Businesses Confront Overtime Rule Deadline
By Jim Truesdell
A flurry of last minute efforts are underway to stem the tide of confusion and ease the pressure on businesses to comply with the December 1 deadline for the new Department of Labor overtime rule.
But business people are struggling to be ready as time is running out for a last minute extension.
On September 20, two federal lawsuits were filed. One was on behalf of twenty-one state attorneys general and the second by a coalition of business groups. At the same time members of Congress began signing on as cosponsors of bills in both the House and Senate to provide a unified approach to dealing with the issue. But time clearly is of the essence! As these last minute court and legislative maneuvers unfold companies should continue to prepare for the implementation of the radical increase in the threshold defining which “non-exempt employees” must begin to track their hours worked for the purposes of compensating them for weekly hours in excess of forty.
The House of Representatives passed a bill to extend the due date for an additional six months. The White House immediately countered with a statement of intent to veto the bill if the Senate followed the House Action. It appeared doubtful that the votes could be garnered to override a veto so hope for relief centered more on the pending legal actions, though the brief time window made those prospects cloudy also. The whole process showcased a majority in the Congress struggling to respond to the pleas of their small business constituencies in the face of a President determined to add one more piece of his agenda to his legacy as his time in office moved to a close.
This new rule updating the Fair Labor Standards Act is a unilateral action by the Obama Administration and its Labor Department. It is an end run around the Congress to accomplish another lengthy reach for activists who are politically friendly to the Administration. The December due date places the fight in the context of the election season and makes it difficult for legislators who understand the impact this action will have on small businesses and the economy. Few senators or congressmen up for reelection will find it easy to stand up and delay what many of their constituents will have been told will be their “raise”. It is certainly time to address the threshold. There are those “supervisors” and “managers” who are no doubt exploited as their employer pays their salary and expects them to work excessive hours. But the proposed immediate jump in the threshold from the current level of $23,660 per year to $47,476 is a big bite to swallow all at one time.
As the reality of the oncoming changes looms, literally millions of employers have been furiously reviewing their salary schedules to see which of their customer service, foremen, branch managers and other mid-level people will need to have compensation adjustments. These changes could take the form of conversion of salaries to hourly wages, modest salary increases designed to place people above the limits, or redefining job descriptions and duties to either maintain exemptions or to take people out of the role of management since they might no longer have the free rein to work longer hours needed to lead their workers. As the days until implementation counted down, companies seemed intent on finding ways to see that workers are fairly compensated but without structural changes that would entail large hits to the bottom line that might render a business uncompetitive.
A study undertaken by Paychex reported on a survey of small business where thirty-three per cent believed the new overtime rule would have a significant impact on their business, twenty-one per cent plan on redistributing hours to minimize overtime, and seven per cent plan to adjust salaries to comply with the rule. My own conversations with business owners led to an observation that financial service companies and those whose skilled and educated employees command higher salaries are the least affected, while those whose workers are likely to be unskilled, without higher education, mechanically oriented or educated in the soft skills like social work or counseling are most likely to face significant numbers of workers whose situation must be addressed.
The states’ lawsuit echoes language in an earlier Obamacare health insurance suit which challenged Medicaid expansion under the ACA as being coercive in violation of the constitution. The complaint lodged by the attorneys general points to the administrative difficulties as well as the increased labor costs which will be faced by the states, local governments and private businesses which will threaten disastrous consequences for the economy. The suit also challenges the proposed automatic update to the salary threshold every three years without use of the rule-making process and without taking into consideration whatever are the prevailing economic conditions at the time. The analysis underlying the proposed new level is also faulted as relying too heavily on the salary amount alone and not being sufficiently concerned with the actual kind of work being performed. Finally, the suit alleges that the DOL was “arbitrary and capricious” in adopting the new threshold. It also alleges that the rule does not comport with the intent which Congress originally intended in passing the law and that it ignores regional and industry differences in an effort to impose a “one size fits all” salary scheme.
Indeed, business opposition has been widespread not only from small business but from the larger corporations. Randy Johnson, Senior VP of the United States Chamber of Commerce said “We have heard from our members, small businesses, nonprofits and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done.” He said it would reduce workplace flexibility, curtail remote electronic access to work, and stifle opportunities for career advancement.
That last concern could be a real threat to our economic culture which is at the heart of free enterprise. There have always been ambitious young professionals willing and eager to put in long hours to demonstrate their productivity and commitment to the job. That’s how one gets ahead and vies for promotion. Now many of these same up and coming individuals will be prohibited from showing that “can do” attitude because overtime efforts will be discouraged for budgetary reasons. Everyone will fall back into lock step when it comes to productivity. Of course, some people will hail that as a necessary adjustment to our workplace culture in the name of work/life balance. The pressure to step out ahead of the crowd and set a higher standard will be eased. A little more of the “fire and spirit” of tomorrow’s business leaders will be extinguished. But that is no doubt what liberal ideologues want.
Texas Attorney General Ken Paxton, a leader in the lawsuit effort, said “The numerous crippling federal regulations that the Obama administration has imposed on businesses in this country have been bad enough. But to pass a rule like this, all in service of a radical leftist political agenda, is inexcusable.”
For the moment, businesses must be auditing their workforce and identifying those salaried workers on the edge who may need to be treated differently under the new rule. We cannot afford to be unprepared when the deadline hits us. It will be a mathematical challenge to come up with a fair and equitable substitute for current compensation levels. But it will also be a cultural challenge to convince entry level managers and supervisors that they are just as valued to their companies as hourly wage earners as they were being paid a set amount to accomplish a given important task.
Let us see if the next few weeks will bring some reasonable modifications to the timing or substance of the new rules as the court and legislative efforts continue.