Overtime Rule Could Harm Employers, Witnesses Warn Lawmakers

Author: Michael Cardman, XpertHR Legal Editor

July 23, 2015

The US Department of Labor's proposal to roughly double the minimum salary for most employees exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) will have many unintended consequences, experts told Congress today.

The US House Subcommittee on Workforce Protections today heard testimony from four witnesses about the administration's proposal: Ross Eisenbrey, vice president of the Economic Policy Institute, a think tank affiliated with organized labor groups; Elizabeth Hays, director of Human Resources for MHY Family Services, a nonprofit based in Mars, Pennsylvania; Tammy McCutchen, a principal with Littler P.C. and a former administrator of the DOL's Wage and Hour Division; and Eric Williams, chief operating officer of CKE Restaurant Holdings, Inc., in Carpinteria, California.

Hays told lawmakers that the proposed increase in the minimum salary could result in a 9% increase in costs, which "literally presents the risk of MHY closing its doors."

McCutchen said the proposed increase represents a break in DOL's longstanding approach to rulemaking.

"Since the early 1940s, the DOL has consistently stated that the purpose of setting the minimum salary threshold for [white-collar] exemptions is to provide a ready method of screening out the obviously nonexempt employees," she said. "DOL's proposal of a $50,000 salary level does the opposite of screening out the obviously nonexempt and instead excludes from the exemption many employees that are obviously performing exempt duties."

McCutchen also said the proposal fails to account for huge variations in the cost of living between urban and rural areas. "It's just not in line with … the realities of local economies."

Furthermore, the DOL's option to adjust the minimum salary each year to the 40th percentile of earnings for full-time salaried workers could result in a geometric growth in the minimum salary level, McCutchen warned. "In [2016], as employers increase some peoples' salaries to get them over that 40-percentile level, that means the next time you look at the data set, it will be higher salaries, so the 40 percent level will ratchet up and up," she said.

Eisenbrey, however, predicted that businesses will adapt. "Employers, like all of us, tend to be careless with and waste what they don't have to pay for, including the precious time of their time-stressed employees," he said. "The rule will make employers less careless and more efficient by making them pay for overtime."

Subcommittee Chairman Tim Walberg, R-Mich., agreed that employers will adjust. "But how will they adjust?" he asked. "Will they adjust by expanding opportunity for more people to grow and find their sweet spot? No, they'll adjust to meet the needs of staying alive and viable."

Walberg urged the DOL to extend its deadlines for implementing the new overtime rules, and to "take time to listen to what was said here today."

Note: Ms. McCutchen is presenting a webinar for XpertHR next month.