The U.S. Department of Labor has proposed a new rule that would extend overtime pay eligibility to nearly 5 million additional white-collar salaried workers nationwide, including many in Pearland and Friendswood.
The rule would change the salary threshold for those who are exempt from receiving mandatory overtime pay. As it stands, full-time, salaried workers making $23,660 or more per year do not qualify for overtime pay. Under the proposed rule, that salary level would change to $50,440 or more per year in 2016.
The DOL is expected to make a final decision on the rule by July.
Those familiar with the proposed rule say it has the potential to help employees and hurt businesses. Sean Stockard, president and CEO of the Economic Development Alliance for Brazoria County, said balancing the benefits to workers and owners is crucial.
“There’s two sides to the coin,” he said. “You want to do everything you absolutely can to make sure that the employees in your community are receiving fair wages, that they’re being paid for a day’s work and they’re being paid fairly for the quality and type of work that they’re doing. You also want to make sure that you’re not overloading the employer’s ability to pay those wages.”
The DOL estimates 4.6 million employees currently exempt from overtime pay would receive overtime protection under the proposed rule, which the department argues would help those workers receive fair compensation for their work.
In addition, employers would hire part-time workers to take over any excess hours their current full-time employees were working, said Ross Eisenbrey, Economic Policy Institute vice president and DOL expert.
“You can estimate safely that there will be hundreds of thousands of jobs created,” he said.
On the other hand, the U.S. Chamber of Commerce predicts that businesses—especially small and midsize businesses—would struggle to absorb the increased labor and litigation costs.
Mark Conrad, owner of Express Employment Professionals in Friendswood, echoed the sentiments.
“I’m not in support of it,” he said. “I think it’s going to impact a lot of businesses that fall within that range of current salaried professional positions, and it’s going to reshape how business owners are going to have to deal with the impact.”
Effect on businesses
While the DOL proposed the new regulations in mid-2015, Conrad said many business owners are unaware of the potential changes.
“I think there is, in many aspects, the ignorance of it going on,” he said. “[Owners] don’t know that this is coming down the pipe. Many of them are surprised when the discussion is brought forth. Many small-business owners don’t have a [human resources] manager in their business—they’re not large enough to.”
The salary threshold increase would most affect small businesses, Conrad said. Some of the biggest challenges, he said, arise from reclassifying employees from managerial roles and tracking weekly work hours.
“What everybody’s going to have to do is identify all affected employees and first determine how many hours they’re currently working per week,” Conrad said. “I think the challenge is the intermittent involvement that they have either prior to or after the workday that’s generally considered part of their [job].”
The effects could even go beyond money, he said.
“There’s also an element that’s going to exist of how an owner of a business addresses moral or other nonmonetary effects of reclassifying employees who consider themselves to be management-level workers,” Conrad said. “They are no longer going to be in that salary [range]. They’re going to be viewed as an hourly worker.”
Currently, the proposed rule does not include an exemption for small businesses or nonprofits. On the national scale, the National Retail Federation estimates the proposed overtime changes would cost restaurants and retailers between $5 billion and $9 billion per year.
The DOL interviewed employer stakeholders before announcing the proposed rules. In the report, some stakeholders said many employees value the time flexibility that comes with a salaried position.
The DOL also noted in its report that one of the original intentions of implementing overtime pay is to see that employers hire more employees rather than requiring existing employees to work longer hours. The other intention is to prevent employees from being overworked and, therefore, avoid negative health effects on workers.
“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.”
Fair Labor Standards Act
In 2014, President Barack Obama signed a presidential memorandum directing the DOL to update its regulations that define which white collar workers are protected under the Fair Labor Standards Act’s overtime rules. The FLSA, which was passed in 1938, establishes overtime and minimum wage standards.
In response to the memorandum, the DOL sought to modernize and simplify its regulations and ultimately 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.”
The DOL has changed its salary threshold seven times since implementing overtime protections, with the last time being in 2004 when the salary level was changed to $23,660 per year. Before then, the salary levels had not been updated since 1975.
A DOL argument for updating the salary level is that the current 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.
In the past, the salary threshold has been a set number. This time, the proposed rule suggests changing the salary level to the 40th percentile of earnings, which would equate to $50,440 per year in 2016. The DOL also proposes updating the salary level every year to maintain its effectiveness. The DOL believes this method of updating the salary level is the simplest, according to the report on the proposed rule.
The final decision
The DOL opened a comment period on the proposed rule from July 6-Sept. 4 last year. During that time, 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 Congress 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.
“There’s a lot of shifting plates that are going to surround the complexity of this,” Conrad said. “It’s another regulatory nightmare that a small business is going to have to contend with.”Download PDF of this guide