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. 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.[polldaddy poll=9312323] Grapevine Chamber of Commerce CEO RaDonna Hessel said because the ruling has a potential to affect businesses in different ways, both negatively and positively, the Grapevine chamber has not been able to take a position on the issue. “While there has been much discussion, the Grapevine chamber’s board of directors has not taken a position on this specific issue,” she said. “While everyone wants employers to pay fair and reasonable wages to any employee, the consideration of government regulations versus free enterprise is always a challenge. The other area of discussion is that the concept seems to benefit the employee until you consider the cost to the employer would possibly bring fewer jobs and fewer hours or higher costs for that business’s products or services. Our Legislative Advisory Council has provided their views for further discussions, but currently there is no definitive position.” While the Colleyville Area Chamber of Commerce has not taken a position, president Connie Hanner said she thinks employees deserve to get paid for the work they do after hours. “I believe that any [salaried] employee who works more than 40 hours per week should be paid overtime, no matter what their pay threshold,” she said. “Any employer who finds themselves in a situation where they experience a cash-flow issue which prevents them from properly compensating employees should reach out to their local chamber, Service Corps of Retired Executives or other free services for advice on cash management.” Southlake Chamber of Commerce President Mark Guilbert said the organization has not taken a stance on the proposed rule but could possibly do so in the future.

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 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 or less. However, the 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. 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.

Effect on businesses

The effect of this salary level increase has the potential to be felt in all businesses both big and small as well as nonprofits. 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. Steve Brown, owner of Esparza’s in Grapevine, said restaurant managers would be greatly affected by the ruling. “In the restaurant-management business nobody works 40 hours a week; they work at least 50 hours,” he said. “It’s just the nature of the business. When they are hired they are given a contract, which tells them our expectations, and that includes the hours and they agree to it.” 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. 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. 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.” Brown said he believes sometimes business owners can get a bad reputation when it comes to wages and pay. “I think sometimes people have the perception that owners are the big bad wolf, but that is not true,” he said. “We care about our employees. I have more than 20 people that have been with me for 20 years or longer.”

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. Brown said if the decision does pass, he does not believe it will cause a lot of businesses to close. “I think it will maybe change their pay structure and other things, but it won’t have a drastic effect on business closures,” he said. “I would prefer it not to pass, but if it does [businesses] will just have to adjust just like we did for Obamacare,” Brown said. “You have to if you want your business to survive.”