SHRM Testimony to Congress: Nonprofit Services Will Be Drastically Cut Under Overtime Rule

More legislation to block the final rule introduced

By Allen Smith, J.D. Jun 10, 2016
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Two days after Republican senators introduced legislation to block implementation of the Fair Labor Standards Act (FLSA) overtime rule, a member of the Society for Human Resource Management (SHRM) testified before the House Education and the Workforce Committee about the rule’s potentially devastating impact on nonprofit organizations. A higher-education and business representative aired similar concerns.

But an economist testified that the rule was long overdue and described opposition to it as “misguided,” predicting it would have a “negligible impact.”

Congressional Review Act Legislation

Sen. Lamar Alexander, R-Tenn., and Sen. Ron Johnson, R-Wis., introduced their Congressional Review Act legislation on June 7, a bill that if enacted would nullify the final rule and prohibit the administration from issuing a substantially similar rule without congressional approval. Forty-four senators co-sponsored the legislation.

President Barack Obama’s administration “is adding yet another regulation that will increase costs to businesses, nonprofits and colleges; depress entrepreneurial spirits; and cause negative unintended consequences for employees,” Johnson said.

While Obama or a Democratic successor likely would veto such a congressional resolution, presumed Republican party nominee Donald Trump, if elected president, likely would support it, according to James Swartz, an attorney with Polsinelli in Atlanta.

A bill to block the overtime rule, S. 2707 and H.R. 4773, already was introduced in Congress on March 17. That bill has been referred to the Senate Committee on Health, Education, Labor and Pensions.

SHRM Testimony

The doubling of the exempt workers’ salary threshold leaves nonprofits “no other option but to drastically reduce services in order to continue to operate,” said Tina Sharby, SHRM-SCP, chief human resources officer, Easter Seals New Hampshire (Easter Seals NH) in Manchester, N.H., testifying on behalf of SHRM before Congress on June 9. Easter Seals NH helps individuals with disabilities in many ways, such as through its child development centers, physical rehabilitation programs and job training for people with disabilities. Easter Seals NH is the parent organization of Easter Seals Rhode Island, Easter Seals Maine and Easter Seals Vermont.

Raising the exempt salary threshold from $23,660 to $47,476 will cost Easter Seals NH $427,000 in the first year alone, Sharby testified. Approximately 280 of its employees will need to be reclassified from salaried exempt to overtime-eligible nonexempt, she noted.

“A program at significant risk is the Military and Veterans Services Care Coordination program, where services are provided 24/7 for our veterans in emergency situations,” Sharby said. “Since the program’s inception, we’ve responded to over 100 incidents, significantly reducing the risk of suicide. Because of the potential cost for overtime under the final rule, Easter Seals NH will be forced to limit our ability to provide around-the-clock care and lessen these lifesaving support services.”

Belt-Tightening in Higher Ed

Michael Rounds, associate vice provost for human resources management at the University of Kansas (KU) in Lawrence, Kan., predicted the overtime rule would lead to tuition increases, reductions in services and even layoffs in higher education.

“As of June 6, 2016, the university has 354 currently exempt employees impacted by the revised FLSA overtime rule,” Rounds said in written testimony. “The projected cost to raise these employees to the new annual salary threshold of $47,476 is $2,937,980.” The alternative is to switch the employees to nonexempt status and pay them overtime, which would cost $2.3 million if they each worked just five overtime hours per week, he added.

“Since neither of these options is currently financially feasible for any of KU’s units, it is inevitable that there will be a significant reduction in the services currently being provided,” he stated.

Impact on Business

Alexander Passantino, an attorney with Seyfarth Shaw in Washington, D.C., and former acting administrator of the Department of Labor’s Wage and Hour Division, set out in his written testimony the numerous results to business of converting employees to nonexempt status:

  • Harming the ability of employers to provide, and employees to take advantage of, flexible scheduling options.
  • Treating employees in the same job classification differently based on regional cost-of-living differences.
  • Limiting career advancement opportunities for employees.
  • Decreasing morale for those employees who are “demoted” to nonexempt status.
  • Increasing FLSA litigation based on off-the-clock and regular rate of pay claims.

“Complicating the analysis is the fact that the department’s revisions would require employers to revisit these issues every three years,” Passantino stated. The exempt salary threshold is to be automatically increased triennially.

Rule’s Supporters

The panel before the House committee included one strong advocate for the new rule, Jared Bernstein, senior fellow with the Center on Budget and Policy Priorities in Washington, D.C., a research institute focusing on policies designed to reduce poverty and inequality.

“While much ink has been spilled over the complexities of the new rule, what’s actually happening here is extremely simple,” Bernstein stated. “The salary threshold was ignored for decades, other than a notch up in 2004. The new increase, while historically large, does not even bring the threshold back up to its historical peaks,” taking inflation into account.

Bernstein stated that the rule was supported by 60 percent of the general public, according to a recent Morning Consult poll, and predicted it would “come to be viewed as an important and positive intervention on behalf of middle-class families.” Morning Consult is a media company based in Washington, D.C., that covers politics, policy, Wall Street and business strategy.

Bernstein also noted that some nonprofits and institutions of higher education have come out in support of the rule.

These nonprofits include the NAACP and YWCA USA, which stated in an Economic Policy Institute (EPI) letter from nearly 140 nonprofits that “this rule represents an important step toward fairer pay for women and people of color, who are overrepresented in lower-paying jobs and are often required to work additional hours without compensation.” The EPI is a think tank based in Washington, D.C., that focuses on the needs of low- and middle-income workers.

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