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Fair Labor Standards Act – Overtime Eligibility

Posted By John Chwat, Director, Government Relations, Monday, June 6, 2016

For the first time in over a decade, the U.S. Department of Labor (DOL) has submitted revisions to the Fair Labor Standards Act (FLSA) originally established in 1938. This review is the result of a presidential memorandum issued by President Obama from March 2014 calling on the DOL to update and simplify the current overtime exemptions and standards outlined in the FLSA. These exemptions were originally drafted with the intent to exclude salaried employees, such as executives and administrators making over minimum wage, from the opportunity to earn overtime compensation. The current administration and the DOL find the language to be outdated and no longer fulfilling its primary purpose.

Presently, only those employees making less than $455.00 per week are eligible for overtime compensation; however, the DOL’s new rule increases this minimum to any employee making less than $913.00 per week eligible. This increase will result in the addition of over 5 million overtime eligible employees – a financial strain that businesses are supposed to accommodate by its implementation date of December 31, 2016. California, Florida, Illinois, New York, Pennsylvania, and Texas are expected to be impacted the most as each state will have over 200,000 newly eligible employees under the new rule. As noted within its comments made on September 3, 2015, by Marshall Marinace, ESA President, to the Wage and Hour Division of the DOL, “transfers to employees from employers due to the overtime pay provision are estimated to be $1.435 billion… ESA objects strenuously to the proposed $1.4 billion transfer of monies from owners of businesses to employees, which is the real goal of the proposed rule, which will have a real consequence on employees not anticipated by the DOL.”

Finding sources of revenue that quickly meet these standards will be detrimental to all small businesses. In its attempt to simplify the qualification process, the DOL has created a blanket solution for an issue that is unique to every region in America. By uniformly adjusting the minimum threshold, the DOL is consequentially ignoring crucial factors such as geographic cost of living. This one size fits all solution will have crippling effects on small businesses throughout the country. ESA further explains in its September remarks, “to raise annual salary across the board for overtime-exempt employees from $23,600 to $50,400 would ultimately have a negative impact on all small businesses, specifically hurting certain regions more than others. For example, according to relocation calculator of the FAS Relocation Network, an employee in Washington, D.C. earning an annual salary of $50,400 would only need to earn $28,604 to have a comparable standard of living in Beckley, West Virginia... so, to make an across the board overtime policy, it would have an unintended impact on different regions of the country.”

Although the DOL argues that this proposal is what’s best for the middle class, small businesses will be forced to reduce employee hours, lay off staff, and postpone wage raises. Additionally, small businesses will have to tap into their bottom lines and also place some of the financial strain on consumers. Requiring such a dramatic increase in employee compensation is an unrealistic expectation many will struggle to meet. With such little time to contemplate where funding for these additional overtime expenses will come from, drastic decisions will have to be made that will undoubtedly have the opposite effect the DOL is working toward. It will stifle the economy’s minimal progress and force small businesses to fold, resulting in detrimental, long term consequences that will outweigh any short term, positive effects individuals may experience.

Senate Majority Leader, Mitch McConnell (R-KY), and two of his Republican colleagues – Sen. Alexander (R-TN) and Sen. Scott (R-SC) – are working to at least postpone the changes. There have been reports that the three senators are currently working on a resolution that would require the DOL to study the overtime rule and review its financial impact on small businesses throughout the country. If passed, this resolution could delay the DOL’s rules being implemented and grant employers the time that is needed to construct solid solutions to these extreme financial burdens. 

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