The U.S. Department of Labor on Wednesday issued its final rule on the minimum salary threshold at which employees are required to receive overtime pay, a move immediately blasted by several business groups.
Under the most controversial portion of the decision, salaried executive, administrative and professional workers earning less than $47,476 must be paid time-and-a-half for overtime work past 40 hours in a week. The previous threshold for this regulation was $23,660. The salary threshold will be automatically increased every three years to reflect wage growth over time.
The move is expected to cover an additional 4.2 million workers in the Fair Labor Standards Act overtime regulations. In its ruling, the DOL says employers have several options to comply with the rule: 1) Pay time-and-a-half for overtime work; 2) Raise workers’ salaries above the new threshold; 3) Limit workers’ hours to 40 per week; or 4) Some combination of the options.
“For those employees who will be affected, employers need to decide whether to increase their salaries to the updated levels to keep their exemptions or allow them to become non-exempt and subject to receiving overtime compensation,” said James Walcheske, an attorney at Walcheske & Luzi LLC in Brookfield. “Any changes to compensation structure should be explained carefully so as to not affect employee morale. Employers should also ensure that newly non-exempt employees are aware of and familiar with the employer’s timekeeping and overtime practices and policies, which also should be reviewed and updated, if necessary. If those policies are not already in place, now is the time to create them.”
The significant increase in the salary threshold, as well as the time by which employers must implement it—December 1—was sharply criticized by several business groups.
Wisconsin Manufacturers & Commerce, a statewide chamber, pointed out that the new rule is likely to most heavily impact nonprofits, colleges, small businesses and state and local governments. The regulation, the organization says, would result in fewer jobs created, lost hours and wages for employees and less lucrative benefit packages.
“The overtime rule is an aggressive intrusion of government into the payroll departments of businesses,” said Chris Reader, director of health and human resources policy at WMC, in a statement. “Employers and their employees don’t need the Department of Labor setting wage and benefit packages for them. The (Obama) administration seems to think that they can simply decree that employers spend more on wages without any corresponding improvement in performance, but all they will accomplish is a waste of money on compliance and a shuffling of finite resources.”
The American Bankers Association also opposed the rule, on the grounds that it would negatively impact smaller banks.
“If this rule was supposed to help workers, it misses the mark,” said Rob Nichols, president and chief executive officer of the ABA, in a statement. “It will be harmful to bank employees and the banks who employ them, and, as usual, smaller banks will be hit the hardest. As it stands, throngs of employees across the country, especially those at small banks and branches where a handful of employees wear many hats, will face reduced opportunity and flexibility in the workplace.”
The National Association for the Self-Employed also expressed concern about the rule’s impact on small businesses.
“The Department of Labor’s ruling will make it more difficult for millions of small business owners across America to help strengthen and support our local and national economies,” said Katie Vlietstra, vice president for government relations and public affairs at NASE. “This new overtime rule will increase costs for our nation’s small business community who are already facing a host of unfair business regulations and add to the struggle they face to meet their bottom lines. As a result of this rule, employee flexibility will be reduced, growth opportunities squandered and small business expansion stalled. Businesses will be forced to cut vital programs, staffing and services that benefit American workers.”
But some praised the new overtime rule. Former Wisconsin U.S. Sen. Russ Feingold, a Democrat who is trying to regain his former seat from Republican incumbent Ron Johnson, called it an “overdue update,” and a way help struggling middle-class families, according to a Wisconsin Public Radio report.
“You’re not gonna tax the heck out of wealthy people,” Feingold said. “What you’re going to do is make sure there’s some balance: minimum-wage increase, paid family leave, overtime if you work overtime.”
Johnson’s office said he is working on ways to block the rule, according to the WPR report.
But there are some minor advantages in the new rule for employers, said Oyvind Wistrom, a shareholder at Lindner & Marsack S.C. in Milwaukee.
“While DOL’s final rule raises the salary level significantly, non-discretionary bonuses and incentive payments can now count for up to 10 percent of the new salary level, provided the payments are made at least quarterly,” Wistrom said. “This change has been viewed by some commentators as DOL ‘throwing employers a bone’ in the final rule.”