The House is poised for a Thursday vote on a plan to delay implementation of the Department of Labor’s overtime rule, which imposes huge new compliance and payroll costs on American employers by doubling the salary threshold of employees eligible for overtime pay. Currently, employers are required to pay overtime rates for salaried workers making up to $455 per week ($23,660 per year). The new rule would require employers to pay overtime for salaried workers making up to $913 per week ($47,476 per year).
The House plan, put forward by Rep. Tim Walberg (R-MI), would grant businesses a six-month extension to comply, beyond the current implementation date of December 1, 2016.
It’s not a solution to the problems caused by such an enormous increase in overtime mandates, but it does give small entities a needed reprieve that allows them additional time to figure out how best to the comply with the new regulation. Nonetheless, this is crucial legislation that these small entities desperately need in order to achieve compliance with the onerous rule. Although the administration lowballs the amount of time needed to comply, claiming employers only need a couple of hours, former Wage and Hour administrator Tammy McCutchen sets the record straight in her written testimony before the Senate Small Business & Entrepreneurship Committee:
In reality, it will take far more than an hour or two – or even ten – to comply with the final rule. Since leaving the Department in 2004, I have assisted dozens and dozens of employers to reclassify employees from exempt to non-exempt. In my experience, reclassifications can take six months or more to achieve and hundreds of hours spent by business leaders, human resources professionals and outside attorneys.
Achieving compliance is even more difficult for the small entities. They simply do not have the resources to hire the needed outside counsel and may not have human resources professionals on staff that can analyze the couple hundred pages rule that adds 2.5 million paperwork hours on the regulated community.
A significant amount of work goes into complying with the overtime rule. An employer must inspect its entire workforce and determine how many employees will no longer be exempt from overtime pay. Then an employer must go on a fact-finding mission to determine how many hours these employees work, which is a tough task since an employer does not need to track salaried employees’ hours. Once the hours worked by employees is established, a cost-benefit analysis is needed to calculate whether any given worker will receive a raise above the threshold, demoted to hourly status, or paid overtime at their current salary. These are just some examples of what an employer must go through in order to comply with the rule and steps that need to be taken to best reorganize their workforce.
On top of how time consuming achieving compliance is, these entities also need additional time to deal with the substantial costs imposed by the overtime rule. Non-profits and universities need more time to plan for these additional costs since they cannot raise prices on consumers to make up the cost. Non-profits rely on donors and many universities depend on state governments for funding.
Several universities have issued statements on the extreme costs the rule. For example, state officials in Iowa estimate the overtime rule “will increase government and university costs by approximately $19.1 million ‘in the first year.’”
At the University of Kansas, 354 employees are currently exempt but will become non-exempt, and overtime-eligible under the new rule. If they chose to comply with the rule by raising salaries to the new threshold, it would cost $2,937,980. A similar number, $2,303,554.25, is the cost to pay these employees overtime pay as non-exempt employees.
The University of Tennessee stands to incur $9.5 million in additional costs from the government wage mandate, which amounts to a 2.2 percent tuition hike on all students.
Non-profits will see equally heavy costs from the overtime rule. Nancy Duncan, associate vice president of human resources at the nonprofit Operation Smile that provide free life-changing surgeries for children with cleft lips and other conditions, said at a Congressional hearing “the rule will increase the nonprofit’s payroll cost by close to $1 million a year.”
A six-month reprieve from the burdensome overtime rule is necessary for small businesses, schools, and non-profits. While larger businesses may have staff on hand to deal with the barrage of regulations coming out of Washington, these entities do not and must spend the majority of their time on their organization’s mission just to stay afloat.