses
Moore said the effect of this salary level increase would be felt in businesses of varying sizes and also nonprofit organizations.
“What you need to do is plan ahead and look at your workforce and determine—is this a situation where you as an employer need to do a time study?” Moore said.
She also said companies should talk to their employees, assess time spent on tasks and determine if moving to hourly pay formats or raising salaries to meet the new proposed threshold would be suitable for both parties. If salaries are to be changed, Moore said it is important to remember that salaries of all employees at different levels would also be affected.
Moore said the changes to the overtime pay rules might result in the elimination of some jobs because business owners will have to take into consideration the possibility of having to increase salaries at different levels of the workforce.
“[Companies need to know] how that is going to affect essentially the bottom line because the proposed rule, if passed, will have a financial effect,” Moore said.
She said reclassifying employees as hourly workers might affect workforce morale. Many employees have been working under exempt status for a long time and the possibility of going to an hourly wage system might be interpreted as a step back from career advancement.
“There are a lot of workers who don’t like to be classified as nonexempt. It means more than the way in which they are paid,” Moore said. “I think some explanation is going to be required with the employer coming to the employee saying that their job, their value hasn’t changed but the compensation model has to change and explain why.”
There are about 31,000 small businesses in the Plano area, said Yolanda Garcia Olivarez, regional administrator for the U.S. Small Business Administration. About 63 percent of the net new private sector jobs are created by small businesses, she said.
Olivarez said small business owners need to study the proposed rule and get expert help regarding restructuring their workforce and payroll prior to the rule getting passed. The Collin Small Business Development Center can help businesses improve hiring practices, stay up to date with changes in government regulations and enhance profits. The center is a partnership between the U.S. Small Business Administration, Collin College and the state of Texas.
“The proposed rule will promote higher take-home pay to better balance the employees’ family and work balance,” she said. “When workers are paid more, they tend to certainly go out and [spend more] in the community.”
The final decision
The DOL opened a comment period on the proposed rule from July 6-Sept. 4. During those 60 days, the department received more than 270,000 comments. The DOL must review all of those comments before making a final decision. The proposed rule does not have to go before Congress because it has given the DOL authority to regulate policies related to labor. The president and the U.S. Office of Information & Regulatory Affairs may review the final rule prior to it being published. The final set of regulations might be published in July by the DOL.
Although the comment period is closed, the Plano Chamber of Commerce is planning to circulate the survey again to get a sense of challenges facing the Plano business community and find ways in which they might be able to help.