SHRM Testimony Details Overtime Rule’s Impact on Small Business

By Lisa Nagele-Piazza June 24, 2016
SHRM Testimony Details Overtime Rule’s Impact on Small Business

​Overtime eligibility continues to be hotly disputed

The Society for Human Resource Management (SHRM) and employers across the country have serious concerns with the implementation of the Fair Labor Standards Act (FLSA) final overtime rule, a SHRM member testified before the House Small Business Committee on June 23.

Several small business owners and the chairperson of a Nevada county commission expressed similar concerns about the effect of the new overtime rule on cost, workplace flexibility and employee morale.

An economic policy nonprofit representative, however, testified that the Department of Labor's (DOL's) action will provide raises to millions of workers and reduce the amount of hours employees will have to work to earn the same pay.

The new rule will raise the exempt salary threshold from $23,660 to $47,476, starting on Dec. 1, 2016. Employees who earn less than $47,476 must either be provided a pay increase in order to reach the threshold or be converted to nonexempt status and paid overtime wages.

"Small businesses and nonprofits in particular may be disproportionately impacted by the rule's dramatic—more than 100 percent—increase to the salary threshold," testified Christine Walters, SHRM-SCP, J.D., on behalf of SHRM.

Walters is the sole proprietor of FiveL Company, a human resources and employment law consulting practice. Many of her clients are small businesses, "including small government contractors and small nonprofits with limited flexibility in the budget," according to her testimony.

"While SHRM supports an increase to the salary threshold … the final overtime rule may be too far, too fast," she said during the House committee hearing.

Rule Will Reduce Flexibility

Under the DOL's final rule, newly nonexempt employees will likely face reduced workplace flexibility opportunities, Walters said.

For example, in exchange for working extra hours one week, a salaried employee can leave work early the next week for a parent-teacher conference—without having to take sick leave or vacation time.

Nonexempt employees cannot be afforded the same flexibility. If they work for more than 40 hours in a week, they must be paid overtime. The hours worked in excess of 40 one week cannot be offset by taking time off the next week.

"It's clear to me and others that nonexempt employees do have fewer options and less flexibility to manage work/life needs than exempt employees," Walters said.

Adam Robinson, co-founder of HR technology startup Hireology, said the overtime rule will adversely affect technology companies, and the one-size-fits-all policy will disproportionately hurt small businesses.

Robinson was testifying on behalf of the Job Creators Network, a nonpartisan business advocacy organization. He said employees in the "capital-constrained technology startup sector" frequently trade the long hours and lower pay that often comes with the launch of the business in exchange for the opportunity to achieve greater financial and professional success later down the road.

Employees voluntarily enter into high-risk, high-reward ventures for the potential payout later, he said. "We don't want to regulate these opportunities out of existence."
Compliance Challenges for Small Employers

A proponent of the rule, Ross Eisenbrey of the Economic Policy Institute said the DOL's rule makes it much easier for nonprofits to comply with the law because they don't have to look to the executive, administrative or other duties tests for employees earning less than $47,476.  The rule simply says, "If you pay your employees less than $47,476 a year, pay overtime."

Eisenbrey said the rule "will hardly make a dent in most employers' payrolls and profits," but Robinson disagreed.

"This is going to take our costs up 20 percent," he said. "That means we shift very, very scarce resources from one part of the business, where we can maximizlise our growth and create more opportunity, to complying with this rule and to hitting a salary threshold."

Furthermore, for small businesses and nonprofits that often have one person responsible for human resources and payroll, navigating these complex rules can add an additional compliance burden that's overwhelming, Walters testified.

Employers will have to consider a variety of federal, state and local laws that apply to nonexempt employees, like travel and on-call pay, required meal and rest periods, and limits on mandatory overtime.

Small businesses and nonprofits cannot simply raise their fees for services to offset the increased labor costs, Walters said. They must find additional money or obtain an increase from public- or private-sector funding sources, all of which are limited.

"We strongly support House Resolution 4773, the Protecting Workplace Advancement and Opportunity Act, which simply seeks more time for further study on the economic impact of the rule and what [effect] it will have on employers of various sizes, industries, sectors and locales," Walters said.

The proposed bill would nullify the rule and require the DOL to conduct a comprehensive economic analysis on the effect of raising the salary threshold on small businesses, nonprofits and other industry sectors.

It would also prohibit automatic increases to the salary threshold and would require that any proposed changes to the duties test will go through the formal notice and comment process.

"While SHRM supports an increase to the salary threshold over time, challenges arise if the increase is too high; is implemented too quickly; or fails to consider economic, fiscal, geographic and industry differences," Walters said.

SHRM and its members look forward to working with Congress to improve this rule in a way that works for employers and employees, she added. 

Lisa Nagele-Piazza, SHRM-SCP, J.D., is the senior legal editor for SHRM.



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