The rule would change the salary threshold for those who are exempt from receiving mandatory overtime pay. Currently, 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.
The DOL estimates that 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 mid-sized businesses—would struggle to absorb the increased labor and litigation costs.
The Frisco Chamber of Commerce estimates that 71 percent of its member businesses—many of which are nonprofits and small businesses—would be affected by the proposed rule if implemented. Shona Huffman, Frisco chamber director of governmental affairs, said the proposed rule is so broad and extreme that it would adversely affect businesses.
“Before enacting these, [the DOL] needed to do more research and delay and find out the true impact of this,” she said.
Time for a change
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.
Effect on businesses
The effect of this salary level increase would be felt in all businesses both big and small as well as nonprofits, Huffman said.
Huffman said the Frisco chamber, which is a nonprofit organization, estimates that its yearly additional cost under the proposed rule would be about $30,000 per year.
On the national scale, the National Retail Federation estimates that the proposed overtime changes would cost restaurants and retailers between $5 billion and $9 billion per year.
“I think it’s safe to assume that for any company, this is going to increase costs.”
—Lance Kimrey, Frisco Family Services director of business services
Some larger Frisco entities fear they would have to cut their employees’ hours to below full-time, which could mean employees could lose their insurance benefits, Huffman said. Other smaller businesses say they would have to increase costs, which would affect consumers, she said.
In an informal survey conducted by the chamber, 80 percent of respondents who said the new law would affect their business said they have one to five employees in their business, which shows that most businesses affected by the rule would be small businesses, Huffman said.
“Small business is the backbone of the business community and of every community,” Huffman said.
Currently, the proposed rule does not include an exemption for small businesses or nonprofits.
Lance Kimrey, director of business services for Frisco Family Services—a nonprofit organization—said FFS would likely incur costs related to increased payroll processing if the rule is implemented.
“I think it’s safe to assume that for any company, this is going to increase costs,” he said. “I don’t think there’s any way around that.”
Businesses that have not had to track employees’ hours before because they were exempt from overtime pay would likely have to implement new methods to track hours, which would include any work done outside of the office via cell phone or computer, Huffman said. This could mean taking away flex time options, which is where an employee can work more hours one day and fewer hours the next to even out the time worked.
“One reason a lot of us as salaried workers like the fact that we’re on salary is that we don’t punch a time clock,” Huffman said. “We don’t have to be accountable for punching a time clock every 15 minutes. We get a little flexibility in that. This would take away that flexibility.”
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 says 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.”
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.
Though the comment period has closed, the Frisco chamber is gathering more information and talking with elected officials in hopes of revising the proposed rule.
“Any raises that they make need to not be extreme,” Huffman said. “They need to be slow. They need to be over time. No one is arguing that they should not raise that threshold, but certainly nearly doubling that threshold will have a negative impact.”