Lawmakers Debate Change to Overtime Salary Threshold

During a hearing of the U.S. House Committee on Education and the Workforce on Nov. 29, there was little agreement over the impact the U.S. Department of Labor’s (DOL’s) proposed overtime rule would have on average workers.

Supporters said it would increase incomes and work/life balance for employees, while opponents argued it would lead to job cuts, fewer career advancement opportunities and lower morale.

The proposed rule would:

·       Increase the salary threshold for overtime exemptions from $684 per week ($35,568 annually for a full-year worker) to $1,059 per week ($55,068 annually for a full-year worker). The increase reflects the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region (currently the South).

·       Increase the salary threshold for highly compensated employees from $107,432 annually to $143,988 annually. The increase reflects the earnings of the 85th percentile of full-time salaried workers nationally.

·       Implement automatic increases every three years to all salary thresholds.

‘Misguided’ or Necessary Policy?

Rep. Kevin Kiley, R-Calif., said the proposed rule would jeopardize businesses and “couldn’t come at a worse time” because of recent high inflation and financial losses that occurred during the pandemic.

“If employers can’t afford the new mandate, many will be forced to simply lay off their employees,” he said. “While some employers may choose to increase salaries to surpass the new threshold, these possible benefits to a small percentage of the workforce must be balanced against the many certain harms.”

Jagruti Panwala, an owner of eight hotels across the country and a board member for the American Hotel and Lodging Association in Washington, D.C., said the rule would have devastating effects on the hotel industry. “This misguided rule by the administration will provide less flexibility, and many will be forced to lay off their employees just to stay in the business. This is an outcome no one wants,” she said.

However, Judy Conti, director of government affairs for the National Employment Law Project in New York City, said layoffs aren’t the only option for employers. They could raise salaries beyond the overtime threshold, pay overtime, reassess workloads, hire additional staff or give more hours to part-time workers, she explained.

Rep. Alma Adams, D-N.C., said a salary threshold increase is necessary. “Every day, millions of hardworking Americans work long and strenuous hours without adequate pay,” she said. “Many workers push 50- to 60-hour workweeks without fair pay or adequate overtime pay protections. These unscrupulous practices encroach on workers’ rights.” Adams emphasized the need to protect workers’ time, as well as their paychecks.

Rep. Haley[CG1]  Stevens, D-Mich., also supported the salary threshold increase. She expressed concerns about employees’ commuting costs, housing costs and long hours at work, as well as low minimum wage in some locations[CG2] [LS3] .

However, Douglas Holtz-Eakin, president of the American Action Forum, a Washington, D.C.-based nonprofit conservative advocacy group, said there’s “no compelling case for raising the threshold at this time. It’s a poorly targeted redistributional policy. It would come at the expense of raises for people who are retaining their jobs and don’t work any overtime.”

Federal regulations have been harmful to employers at a time when they’re also struggling with high inflation, supply chain issues and workforce shortages, said Rep. Mary Miller, R-Ill. The overtime rule “will create another new burden for small businesses struggling to survive” and “will only add to the current workforce shortage,” she said.

Initially, companies may pass along the overtime costs in the form of higher prices for goods and services, Holtz-Eakin said. “Adding additional cost pressures for firms at this time is an unwise course for policy,” he said. “The economic fallout by and large is going to be negative for the U.S. economy.”

Different Views on Automatic Increases

Conti said that automatic increases will benefit multiple stakeholders. “It’s fabulous government practice to do something that is efficient, that keeps things steady for workers and keeps things steady for employers,” she said. Employers “want to be able to plan. They want predictability. They want bright-line rules,” and the proposed rule provides that.

In public comments submitted to the DOL on Nov. 7, SHRM said it supports regular and reasonable increases to the overtime salary threshold but opposes automatic increases. The proposed rule “creates a mechanism that automatically adjusts the salary threshold, potentially setting up a system in which, over time, the salary threshold would vastly outflank the duties test in terms of impact and importance,” SHRM wrote.

“Automatic increases are bad policy and bad government practice,” Kiley said. “This new rule is simply unneeded at this time.”