The Obama administration and the U.S. department of Labor released a draft regulation aimed at changing the level at which salaried workers are exempt from overtime pay regulations. The proposed threshold of $50,440 is more than double the current mark of $23,660 established in 2004 under the Bush administration. This means that salaried workers who earn $970 per week or less would now be required to be paid overtime rates for any weeks in which they worked more than forty hours. The new regulations would take effect Jan. 1, 2016.
The rule itself was established as the “white collar “exemption of the Fair Labor Standards Act (FLSA) of 1938 which stated employees must be paid at least time-and-a-half for each hour they work beyond 40 hours a week. The FLSA was established largely in response to inhumane child labor. The employees exempted from the rule were certain categories of workers, primarily those classified as executive, administrative, or professional employees. They were declared ineligible to receive overtime pay. This exemption remains in effect today but is updated periodically by establishing thresholds at which the salaried employees are exempt.
Proponents of the rule change argue that it is a “win for workers and a win for the economy” as well as being a rule “meant to protect workers from being taken advantage of by their employers”. This would help prevent employers who, in the administration’s words, aren’t “paying their employees what they deserve” from doing so by hindering them from misclassifying their workers. They cite that “one role of government was to help rebalance those powers” (of the FLSA) by allowing workers to “claim their fair share of the productivity growth they themselves were helping to generate." President Obama himself has said recently that "In this country, a hard day's work deserves a fair day's pay” in keeping with his fairness mantra.
The growing list of opponents of the rule change, fired back by saying this demonstrates another example of “government overreach” and adds an additional “onerous regulation” to an already governmentally overburdened employer base “by creating additional costs and record-keeping headaches”. The Job Creators Network argues that “many reclassified employees will lose benefits, flexibility, status and opportunities for advancement”. Several have called this proposal a roadblock to robust and healthy economic growth and the creation of jobs.
Jamie Richardson of White Castle Systems, Inc. estimates that it will cost his company between $8 and $12 million dollars to comply with the proposed new rule and that “A large number of economists tell us our problem is a lack of business investment due to too much regulation” and this is just the latest example. The National Association of Homebuilders (NAHB) estimates that the rule will effect just under 20,000 residential construction supervisors and will lead to business owners “cutting hours to avoid the overtime requirements”. The U.S. Chamber of Commerce sees this as another in a long list of regulations implemented by this administration that negatively affect businesses by stifling innovation, increasing costs, reducing productivity and hindering entrepreneurship. The National Federation of Independent Business states that “This is going to be especially difficult for small businesses in small markets where wages are commensurate with the cost of living”. That is a large portion of our membership and it is the reason this post is presented; to make you aware of the proposal.
Because this is a “rule change” and comparable to an executive order, it doesn’t have to go through Congress to be enacted. One recourse to this is the Administrative Procedures Act allowance that the administration has to contemplate “comments and they have to take them into account and respond to them”. Groups are urging their members to comment because the volume of comments matter and the comment period shapes the legislative and legal fighting that are sure to follow once the final rule is out.
This rule is argued to effect as many as 5 million workers and as few as 0.5% of salaried workers. Is this just another in a long line of political symbolism over substance or is this new rule needed? There are strong sentiments on both sides. Perhaps we should keep in mind the words of the NFIB when they say that “the rule is the latest in a string of sweet-sounding, well-meaning regulations pushed by unions and loved by politicians and bureaucrats who don’t know the first thing about running a business”. This is especially true when President Obama says ” "That's how America should do business".
What say you?