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The proposed increase of the salary threshold for overtime pay from $23,660 to $50,440 per year, as of this year, is “too much, too fast,” testified Nancy McKeague, SHRM-SCP, senior vice president and chief of staff at Michigan Health & Hospital Association (MHA) in Okemos, Mich.
Testifying March 29 on behalf of the Society for Human Resource Management (SHRM) before the U.S. House Committee on Education and the Workforce at a field hearing in Michigan, McKeague said that exempt or nonexempt classification decisions are particularly challenging, as they rely on objective and subjective factors.
She noted that the position of executive director of the MHA’s foundation, established to support hospitals and community partners, was challenging to classify because the individual supervised only one employee. Ultimately, the executive director position was classified as exempt under the white-collar exemptions because of her autonomy, her experience and the MHA’s confidence in her judgment, noted McKeague, who is a member of the SHRM Labor Relations Special Expertise Panel.
The jump in the salary threshold—a 113 percent increase, moving the salary level to the 40th percentile of earnings for all full-time salaried workers—presents significant challenges to small employers, she said. The MHA already was trying to stay ahead of the salary threshold for exempt employees, pegging their salaries at least at 30 percent of earnings for all full-time salaried workers, McKeague said, adding that she is offended by the way the rule “starts with the premise that none of us treat employees correctly.”
She observed in written testimony that, “As for the impact on MHA, we will need to reclassify 7 percent of our workforce, costing $35,000 in additional payroll cost in the first year alone.” The rule’s automatic increases in the salary threshold would require more increases in payroll costs, as well as 401(k) contributions and life insurance premiums, she said.
“In addition, reclassifying employees and adjusting salaries in response to the new salary threshold will likely cause wage compression issues with entry-level and midlevel employees’ salaries nearing the level of their managers,” McKeague remarked. “In order to offset these issues, MHA will need to provide additional salary increases for the managers and directors, adding to the initial payroll costs.”
McKeague expressed SHRM’s support for the Protecting Workplace Advancement and Opportunity Act, H.R. 4773, to nullify the current overtime proposal. She noted that the bill would not prevent the Department of Labor (DOL) from moving forward with changes to the overtime regulations. “It simply requires the DOL to perform an economic analysis of how changes to overtime regulations will impact nonprofits, small businesses and employers in other industry sectors before issuing a new rule,” she stated. The bill also would prohibit automatic increases to the salary threshold.
No Disastrous Effects?
Dale Belman, a professor at Michigan State University’s School of Labor and Industrial Relations in East Lansing, Mich., countered that the DOL rule would not have disastrous effects.
The current salary threshold level is below the U.S. poverty level, he said, adding that the proposed change in the salary threshold would “not quite restore where we were in 1975,” referring to the salary threshold’s percentage of earnings for all full-time workers.
However, Laurita Thomas, associate vice president for human resources at the University of Michigan in Ann Arbor, Mich., said the DOL’s rule was “cost-prohibitive,” and would affect 3,100 people at the university. She estimated that it would cost the university alone $34 million, and cost the entire university system $60 million for its 11 institutions.
University research could be inhibited as a result, she said, predicting that the overtime rule would force the university to employ fewer postdoctoral researchers.
Rep. Rob Bishop, R-Utah, asked Thomas whether the rule would impact tuition. Thomas answered, “It is inconceivable to me that it would not affect tuition.”
Thomas faulted the rule for having a short implementation period, suggesting that it would be more palatable if its implementation were phased in over several years.
Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.
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