By Chris Reader
Director of Health and Human Resources Policy
Wisconsin Manufacturers & Commerce
This week, President Obama’s Department of Labor moved forward with extensive changes to the nation’s overtime regulations. The stated intent of the new rule is to raise the wages of approximately 4 million workers. But in reality, the Obama Administration’s latest fiat will not be good for employers, workers, or the economy.
The aggressive change, which goes into effect on December 1, 2016, qualifies employees who earn $47,476 for overtime after working 40 hours in a week, which is more than a 100% increase from the current threshold of $23,660. While that amount has admittedly not been raised in a number of years, doubling it overnight far outpaces inflation and could have dire consequences. In fact, the last time the threshold was changed was in 2004. If one would adjust for inflation from 2004 to 2016, the new level would be just under $30,000.
The path forward for employers to comply with the new edict will vary according to individual circumstances. Any employee who is currently salaried and falls between the two thresholds will have to have their situation evaluated and adjusted. They will need to be shifted from salaried to hourly and start punching a time clock, or they will have to have their wages increased to comply with the new salary level.
For employees who put in varied hours, for instance a sales representative, the employer will also have to decide what level to set their new hourly compensation, knowing that some times of the year will require more hours per week than others. Other employers may instead not allow employees to put in time over 40 hours per week, creating additional staffing needs at the company. Or, employers may split job duties. For instance, if a worker currently puts in around 50 hours per week, the employer now has to decide whether to pay that person time and a half for hours over 40, or split the duties into two jobs, with each person making part time wages.
Overall, the rule is expected to cost employers over $1 billion annually. While that does mean additional money in the hands of a small percentage of workers, it also likely means benefit cuts elsewhere, reduced pay for many, reduced status from salaried to hourly, and less money for investment by the employer into R&D, expansions, and new hires.
Beyond the direct cost of the overtime changes, there is also the cost of technology for compliance. Employers will likely need new software systems to track the time of these new non-traditional hourly workers. How do you track when someone reads an email, or does research, or makes a sales pitch? Without an upgrade, employees who routinely answered such emails or who took a sales call on Saturday may now be prohibited from doing so.
Employers from all corners of the economy — manufacturers, retailers, restaurants, colleges and universities, municipalities, non-profits, and many more — are greatly and rightfully concerned with the impact the changes will have on their organizations. Despite this widespread opposition, the Administration moved forward with the changes. Congress now has the ability to pass a law nullifying the rule, and employers urge the Wisconsin delegation to do so. Ultimately, however, President Obama has the final say and will likely veto any attempt by Republicans in Congress to undo this misguided rule.
The Administration simply doesn’t comprehend that you can’t force more money into the economy. Every time they interfere in private compensation packages, be it with overtime rules and employment arrangements, leave law mandates, or the minimum wage, they are forcing employers to shift finite resources, often to the detriment of workers and the economy. In this case, they are forcing a massive re-classification of workers, and at the end of the day the likely result, after millions are spent on compliance, is that the overall wage and benefit packages of individual employees will be unchanged. That’s because, unlike bureaucrats at the Department of Labor who have never created a job or met a payroll, actual employers face slim margins and tight finances. They don’t have more money to move into compensation packages simply because DOL thinks they should..
Founded in 1911, Wisconsin Manufacturers & Commerce (WMC) is the state’s chamber of commerce and leading business association representing 3,800 employers of all sizes and from all sectors of the economy.