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Last year, the Department of Labor (DOL) issued a Notice of Proposed Rulemaking (NPRM) focused on increasing the overtime eligibility for millions of Americans currently classified as exempt workers. With the proposed rule, the salary threshold for employees eligible for overtime pay would change from $23,660 to $50,440 in 2016 and be updated every year.
NAWRB responded to the DOL’s Request for Comment (RFC) on the proposed rulemaking and we expressed our belief that this shift in salary threshold relating to overtime eligibility would have a profoundly devastating effect on businesses, particularly small ones.
Yesterday, President Obama and Secretary Perez announced the publication of the DOL’s final rule updating overtime regulations, automatically extending overtime pay protections to more than 4 million workers. In their release, the DOL delineates, “This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.”
Final Rule Provisions
- Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
- Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
- Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
The rule is scheduled to go into effect on December 1, 2016, after which automatic updates to the thresholds will take place every three years, beginning on January 1, 2020.
It remains our contention that this amendment to overtime eligibility will severely affect small businesses. These are companies that cannot afford to raise salaries to the new threshold, and might have to resort to sourcing out work to independent contractors, transition a significant number of employees to part time and even terminate important positions within the company.
Customer service and company culture will also be damaged, as workers in increasing numbers find themselves unable to make ends meet on their current jobs. This rule hurts not only businesses, but also workers relying on full-time wages.
Small companies will find success difficult under the new rule, forced to change their operations and account for new whopping expenses. This rule will hurt small businesses, and as the employees it aims to protect get laid off and transferred to part time, whom is it helping?