Legislative and regulatory actions are best understood in their broader public policy context—and the proposed new overtime regulations are no exception.

Doubling the salary threshold to $50,440 and entitling 5 million more workers to overtime pay is fundamentally about persistent income inequality and wage stagnation.  

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New Overtime Rules: Employer Concerns

Wed Jul 1, 2015

Legislative and regulatory actions are best understood in their broader public policy context—and the proposed new overtime regulations are no exception.

Doubling the salary threshold to $50,440 and entitling 5 million more workers to overtime pay is fundamentally about persistent income inequality and wage stagnation.

While few would disagree that real median household income has stagnated, or that something needs to be done about income inequality, some employers question whether the Department of Labor’s proposed rules are the best approach.

A number of employer organizations have objected to the new rules, arguing that they will increase employer costs and make compliance more complicated. Saying that the regulations “will affect every employer in every industry and sector,” the Society for Human Resource Management (SHRM) concluded that “more than doubling the salary threshold will significantly impact employers and employees.”

The National Retail Federation (NRF), the largest retail trade association, also expressed opposition, complaining the new rules would “add to employers’ costs, undermine customer service, hinder productivity, generate more litigation for trial lawyers and ultimately harm job creation.”

And Randy Johnson of the US Chamber of Commerce, which represents the interests of more than 3 million businesses, told the Wall Street Journal that the proposal would cause workers to lose benefits and flexibility—it “will not guarantee more income, but instead will negatively impact small business and drastically limit employment opportunities.”

Hamburger chain White Castle System, Inc. citing the special impact on restaurants, estimated the rules could cost the company between $8 million and $12 million a year.

Given the broad sectoral and industrial impact of the new rules, employers obviously would tailor strategies to business needs. Assuming the rules are finalized in their present form, four could be considered:

1.

Some employers may simply incur higher overtime costs—what Labor Secretary Tom Perez estimated will put between $1.2 and $1.3 billion annually into workers’ pockets;

2.

Employers may reclassify some salaried employees as hourly workers and strictly limit weekly hours to 40;

3.

In concert with limiting hours, employers where possible may hire additional workers, including part-timers, to avoid paying time-and-a-half overtime;

4.

Many employers will offset higher labor costs with greater productivity within their organizations, possibly by more aggressively substituting technology for labor.

In any event, entitling 5 million more workers to overtime pay will affect employer costs, scheduling and compliance. Restaurants and retailers, especially small and medium-sized businesses, are likely to be most affected. Similarly, employers in the Midwest and South, where wage levels tend not be as high as in Northeastern and West Coast metropolitan areas, could be disproportionately impacted.

Timing and Outlook—

The Department of Labor has announced a 60-day public comment period, meaning that employer organizations have until September to file views and recommend changes.

Opponents may try to delay final rules to get past the 2016 presidential election, possibly via Capitol Hill hearings, riders to appropriations bills (the rules don’t require Congressional approval) and even litigation.

At the end of the day, however, the White House, the Department of Labor and supporters of updating overtime rules will put the new regulations squarely in their context: while fine-tuning may be needed, it’s time to do something about income inequality and wage stagnation.