May 24, 2016

Obama's Over-the-top Overtime Rule


  • The Obama administration’s new overtime rule will benefit few workers, as employers will have to find other ways to trim costs.

  • The rule will force colleges and universities to raise tuition, cut services, or lay off staff.

  • Providers of services for people with disabilities may have to reduce the care they offer in order to comply with the new regulation.


President Obama’s economic policies have led to wage stagnation for hardworking American families. During the Obama presidency, wages have risen by an average of just 0.4 percent per year. To try to hide this failure, the administration will now require employers to pay overtime wages to millions of workers. Few of these people will see much extra money in their paycheck. The rule will impose new burdens on colleges and on providers of services to the disabled.

DRAMATIC CHANGES IN OVERTIME RULES

Last week, the Department of Labor published its final overtime rule. The rule raises the annual salary threshold under which workers generally qualify for time-and-a-half pay when working more than 40 hours in a week. The threshold will more than double – from $23,660 to $47,476 – starting December 1. DOL set the level at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, currently the Southeast. The department also took the unprecedented step of automatically increasing the salary threshold every three years. On January 1, 2020, DOL estimates the threshold will increase to $51,168.

Overtime wage threshold more than doubles

Labor overtime rule maximum wage increase

The administration claims that this new rule will increase the wages of more than 4 million workers who will now qualify for overtime pay. Non-partisan economic analysts do not agree. Last year, a report for the National Retail Federation found that it is unlikely that many of these workers would see their take-home pay improve. To accommodate the changes, and the enormous paperwork burden, employers will be forced to reduce costs.

While some employees will gain overtime pay, they may also see their benefits and bonuses reduced to cover the cost increase. The National Retail Federation study found that employers may give raises to some people whose salaries are just below the threshold, but are expected to shift about a third of salaried retail and restaurant workers to hourly status. Some entry-level management positions will disappear. These workers will fall back to hourly jobs and lose the flexibility they enjoyed as salaried workers. Employers will also need to divert money to redesign their compensation plans and educate workers on new timekeeping requirements. This process can take six months or more and will need to be repeated every three years.

HIGHER EDUCATION RAMIFICATIONS

Colleges and universities across the country will be particularly hard hit because of their unusual staffing structures. According to a March 22 article in the Wall Street Journal: “The University of California school system faces a $39 million-a-year tab for raises to avoid paying overtime to thousands of postdoctoral scholars, librarians, and specialists. … Purdue University estimates nearly 1,700 of its full-time employees would be eligible for overtime pay and raising their salaries to keep them exempt would cost $13 million a year.”

The American Council on Education noted that “requiring such a dramatic and costly change to be implemented so quickly will leave many colleges with no choice but to respond to this regulation with a combination of tuition increases, service reductions and, possibly, layoffs.” 

IMPOSSIBLE CHOICES FOR CARE PROVIDERS

Providers of services for people with disabilities will also be harmed significantly by the rule change. Because these providers are paid by Medicaid, they cannot simply raise their prices to cover the new costs. The Obama administration attempts to hide this problem by issuing a non-enforcement policy for certain health care providers until March 2019. This does not address the exposure service providers still face from private lawsuits for non-compliance. 

A March analysis by Avalere Health found that paying overtime for workers who care for people with disabilities would cost more than $1 billion in 2017. Twenty-one percent of care providers said that they may need to reduce services to meet their new obligations. 

Senators Alexander and Johnson plan to introduce a resolution of disapproval to block the new overtime rule. Senator Scott has introduced S. 2707 to nullify the rule and require more research on how changes to the salary threshold would affect small businesses, nonprofits, and universities.

Issue Tag: Labor