SHRM Criticizes Proposed Overtime Rule at House Hearing

Originally Posted at SHRM Online

By Allen Smith

The proposed increase of the salary threshold for overtime pay from $23,660 to $50,440 per year, as of this year, is “too much, too fast,” testified Nancy McKeague, SHRM-SCP, senior vice president and chief of staff at Michigan Health & Hospital Association (MHA) in Okemos, Mich.

Testifying March 29 on behalf of the Society for Human Resource Management (SHRM) before the U.S. House Committee on Education and the Workforce at a field hearing in Michigan, McKeague said that exempt or nonexempt classification decisions are particularly challenging, as they rely on objective and subjective factors.

She noted that the position of executive director of the MHA’s foundation, established to support hospitals and community partners, was challenging to classify because the individual supervised only one employee. Ultimately, the executive director position was classified as exempt under the white-collar exemptions because of her autonomy, her experience and the MHA’s confidence in her judgment, noted McKeague, who is a member of the SHRM Labor Relations Special Expertise Panel.

The jump in the salary threshold—a 113 percent increase, moving the salary level to the 40th percentile of earnings for all full-time salaried workers—presents significant challenges to small employers, she said. The MHA already was trying to stay ahead of the salary threshold for exempt employees, pegging their salaries at least at 30 percent of earnings for all full-time salaried workers, McKeague said, adding that she is offended by the way the rule “starts with the premise that none of us treat employees correctly.”

She observed in written testimony that, “As for the impact on MHA, we will need to reclassify 7 percent of our workforce, costing $35,000 in additional payroll cost in the first year alone.” The rule’s automatic increases in the salary threshold would require more increases in payroll costs, as well as 401(k) contributions and life insurance premiums, she said.

“In addition, reclassifying employees and adjusting salaries in response to the new salary threshold will likely cause wage compression issues with entry-level and midlevel employees’ salaries nearing the level of their managers,” McKeague remarked. “In order to offset these issues, MHA will need to provide additional salary increases for the managers and directors, adding to the initial payroll costs.”

McKeague expressed SHRM’s support for the Protecting Workplace Advancement and Opportunity Act, H.R. 4773, to nullify the current overtime proposal. She noted that the bill would not prevent the Department of Labor (DOL) from moving forward with changes to the overtime regulations. “It simply requires the DOL to perform an economic analysis of how changes to overtime regulations will impact nonprofits, small businesses and employers in other industry sectors before issuing a new rule,” she stated. The bill also would prohibit automatic increases to the salary threshold.

No Disastrous Effects?

Dale Belman, a professor at Michigan State University’s School of Labor and Industrial Relations in East Lansing, Mich., countered that the DOL rule would not have disastrous effects.

The current salary threshold level is below the U.S. poverty level, he said, adding that the proposed change in the salary threshold would “not quite restore where we were in 1975,” referring to the salary threshold’s percentage of earnings for all full-time workers.

Significant Costs

However, Laurita Thomas, associate vice president for human resources at the University of Michigan in Ann Arbor, Mich., said the DOL’s rule was “cost-prohibitive,” and would affect 3,100 people at the university. She estimated that it would cost the university alone $34 million, and cost the entire university system $60 million for its 11 institutions.

University research could be inhibited as a result, she said, predicting that the overtime rule would force the university to employ fewer postdoctoral researchers.

Rep. Mike Bishop (R-MI), asked Thomas whether the rule would impact tuition. Thomas answered, “It is inconceivable to me that it would not affect tuition.”

Thomas faulted the rule for having a short implementation period, suggesting that it would be more palatable if its implementation were phased in over several years.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

The Center for Association Leadership (ASAE) highlights the unintended consequences of the Department of Labor’s overtime rule on higher education and CUPA-HR’s response in their newsletter,  Associations Now.  Read the full article here.

Recently, NAA CEO, David Chavern, authored an op-ed outlining the unintended consequences the DOL proposed overtime rule will have on the newspaper industry and others. See the full article here.

Today ASAE submitted comments to the Department of Labor Notice of Proposed Rulemaking on the Obama administration’s pending regulations to raise the salary threshold at which eligible workers qualify for overtime pay. ASAE’s comments can be found here. We strongly encourage any associations that may be impacted to review our comments to use them as a model or focus on a specific area of concern to your organization. Comments can be submitted electronically here on or before Sept. 4, 2015.

ASAE has heard from association leaders around the country who are concerned that some of their exempt employees will now be eligible for overtime under the new salary threshold or will have to be switched to hourly pay. Many association employees currently qualify as exempt from overtime eligibility because their annual salary is greater than $23,660 and because their primary duties fall under the executive, administrative and professional (EAP) exemption included in the original Fair Labor Standards Act of 1938. While the rule won’t likely be finalized for months, the change is forcing companies to consider keeping closer tabs on hours worked by overtime-eligible employees, including how to handle work done out-of-office, such as responding to emails in the evening or working at a conference over a weekend.

ASAE’s comments can be summarized into five main areas of concern:

•  ASAE believes the Department of Labor’s proposal of a minimum annual salary level for exempt employees of $50,440, with automatic annual renewals, sets a one-size-fits-all measuring stick for middle-class incomes.  The minimum salary level for exemption should instead be keyed to government data on regional cost-of-living differences.
  •    The minimum salary level should be set lower than the proposed level of the 40th percentile of average full-time employee salaries, either across-the-board or for the nonprofit sector.  Under the current over-inclusive proposal, too many senior-level exempt employees would be reclassified as overtime-eligible because of their salary level, particularly in nonprofit organizations.
  •    The proposal would adversely affect nonprofit organizations and other employers with limited revenues and would harm many affected employees.  To contain payroll costs from increased overtime obligations, these employers would have to either lay off employees or exclude reclassified employees from telework and career growth opportunities outside of core business hours.  Under both scenarios, the remaining exempt employees would bear the brunt of increased workloads.
  •    ASAE also believes that no changes to the duties test regulations should be made without providing notice of the specific proposed changes and another opportunity for public comment.
  •    If the Department of Labor considers changes to the duties test, it should (i) add clarity to classification determinations by incorporating new examples of exempt occupations, including examples specifically addressing common job roles in membership organizations, and (ii) avoid adopting a rigid minimum time percentage test for assessing the “primary duty” of a position.

Again, ASAE strongly urges you to review the rules and background information at the Power of A website here and submit comments to the DOL if you believe they will impact your organization. If you have any questions please contact the Public Policy Department at [email protected].

In an August 3rd op-ed, Sweeney, president and CEO of the National Restaurant Association, Caldeira president and CEO of the International Franchise Association and Lugar, president and CEO of the American Hotel & Lodging Association wrote about the impact the new rule will have on the industry:

We share the department’s goal of setting a standard salary level for full-time salaried employees that “adequately distinguishes between employees who may meet the duties requirements of the EAP [employee assistance program] exemption and those who likely do not, without necessitating a return to the more detailed long duties test.” However, under the proposed revisions, the threshold for requiring employers to pay overtime would more than double from the current $23,660, or $455 a week, to $50,440, or $970 a week. Increasing the threshold by such a drastic amount will cause labor costs to dramatically increase. This will have a severe, negative impact on many of the employees the regulation was specifically intended to help while also driving a wedge between hourly and salaried employees.

 

Eric Williams, COO of CKE Restaurants, discussed his experience attaining the American dream by seizing opportunity in the workplace when testifying before a House Education and Workforce hearing on “Examining the Costs and Consequences of the Administration’s Overtime Proposal.” (Written testimony here.)

Elizabeth S. Hayes of the Society for Human Resource Management testified before the committee on the threat to opportunity posed by the Department of Labor’s proposed rule. (Written testimony here.)

Former administrator of the wage and hour division at the U. S. Department of Labor Tammy McCutchen testified on behalf of the U.S. Chamber of Commerce. (Written testimony here.)