Federal Proposal Could Increase Business Costs by $900 Million Annually
The Department of Labor is considering two new rules that would have sweeping effects on small businesses, retirees, and investors. Though the regulations have yet to be finalized, they are examples of the federal government’s ongoing assault on private enterprise and state sovereignty.
In June of last year, the Obama administration announced its intention to raise the threshold for overtime pay for nearly 5 million American workers, including about 20,000 Mainers. A study by the National Retail Federation found that the changes could cost businesses nearly $900 million annually in additional payroll and administrative costs, and noted that “an increase of the overtime threshold is likely to cause significant complications for business owners and create a series of unintended consequences, both legal and regulatory, that are likely to cost workers.”
Currently, workers earning less than $23,660 annually are automatically eligible to receive overtime pay if they work more than 40 hours per week. For employees who earn more than $23,660 a year, employers conduct a “duties test” to assess their eligibility; executive, administrative, or professional employees are exempt from the rule, as are many seasonal workers, fishermen, and farm workers. For instance, a manager at a fast-food restaurant may not be entitled to overtime benefits, despite earning $30,000, working 55 hours a week, and performing duties similar to the kitchen staff.
The changes envisioned by the Obama administration would more than double the salary threshold, placing it at $50,440 per year with annual inflation adjustments. The White House is also considering repealing various exemptions to overtime pay eligibility, which it claims are either obsolete or easily exploitable by callous employers.
Though the desire to enhance worker compensation for overtime is understandable, the rule’s impact on businesses will likely lead employers to restructure their workforces by hiring more part-time, entry-level workers and reducing opportunities to move into managerial roles. For some companies that compensate employees at the lower end of the pay scale, the effects could be more dire. Testifying to Congress last year, the Society for Human Resource Management warned that the rule “would present such a financial hardship that many small companies and community service providers would be forced to close.”
According to Julie Rabinowitz, director of communications for the Maine Department of Labor, the rule change will be especially detrimental to employers in Maine, which has lower wages – and thus fewer exempt employees – than the rest of the country. In 2014, the average private-sector worker in Maine earned less than $40,000. As Drummon Woodsum, a business law firm, points out, “if an accountant in Maine earns $40,000 per year, but an accountant in California earns $60,000 per year, the accountant in Maine would not meet the minimum salary threshold and would [be eligible for] overtime [pay].”
The vagueness of the rule could also cause confusion and additional administrative hassles for businesses. “In the world of email and texting and 24/7 connectivity, when does work stop?” Chris Hall of the Portland Chamber of Commerce told the Bangor Daily News last year. “And if someone is only allowed to work 40 hours a week, if they go home and do email for two hours, does that mean they have to be paid overtime for those two hours? How do you track it, how do you manage it as an employer, and what happens if you don’t?”