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Battling the Looming Overtime Threat

aa-8-31-16One of the biggest disruptions employers face in the regulatory arena is the Labor Department’s new overtime regulations that were announced in May and that will go into effect in a month.

On Dec. 1, the salary threshold for overtime to apply will increase to $913 per week, or $47,476 annually, doubling the current limit of $455 per week, or $23,660 a year.

The new limits drew immediate condemnation from a number of employer groups as diverse as the National Retail Federation to the International Warehouse Logistics Association (AA, 6-15-16, P. 2).

Legislation has been introduced in Congress to stop or delay imposition of the new rule, but these bills are not expected to go anywhere as long as Democrats control the White House.

“Proponents of this rule have touted the changes as a welcomed job creator,” David French, NRF senior vice president for government relations told a congressional hearing. “These claims are riddled with partial truths.”

He added “Supporters of the rule who celebrate studies predicting a potential increase in part-time jobs fail to acknowledge to the public that any increase in part-time jobs comes at the expense of full-time employees’ hours and earnings.”

NRF advocates a pause in implementation while DOL completes a comprehensive analysis of the impact the changes would have on small businesses and lower-wage parts of the country.

“These are studies that DOL should have undertaken before issuing its final rule and on which the public deserves an opportunity to comment,” French says.

Research conducted for NRF shows employers will be forced to 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.

In a separate survey the majority of retail managers and assistant managers the regulations were intended to help oppose the plan, NRF points out.

By the Numbers

Bolstering NRF’s view is a study conducted by the financial consulting firm of Edgeworth Economics.

The economists say DOL understated the number of affected workers affected by relying on data from a 17-year-old Government Accountability Office study.

In addition, DOL’s assertion that, at most, 37.3% of affected workers will be converted to hourly pay by the new rule is based on the assumption employers will have little incentive to change the pay status of those affected employees who do not work overtime (60.4% of affected employees).

Data is missing because most employees who are currently exempt haven’t been recording their work hours. “Without further study, neither the DOL nor the employers themselves can distinguish between employees who work exactly 40 hours or less every week and those who work 41 or 42 hours several weeks per year,” the economists say.

DOL’s research attempts to divide wage survey respondents into arbitrary groups also failed to recognize obvious reality, it was found.

“In fact, we see in the survey results that jobs where we would expect virtually all individuals to be salaried have a non-trivial group of hourly employees,” Edgeworth Economics observes. “For example, 24.6% of astronomers and physicists, 22.1% of mechanical engineers, and 18.9% of Chemical Engineers are categorized as hourly.”

The rule calls for adjustment of the minimum salary for exempt employees every three years. “However, DOL’s estimate of an additional 2.5% percent increase in the new salary threshold over three adjustments may not be accurate and likely understates its magnitude,” the researchers note.

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