In its waning days, the Obama administration is close to striking a blow for workers’ rights that could have long-term implications for employers, particularly small businesses that historically have had less flexibility when meeting significant changes to the way workers are to be compensated.
In testimony before the House Small Business Committee recently, small business owners told committee members that the overtime rule changes proposed for the Fair Labor Standards Act would represent an extreme hardship for employers and might not have the effect on worker wages that the new rule intends to have.
The change to the exempt salary threshold is a major one. It would raise the exempt threshold from the current $23,660 to $47,476. The U.S. Department of Labor has estimated that the wages of 4.2 million workers would be increased because of the new rule.
This doubling of the threshold would force employers to either raise existing pay to the new level, or pay overtime to everyone making less.
Reporting on the testimony, the Society for Human Resource Management notes that the association supports an increased threshold, but not a doubling of the existing one. Such a dramatic increase would undercut small business efforts to accommodate employees through increased job flexibility and other creative measures to offset the overtime often required of small business workers.
“Small businesses and nonprofits in particular may be disproportionately impacted by the rule’s dramatic — more than 100 percent — increase to the salary threshold,” says Christine Walters, SHRM-SCP, J.D., who testified on behalf of SHRM. The sole proprietor of FiveL Co., a human resources and employment law consulting practice, said her small businesses clients, “including small government contractors and small nonprofits with limited flexibility in the budget,” face a real hardship if the rule is adopted as currently written.
SHRM favors further study of the threshold revision, which would occur if House Resultion 4773 were adopted. The resolution calls for a deeper dive into the threshold increase and the effects different levels of increase would have on business.
“While SHRM supports an increase to the salary threshold over time, challenges arise if the increase is too high; is implemented too quickly; or fails to consider economic, fiscal, geographic and industry differences,” Walters says.
In an analysis of the potential impact of the rule, the New Jersey Law Journal writes:
“Generally speaking, employers have two options in confronting the Final Rule: either raise salaries to meet the new salary level or reclassify affected employees as non-exempt and employ a variety of payment strategies to cope with the potential for increased labor costs. The former would prove beneficial for employees who are currently near the threshold salary, and who work a lot of overtime, as increasing their salary to keep them exempt not only boosts morale, but also alleviates the need to compensate them for overtime.
“Conversely, it could be exponentially expensive for employers to universally raise salaries of workers not currently near the threshold. Moreover, if employers raise salaries to satisfy the new salary level test, pay compression could inadvertently result whereby lower level white collar employees may have salaries commensurate with those of more highly skilled and educated white collar employees, which, without adjustments, could create morale issues and internal discord.”
(The New Jersey Law Journal is owned by ALM Media, which is the parent company of BenefitsPRO.com.)
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
