Obama’s new OT rules could further harm businesses
By Evan Lips | May 6, 2016, 17:11 EST
Small business owners, many of whom are currently adapting to recent state and local increases to the minimum wage and facing the prospect of even more dramatic mandatory wage increases in the future, may this summer be hit even harder with yet another government wage mandate.
A proposed revision to federal labor regulations, which would make salaried employees earning up to $50,440 eligible for time-and-a-half overtime pay, is currently making its way through the federal bureaucracy.
Under the federal Fair Labor Standards Act (FSLA), certain employees who work in excess of 40 hour are entitled to be paid at a rate of time-and-a-half for their additional labor. The current proposal would raise the $23,660 annual salary (or $455 weekly) limit for white collar workers, or those working executive, administrative or professional jobs, eligible for overtime.
The proposal is currently being reviewed by the Office of Information and Regulatory Affairs, a division of the federal government responsible for examining agency regulations.
According to the federal government’s own estimates, the new rule would make more than 5 million more employees eligible for over-time pay, drastically increasing the costs for small business owners who often expect young, salaried employees to put in long hours at low pay.
The Obama Administration, which undertook efforts to “modernize and streamline” existing overtime regulations in March 2014, maintains that the proposal will result in an increase employment and reduce overwork “by incentivizing employers” to hire more employees rather than require existing employees to work longer hours, thereby reducing involuntary unemployment.
But business groups, including the U.S. Chamber of Commerce, estimate that the new rules will have a crippling effect on small businesses.
A recent report released by the National Retail Federation estimates that that overtime could potentially cost the retail and restaurant industry between $5 and 9.5 billion under the proposed changes and that that employers could spend as much as $874 million (above and beyond overtime pay) just to update payroll systems, convert salaried employees to hourly, and track hours. But the NRF report also notes that most employers will set up mechanisms to make sure that employees do not work more than 40 hours per week, so as to avoid paying overtime to salaried employees earning between $23,660 (the current threshold) and $50,440. NRF also predicts that employers will absorb the costs by cutting benefits and bonuses.
Heritage Foundation labor policy analyst James Sherk says that the new rule fails to take into account the increasing mobility of white collar workers.
“Workers eligible for overtime cannot get paid for their results and productivity. Their employer must log their hours and pay for time on the job,” wrote Sherk. “While this presents few difficulties for workers in a fixed workplace (like a store), it makes much less sense for professional employees who can work anywhere. Today millions of salaried employees check their work e-mail on their smartphones, or telework from home.
“It would effectively turn millions of salaried employees into hourly workers.”
Writing for NewsWorks.org, a mid-Atlantic nonprofit news website, Rosemary McDonough, a fundraising consultant, argues that the new policy will “create a labor force of clockwatchers” and wonders about the future of “the work ethos of salaried employees who are suddenly ‘on the clock.’”
New England reaction
In Massachusetts, the Obama administration’s overtime proposal has broad support among the state’s two Democratic U.S. senators, Elizabeth Warren and Edward Markey. Warren this week released a lengthy report “highlighting public comments from workers and their families in all 50 states in support of the proposed new federal overtime rule.”
Warren took to social media to promote her report:
Too often, lawyers & lobbyists bury the voices of American workers. It’s time to listen to workers who need a fighting chance. #overdueOT
— Elizabeth Warren (@SenWarren) May 2, 2016
Warren also claims that employers are exploiting a loophole in labor laws — specifically by classifying various workers as ‘managers’ in order to “avoid paying many salaried workers the overtime they deserved and were legally entitled to.”
Yet in his testimony to the House Committee on Education and the Workforce, White Castle’s vice president of government and shareholder relations told members that the proposed changes could inflict serious harm, especially in urban areas.
Jamie Richardson, who has been with the popular fast-food chain for eight years, spoke on behalf of the National Council of Chain Restaurants. Richardson said the new rule could further drive down youth employment.
“Chain restaurants operate in a uniquely competitive environment with slim profit margins, and would presumably take measures to mitigate the increased labor costs associated with overtime pay when salaried managerial employees who are currently classified as exempt are reclassified to ‘hourly’ status,” Richardson said.
The Automotive Wholesalers Association of New England also opposes the new regulation. “The administrative burdens from this proposed regulation would add yet another headache to small businesses already taxed plenty by the Affordable Care Act, new IRS regulations, and much more,” the AWANE claimed in a statement.
In April, New Hampshire Republican Sen. Kelly Ayotte wrote to administration officials expressing her concern about the impact of the proposed rule on small businesses and nonprofit organizations. Last year, Ayotte teamed up with Georgia Sen. Johnny Isakson and Senate Majority Leader Mitch McConnell to offer an alternative. Dubbed the Family Friendly and Workplace Flexibility Act, the Granite State Republican’s proposal would offer workers the freedom to arrange for “flex-hours” or “comp time” with employers for overtime work, instead of monetary compensation, if they so choose.
The authors of the proposal note that the bill gives private sector workers the same flexibility enjoyed by those working in the public sector.
“This legislation would enable employees to work with their employers to enter into voluntary agreements that would allow greater flexibility for workers who are looking to better balance their work-life demands,” Ayotte said in a prepared statement.
The proposal, however, is currently languishing in committee. Ayotte, currently engaged in a heated challenge from both Democratic New Hampshire Gov. Maggie Hassan and former Republican state Sen. Jim Rubens, has yet to officially weigh in on whether she opposes the new overtime proposal being touted by the Obama administration.
Once the current administrative review is complete, a final draft will be published in the Federal Register but can be challenged by lawmakers under the Congressional Review Act, a 1996 law that gives Congress the right to review new federal regulations issued by government agencies. Federal lawmakers have 60 legislative days to kill the rule — but the president can veto the action if the resolution fails to garner at least two-thirds support from both Houses.
A different approach to at least temporarily halt the rule from being enacted is currently in the works. Last month Republicans introduced legislation intended to slow down the process. Dubbed the Protecting the Workplace Advancement and Opportunity Act, the proposal calls for studying in greater detail the rule change’s potentially harmful effects.
Already, about 350 local and national organization representing small and large businesses, including nonprofits, schools and others like the American Institute of Certified Public Accountants, the Massachusetts Lodging Association and the Retailers Association of Massachusetts signed on to a statement backing the proposal.
The statement points out that despite the Department of Labor’s outreach to various business associations, “it is clear the Secretary (Thomas Perez) is not willing to reconsider the rule in a meaningful way without Congressional action.”
Sen. Tim Scott (R-South Carolina) agreed, stating that the legislation “stops the Department of Labor from irresponsibly redefining the overtime threshold without understanding the real world consequences.”
Maine Sen. Susan Collins, known one of the most moderate Republican members of the Senate, was one of the first to add her name to the 35-member list of co-signers, who all happen to be GOPers.
Although New Hampshire’s Ayotte opposes the new rule, she remains one of 19 Senate Republicans who has yet to become a co-signer of the bill to require further study of the issue.
This article has been edited to update Senator Kelly Ayotte’s position on the pending regulation.