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May 20, 2016

New overtime rule piles regulatory burden on business

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The Obama Administration this week finalized a new rule which the U.S. Labor Department says will make 4.2 million salaried workers eligible for overtime pay.  The rule, slated to go in to effect later this year, would  double the salary threshold at which workers are exempt from overtime pay to more than $47,000.

Many questions are being raised about the new rule, most notably about how businesses and employees will be impacted.  Some employers are already speaking out about the new federal regulation which they claim will "slow hiring, reduce workers' hours and cut pay, bonuses and benefits."

The U.S. Chamber of Commerce has been urging the administration to back off the rulemaking in lieu of a legitimate economic analysis.  The Chamber's Senior Vice President of Labor, Immigration and Employee Benefits Randy Johnson issued the following statement in response to the rule:

“While the Department of Labor made some important changes in the final regulation, the revised overtime regulation issued today still represents another regrettable burden being piled on employers as they attempt to grow in a tepid economy. The regulation demonstrates this administration’s determination to control employers instead of creating conditions for economic growth. Cloaked in feel-good, self-congratulatory rhetoric, the administration has repeatedly failed to accurately analyze the cost and benefits of its regulations, or the impact its regulatory onslaught will have on job growth.

“The overtime regulation joins the recently finalized fiduciary rule, which will reduce the ability of small businesses to provide retirement benefits; the EEOC’s proposed revised EEO-1 form that will explode the burden on employers for reporting compensation by micro demographics; OSHA’s just released injury reporting regulation that will result in sensitive employer data being posted on the internet for use by unions and trial lawyers; and the Department of Labor’s recently issued ‘persuader’ regulation that is intended to chill the ability of employers to retain competent labor counsel during union organizing campaigns.

“Combined with all of these measures, the overtime regulation is just another example of how little this administration understands how the economy works or regards employers’ concerns. The administration claims that the changes were made as a result of listening to employers, but what they have done is more cosmetic than substantive. If they had really listened, the salary threshold would have been significantly lower. The Chamber argued in our comments and meetings that the key to making this regulation acceptable was a modest increase in the salary threshold, not increasing it by more than 100% to almost $47,500.

“Despite the modifications, the dramatic escalation of the salary threshold, below which employees must be paid overtime for working more than 40 hours a week, will mean millions of employees who are salaried professionals will have to be reclassified to hourly wage workers. Small businesses, nonprofits, and public sector employers will be especially impacted as they will have the hardest time finding more income to cover the increased labor costs, even if they will have a longer time to implement the new requirement. Furthermore because the threshold will increase every three years, the impact on these employers will continue to ratchet up. This will result in charities providing fewer services to those in need, local governments having to reduce services and raise taxes, and small businesses having to curtail operations or plans to expand. The Department of Labor failed to accurately assess the impact this regulation would have on these, and other, employers.”

As it stands:  · The salary threshold will be increased to $47,476 annually ($913/week)—an increase of slightly more than 100% from the current threshold of $23,660 annually ($455/week). o The proposed level was $50,440 annually ($970/week).

· There will be no changes to the duties test. o The DOL had indicated it was considering adding a quantification component similar to                   California’s that would have required employers to show an employee was performing exempt duties a certain percentage of time to qualify under the specific exemption.

· The salary threshold will be updated every three years and tied to the 40th percentile of full time salaried workers in the lowest wage region of the country (currently the Southeast). o The proposal had the automatic updates happening annually but was unclear on the methodology for the updates.

· Employers will have until December 1, 2016 to come into compliance with the new requirement—a period of about 200 days. o The proposal did not include an implementation period but there were suggestions it could be as short as 60 days.

· No indication about how commissions/bonuses/incentive based pay will be treated. o The DOL sought comments on whether to give a 10% credit for these types of compensation.

Related articles: 

How new overtime rules could affect flexibility on the job - Washington Post

4 ways the new overtime rule may affect your paycheck - CNN Money

Overtime rules make life difficult for small businesses and startups - Atlanta Business Chronicle