The Obama Administration continued its course of involuntary shock therapy for employers by doubling the salary threshold for workers who qualify for overtime pay.
Effective Dec. 1, the minimum salary threshold increases to $913 per week, or $47,476 annually. This doubles the current limit of $455 per week, or $23,660 per year.
The Department of Labor, which formulated and will administer the rules, said this salary number is set at the 40th percentile of data representing what it calls “earnings of full-time salaried workers” in the lowest-wage region as measured by the U.S. Census, which is the South.
To eliminate the need to open a formal rulemaking every time there is a perceived need to raise the limit in the future, it now will be updated every three years beginning on Jan. 1, 2020. DOL will announce these changes 150 days in advance of their taking effect.
Under the new rules employers will be able to satisfy up to 10% of this new threshold through nondiscretionary bonuses and other incentive payments, including commissions, as long as the payments are made at least quarterly.
However, this escape valve will not be available in regard to the salaries of employees who are considered exempt because they are defined as being “highly compensated.” This definition is
changed under the new rules raising the annual compensation threshold for a “highly compensated employee” from $100,000 to $134,004 (which also will be “updated” every three years).
DOL also said that this figure is set at the 90th percentile of data representing what it calls “earnings of full-time salaried workers” nationally.
The likely intention is to both sharply reduce the proportion of exempt workers while increasing the compensation of many who remain exempt, rather than engaging in what should have been a purely definitional process that is called for by federal law, observed Caroline Brown and John Thompson, attorneys with Fisher & Phillips.
“As we have said previously, manipulating exemption requirements to ‘give employees a raise’ has never been an authorized or legitimate pursuit,” they pointed out
But that is precisely the reason to do so, according to those who advocated the change, including the President.
On the day the new standards were issued Obama declared “the new rule is expected to extend overtime protections to 4.2 million more Americans who are not currently eligible under federal law, and it is expected to boost wages for workers by $12 billion over the next 10 years.”
Although opponents could agree that some change was needed after 40 years of no change in the overtime standard, they believe the new limit goes too far and fails to take into account the complex realities of America’s current economy.
“These rules are a career killer,” said David French, senior vice president for government relations for the National Retail Federation, which has asked Congress to prevent the changes from taking effect.
NRF said research conducted for it shows that employers will limit hours or cut base pay to make up for the added payroll costs, leaving most workers with no increase in take-home pay despite the added administrative costs.
A separate NRF survey found that the majority of retail managers and assistant managers who are supposed to be helped by the change oppose it, the federation said. NRF also noted that Obama’s own Small Business Administration criticized DOL for conducting “deficient” analysis and using “unsound” data in coming with the new standard.
“In the real world – as opposed to D.C. conference rooms filled with career bureaucrats and political appointees – employers and employees will suffer the consequences of a policy rooted in pure politics,” French asserted.
Even some left-wing public advocacy nonprofit groups oppose the new rules. “Organizations like ours rely on small donations from individuals to pay the bills. We can’t expect those individuals to double the amount they donate,” said U.S. PIRG.
“Rather, to cover higher staffing costs forced upon us under the rule, we will be forced to hire fewer staff and limit the hours those staff can work – all while the well-funded special interests that we’re up against will simply spend more”
According to Diana Furchtgott-Roth, former chief economist of the Labor Department, most affected workers will see no increase in their paychecks.
“Their only benefit will be to know that they will not be required to work more than 40 hours in a week without getting overtime pay,” she said. “Instead of extra pay, most will lose the schedule flexibility, prestige, and career opportunities that they now enjoy as salaried workers.”