Overtime Rule ‘Inspires Mediocrity’

By Allen Smith Oct 13, 2015
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The flattening of wages that will result from the Department of Labor’s (DOL’s) proposed overtime rule, if finalized in its current form, “just inspires mediocrity,” according to Terry Shea, co-owner of a gift store, Wrapsody Inc., in Hoover and Auburn, Ala., quoting one of her employees’ views of the rule.

Under DOL’s proposal, the salary threshold for exempt employees would be raised from $23,660 per year ($455 per week) to the 40th percentile of earnings for full-time salaried workers, estimated to be $50,440 per year ($970 per week) in 2016. The threshold would automatically increase each year. Nonexempt employees who don’t earn the threshold amount would not qualify for the white-collar exemptions and would be eligible for overtime.

In an oversight hearing on the proposed rule, Shea testified before the House of Representatives Small Business Committee on Oct. 8, 2015, that the rule would result in her paying the same wage to store managers and assistant managers. Others testified that hours and benefits would be cut.

“My expenses are fixed,” explained Shea, who spoke on behalf of the National Retail Federation. But paying the same wage to both groups of employees is “just not right.” The store managers have more responsibility and experience.

“And we do not overwork our employees,” she testified. “I know there probably are some companies that do, and shame on them.”

But this proposed rule will get rid of entry-level salaried positions, as well as middle management, she predicted.

Store managers and assistant managers currently go to wholesale gift markets to meet with key vendors and network with other retailers. They also attend offsite retreats where everything from time management and staffing opportunities to development, marketing and advertising are discussed, she added in written testimony. “The Department of Labor’s proposed overtime rule will suffocate this type of employee development,” she stated.

“Diminished flexibility will also negatively impact customer service,” Shea noted. “Right now, if a customer walks in the store a few minutes before 6 p.m., my managers assist those customers in finding the unique gift they require, even if it means having a customer in the store after closing. They would never shoo a customer out right at 6 p.m.!”

But, “as nonexempt employees, my managers will no longer have the flexibility to accommodate those customers,” she said.

Construction Industry’s Response

The construction industry also will have to make difficult choices in response to the proposed rule, should it become law, said Ed Brady, president of Brady Homes Illinois in Bloomington, Ill., which primarily builds single-family homes.

Construction supervisors need flexibility to work long hours on weeks when the weather is good and to deal with scheduling changes to ensure that projects stay on track, he noted. The supervisors need to be able to respond to e-mails and phone calls after hours, in the evenings and on weekends.

“If the proposal becomes law, I will have to seriously consider replacing my employed supervisor with an outside contractor, because it will allow me to accurately project my costs,” Brady said, speaking on behalf of the National Association of Home Builders. “More than doubling the overtime threshold will do more harm than good.”

Brady observed in written testimony that the association recently surveyed 373 builders about overtime issues and construction supervisors. Of the 64 percent of respondents that had construction supervisors, 86 percent said the supervisors were salaried.

Among the unspecified number of firms that said they would make changes as a result of the proposed rule:

  • 56 percent indicated that they would minimize overtime, such as cutting workers’ hours.
  • 55 percent said they would reduce or eliminate bonuses.
  • 27 percent said they would raise the salary above the $50,440 threshold.
  • 19 percent stated they would reduce or eliminate health insurance.
  • 13 percent said they would reduce the salary to compensate.
  • 13 percent stated they would switch from a salary to an hourly wage.

(Some respondents would take more than one action in response to the proposed rule, which is why the percentages add up to more than 100 percent.)

Rule Proponent

But the proposed rule has some staunch supporters, including Ross Eisenbrey, vice president of the Economic Policy Institute in Washington, D.C., a nonprofit think tank that addresses the needs of low- and middle-income workers in economic policy discussions.

“Work/life balance is precisely what the Fair Labor Standards Act (FLSA) is about. Because of its requirement to pay most employees a premium for time worked beyond 40 hours in a week, the FLSA is the single most important family-friendly law ever passed in the United States,” he remarked. “If not for the law’s overtime rules, tens of millions more workers would be working 50, 60 or 70 hours a week for no additional pay.”

Eisenbrey said the increase in the salary threshold “would be the most important improvement in the labor standards of America’s working families in many years.

“Large percentages of managers and other white-collar employees say that increasingly, the law is failing to protect them,” he stated in written testimony.” They don’t have enough time for their families.”

He added that:

  • An Ernst & Young survey found that too little pay and excessive overtime are among the three most common reasons employees quit.
  • Approximately half (46 percent) of managers work more than 40 hours per week, and 4 in 10 say their hours have increased over the past five years.
  • Younger generations’ hours have increased the most in the last five years, at a time when many have moved into management and started families—47 percent of managers from the Millennial generation reported an increase in hours, along with 38 percent of managers from Generation X and 28 percent from the Baby Boomer generation.
  • Of managers, a slightly larger share of parents who work full time (41 percent) than nonparents (37 percent) have seen their hours increase in the last five years.

“The implications of this overwork are obvious in terms of work/life conflict,” Eisenbrey noted. “Who will take care of the kids? Who will go to their ballgames, school plays or counseling meetings? The conflict is especially intense because children increasingly have two parents working at least 35 hours per week.”

Costs of Proposed Rule

However, Kevin Settles, president and CEO of Bardenay Restaurants & Distilleries in Boise, Eagle and Coeur d’Alene, Idaho, believes that the costs of the proposed rule are too high.

Newly overtime-protected employees “could lose flexibility, as well as benefits, including substantive bonuses, paid vacation, flextime, paid holidays and health insurance,” he observed in written testimony on behalf of the National Restaurant Association.

“I’ve been open for 16 years. I have a GM [general manager] who’s been there for 15 years. I have a GM who’s been there for 13 years. I have a GM who’s been there for nine years. That’s almost the length I’ve been open in every place. We’re not losing employees because we don’t pay enough,” he said.

And there’s the opposition of workers themselves to the doubling of the salary threshold for exempt status.

“Throughout the proposed regulation, the department created the impression that salaried employees feel they are being taken advantage of by virtue of their exempt status,” Settles stated. “In reality, employees often view reclassifications to nonexempt status as demotions, particularly where other employees within the same restaurant continue to be exempt. Most employees view their exempt status as a symbol of their success.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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