Obama mandate on overtime rules could cost businesses

The Obama administration gave plenty of warning to the business community that new overtime rules were coming. More than a year, in fact.

In March 2014, the president directed the U.S. Department of Labor to review the overtime rules related to the country's wage-and-hour law, the Fair Labor Standards Act. It quickly became apparent that changes would be forthcoming, and the new rules are expected by this summer.

Under the FLSA, non-management workers must be paid extra for hours worked beyond 40 hours a week at one-and-half times their regular hourly wage.

At issue is salaried employees, who can claim overtime pay if they make below a set salary threshold, which has been at $455 per week since 2004. Examples could include restaurant or convenience store managers, although the law includes exemptions as well.

Obama has said he wants to raise that figure, making more people eligible for overtime pay.

“That threshold has failed to keep up with inflation, only being updated twice in the last 40 years and leaving millions of low-paid, salaried workers without these basic protections,” according to a White House overtime fact sheet.

Today, just 12 percent of salaried workers fall below the threshold, compared with 18 percent in 2004 and 65 percent in 1975, the fact sheet noted.

If the $455 overtime threshold had risen with inflation, it would be about double that figure today, said Michael McAuliffe Miller, labor lawyer for Eckert Seamans Cherin & Mellott LLC in Harrisburg. That would mean millions of additional workers would be eligible for overtime pay.

The first task for the federal government is to find the right approach, Miller said.

“The question is really what's the most effective solution? Is it, one, to raise that threshold, or is it, two, to re-address the language of that exemption?” he asked. “Or is it both?”

Different sides

The National Retail Federation is adamantly opposed to expanding overtime eligibility. The Washington, D.C., trade association recently surveyed retail and restaurant managers nationwide and found that 72 percent said it would add costs, and 81 percent said it would negatively affect customer service.

Stephen Schatz, senior director, media relations for the NRF, said members are holding off on commenting until the new rules are announced. But he shared a recent comment from David French, NRF senior vice president for government relations:

“Managers overwhelmingly disapprove of changing federal overtime rules for exempt employees, because they understand that these new rules will negatively impact their careers, their businesses, their employees and their customers,” French said.

Wendell Young, president of United Food and Commercial Workers Union Local 1776, said few members in his union will be affected by any rule changes. UFCW contracts ensure hourly pay for managers, he said. Based in Plymouth Meeting, the UFCW has a Harrisburg office.

Still, Young blasted opponents of overtime changes.

“I think it's shameful that at a time when CEO compensation has soared in this country that people are relying on outdated rules that allow them to pay people very little for the work they do,” Young said. “It's just another way to deny people a fair wage.”

'A concern'

The Manufacturers' Association in York surveyed its members most recently in 2013 about their policies toward overtime hours. Forty-three percent of respondents offered some form of overtime pay for salaried professionals, supervisors and managers who worked more than 40 hours a week, Executive Director Tom Palisin said.

Those numbers were down from the association's previous 2011 survey, in which 48 percent of manufacturers said they offered overtime.

Later this month, the association is hosting a session on when employees are eligible for overtime. In June, the organization is having another session to discuss the details and changes to the FLSA, Palisin said.

“Any time we're potentially adding costs to manufacturers' operations, it's a concern,” he added. “I think, for the most part, manufacturers are cognizant of that issue, so it might not impact them as much. It might impact folks who don't have as formalized of a workplace structure.”

Miller said the White House is in a tenuous position when it comes to rule changes that affect compensation. The growing movement for higher wages, combined with the costs associated with the Affordable Care Act, is putting the squeeze on employers as it is, he noted.

“If the government comes out with a threshold that equally disappoints both sides, they're probably going to get it just about right,” Miller said.

What is ‘overtime’?

Workers covered by Fair Labor Standards Act overtime provisions must be paid at least “time-and-a-half,” or 1.5 times their regular pay rate, for each hour of work per week beyond 40 hours.

Hourly workers are granted overtime pay after working beyond 40 hours. For salaried workers, it’s more complicated. Those who earn below $455 per week, or $23,660 per year, are automatically eligible for overtime pay, regardless of their job duties.

Salaried workers earning more than $455 per week can be exempted from overtime pay if they fall into one of three categories: professionals, administrators and executives. Each of these exempt categories is defined by a set of duties showing that the exempt employee is skilled and exercises independent judgment or is a boss with a department and employees to supervise.

The regulations aim to exclude from overtime protections those workers who have enough individual bargaining power that they do not need them — namely, professional and managerial employees who do relatively high-level work, have a relatively high degree of control over their time and tasks and who earn a salary that reflects this.

Source: Central Penn Business Journal