Unprecedented Overtime Expansion Likely To Send Business Leaders Into Payroll Damage Control

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A new overtime rule expected to drop Monday has riled up the business community because it will radically expand those qualified for overtime pay.

Under the rule as it is now, managers or administrators cannot qualify for overtime if they have an annual salary of at least $23,660. The Department of Labor (DOL) released a draft proposal June 2015 that would increase the exemption threshold to about $52,000, so more workers can qualify. Business groups warn the final rule could hurt employers and workers if unchanged from the proposal.

“We have no indication, until the final rule comes out, that the administration has been listening to the business community’s perspective,” International Franchise Association Expert Michael Layman told The Daily Caller News Foundation.”When we see the new rule we will know just how much of a headache this will be for franchise business owners and how much workers will be hurt.”

President Barack Obama signed a memo March 2014 compelling his administration to expand overtime privileges to more workers. Business experts warn employers could be forced to reduce their salaried staff to overcome the added cost of labor.

“Employers are going to make changes in jobs in order to limit the amount of overtime pay they may be exposed to,” National Retail Federation Expert David French told TheDCNF. “One of the big changes right away is you’re going to have hundreds of thousands of employees in retail and probably millions of employees across the economy who are going to be reclassified.”

Employees don’t tend to start out in salaried positions and getting one is a huge advantage. Salaried employees tend to have more opportunities to advance within a company and more work flexibility than their hourly counterparts. Being reclassified as an hourly worker could become a huge setback for many employees.

“For the most part we’re talking about highly trained, college graduates who are on the fast-track to senior management,” French said. “This is going to interrupt and interdict their careers and turn them from career orientated professionals back into hourly employees.”

The Fair Labor Standards Act of 1938 is what establishes the minimum wage and overtime, among other rules. The overtime exemption threshold has been increased on numerous occasions in the past to keep pace with inflation. French said the upcoming rule change is unprecedented because it increases the exemption threshold at a rate never before seen.

“This has been done on a periodic basis,” French said. “The various administrations have taken a look at it and updated the threshold numbers and taken a look at some of the other features. The last time this was done was in 2004. If they carried through and redid the 2004 numbers and brought them up to date that would be a very responsible, reasonable action.”

The DOL provided businesses and lawmakers sixty days to comment when it first released the drafted proposal. The department hinted that the final rule might be slightly different than the earlier version.

“Our expectation is they’re going to make very small changes, nothing overly significant,” French continued. “We’ve been told they might drop the overtime threshold level down to the $47,000 to $48,000 range. A rounding error difference from the $50,000. Its still a hundred percent increase in the overtime threshold, not a big change.”

Republican congressional leadership introduced a bill March 17 aimed at blocking the proposed overtime rule. They also issued a stern letter to federal labor officials Feb. 9 expressing their concerns. French said the final rule might also allow small businesses more time to adjust. Small businesses tend to be more vulnerable to labor costs increases compared to larger businesses.

“These small businesses, who may not be aware of this rule, are going to have a very difficult time figuring out if their salaried employees are no longer exempt or really working over 40 hours,” Competitive Enterprise Institute Expert Trey Kovacs told TheDCNF. “They’re going to have to make changes. Either reduce their pay, demote them to hourly workers.”

The DOL also might drop a provision in the drafted proposal known as the duties test. Employees must perform tasks that are managerial in nature to be exempt from overtime. The proposed rule would expand the duties test and require employers to track exactly how long a manager performs each task. Managers often need to balance several tasks at once and must be ready to shift priorities quickly making it very difficult to track exactly how much time they spend on a particular thing.

“They want to get this done and have a clean rule because the secretary has vast authority to define the salary exemption,” Kovacs said. “They’re definitely within their power to do that aspect of the rule but its unclear whether changes in the duties test is within their powers.”

The White House has argued the rule change is fair to workers and a much needed update. Labor unions have also praised the proposed change. The AFL-CIO noted in a letter September 2015 to the administration that overtime protections have dwindled over the years and the revised rule could help restore fairness in the workplace.

The DOL is expected to release the final rule May 16 because anything put out after could be subjected to review and repeal by the next administration through the Congressional Review Act, notes Economics21. The department said it is not commenting until the new rule is officially released.

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