Obama Signing MHPC

New Overtime Rules Do More Harm Than Good

May 31, 2016 Posted by Curtis Picard - No Comments

“Without question, these new regulations will hurt Maine workers more than help.”

In 2014, President Obama issued an executive order to the U.S. Department of Labor (DOL) to “modernize and streamline” the current overtime regulations. While this issue has been percolating for some time, most people only heard about it when the final rules were released late last week. The reaction has been swift and dramatic. Without question, these new regulations will hurt Maine workers more than help.

These new regulations will dramatically increase the number of workers who must be paid overtime by essentially doubling the salary threshold from the current $23,660 ($455 / week) to $47,476 ($913 / week) in one big jump on December 1, 2016. Employees under the new threshold would automatically receive overtime when working more than 40 hours a week. Additionally, the threshold will continue to increase every three years based on an inflationary index.

This new level is a dramatic change and will impact employers of all sizes and categories. Managers and professionals who make more than the wage threshold can be declared exempt from overtime if they meet certain conditions such as having supervision of other workers as their primary duty.

So, why the change? The last change to the overtime salary threshold was in 2004. While we recognize the need to update the salary threshold, a more modest proposal gradually increased over a period of years would have been a more realistic and balanced approach – and one that could have garnered support from many corners.

Instead, President Obama saw the opportunity to make a dramatic change during his final year in office. He used the power of his office with an executive order to avoid the House and Senate and effected the change through the complex process of federal rule making. Given that the “public comment” period was a ridiculously short 60 day window, it was clear that the outcome of the rule was predetermined long ago.

The new rules move away from a well-established way of ensuring that workers are fairly paid for their time to a controversial one-size-fits-all federal mandate that impacts more rural states like Maine more than states with higher average salary levels. Certainly, a $47,000 salary in Maine goes a lot further than a similar position in New York City or Chicago.

The rules will block upward career mobility, reduce flexibility in the workplace, demote salaried workers back to hourly status and will cost businesses millions of dollars in administrative costs while giving few workers an actual increase in take-home pay.

Obama said he wanted to help people who “just want a chance to get ahead.” Instead, the new regulations will almost certainly hold back more workers than they will help.

The US Department of Labor has exaggerated the benefits and underestimated the impacts associated with the new rules. During the rulemaking process, we learned that the U.S. Small Business Administration testified that DOL’s impact analysis was deficient, lacking in transparency and based on hypothetical data.

For example, the DOL’s economy-wide cost estimate of $2 billion per year runs counter to another estimate which pegged the nationwide cost at $37 billion in the first year. And an analysis by our national partner, National Retail Federation, finds the real cost just to read and understand the rules is more than $5 billion rather than the $255 million estimated by DOL.

Additionally, an increase in overtime eligibility does not mean an increase in overtime pay. Businesses do not have an unlimited labor expense line item. Retailers surveyed indicate half of their current salaried workforce will be reclassified as hourly a result of these rules. Can you imagine the conversation with a long-time salaried employee who will now have to go back to punching a time clock? Or not having the opportunity to attend a professional development conference as part of their job if they would exceed 40 hours?

Reclassifying career professionals will damage employee morale. It is realistic to expect that employers will be forced to limit hours or cut base pay in order to make up for the added payroll costs, leaving most workers with no increase in take-home pay despite the added administrative costs.

This past week, some retail members traveled with me to Washington, D.C. to meet with Maine’s delegation. There are identical House and Senate bills – H.R. 4773 and S.2707 – being proposed to roll back these proposals. Senator Susan Collins is a co-sponsor of the Senate bill and Representative Poliquin signed on as a co-sponsor after our visit. Senator King is also interested in finding a better alternative. He recently sent a letter outlining his recommendation for a lower threshold and a more gradual implementation schedule. Representative Pingree’s office has not yet committed.

Regardless, any solution is going to need bi-partisan support as it is likely President Obama will veto any fix and it will be essential to gain the 2/3rds necessary to override.

The clock is ticking. Maine’s employers are already wondering how they will be able to comply by December 1 and coupled with a $12 minimum wage referendum on the November ballot, Maine may be in for a rocky road ahead.