Overtime Proposal Sparks Large Submission of Comments

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By Michael Trimarchi

Nearly 300,000 comments were filed on a proposed Labor Department rule that would increase the salary threshold needed to exempt employees from overtime pay.

The proposed rule (RIN 1235–AA11) would more than double the salary threshold for overtime eligibility under the Fair Labor Standards Act to $970 a week in 2016, or $50,440 a year. To qualify for the exemption under the current regulations, an employee must have duties that are managerial or supervisory or require creativity or advanced knowledge, in addition to meeting the salary threshold.

In 2004, the Bush administration raised the salary threshold to $455 a week from $155, or $23,660 a year. The administration also eliminated variations in the duties test, depending on salary level in favor of a single, uniform test for workers paid more than the threshold.

More than 5 million additional workers would become eligible for overtime pay under the 2015 proposal, Labor Secretary Thomas Perez said June 30 during a White House teleconference after the plan was introduced. The goal, the administration said, was to ensure that an exemption intended for highly paid executives was not used to underpay low-level supervisors. The proposal also calls for the salary threshold to be indexed so inflation would not erode employee gains.

Retail, Restaurant Opposition

The comments reflected the schism generated by the proposal. Many comments noted the benefits of an increase in overtime pay, but others highlighted the negative effects the proposal might have on the workplace. Employers with limited revenue said the proposal, if adopted, would lead to increased employer payroll taxes and workers' compensation premium.

The retail and restaurant industries, where many workers are classified as managers or assistant managers although they earn modest salaries, were expected to be affected the most by the proposal.

The National Retail Federation, which represents stores, grocers, wholesalers, chain restaurants and Internet retailers, opposed the proposal, saying it could curtail the careers of middle managers and damage employee morale in the industry. 

The attempt to increase wages “will end up having major negative consequences for employees, employers and the economy as a whole,” the group said. “If the proposed changes become final, NRF’s research predicts that the changes would result in many managers, who have enjoyed the benefits and sense of pride associated with exemption status, becoming hourly workers. As hourly workers, many of the affected employees would receive reduced compensation and benefits and be diverted from career opportunities that are a path to middle-class success.”

“This extreme increase in the salary level is unnecessary and would have severe consequences for many retail and restaurant employees and their careers and their customers,” the group said. “It is simply a bad idea that is highly inappropriate in today’s volatile economy.”

The National Restaurant Association suggested an alternative salary threshold. The association said $657 a week would more accurately reflect the balance between salaried managers and hourly restaurant employees.

The 2004 salary threshold for exempt status “is now too low and should be raised,” the association said. “However, the department’s proposed salary level is not the appropriate level for our diverse industry, especially given regional and local variations in salaries paid due to sharp differences in the cost of living in the United States.”

In the restaurant industry, “salaried employees enjoy a number of benefits not available to hourly employees,” the association said. “Thus, in addition to getting paid a salary regardless of the fact that they are not working over 40 hours a week, these newly overtime-protected employees could lose flexibility as well as benefits, including substantive bonuses, paid vacation, flex time, paid holidays, 401k [plans] with employer match and health insurance.”

The association also said that “imposing a long duties test, particularly one similar to what is found in California, would lead to less clarity and more litigation, which the department states it would like to avoid.”

The association also sent 479 comments from member restaurants. Although signed by the restaurant owners, the responses were based on a template.

Resistance From Human Resources

The HR Policy Association, which said it represents senior human resource executives in more than 360 of the largest U.S. companies, said the proposed rule would “at best, deliver only marginal benefits regarding pay, while significantly reducing workplace flexibility for millions of employees who are increasingly embracing the benefits the digital workplace can bring to one's work-life balance.”

Nondiscretionary bonuses should count toward a portion of the standard salary level test, the association said, adding that the Labor Department should not make any changes to the duties tests without first proposing specific regulatory language.

About 6,000 comments submitted to the Labor Department in response to the proposed rule are available for review at www.regulations.gov.

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bna.com.