The Huffington Post recently ran a piece entitled, “Who Opposes Overtime Pay Increase, Really?” The author, Harlan Green, publisher at PopularEconomics.com, says, “That’s a no-brainer—Republicans, of course.”
Well, yes. Republicans do oppose the Department of Labor’s ill-conceived overtime rule that would dramatically increase the amount of salaried employees eligible for overtime pay. But as I wrote in the Washington Times, Democrats have their reservations about the rule too:
None of these problems worried cheerleaders in Congress — until they realized the new overtime salary threshold may apply to them. A recent Bloomberg BNA report found that House Democrats, some whom signed the letter of support to Mr. Obama, may have a hard time implementing the new overtime rules regarding their own staff.
“I don’t see how we could pay overtime” for the “17 or 18 people that each of us is allowed to have — that’s problematic for me,” declared Rep. Alcee Hastings, Florida Democrat.
Just like private-sector employers, if government imposes costs, public sector employers have to make it up somewhere else. Former Virginia Democratic Rep. Jim Moran, who is now a lobbyist, states that Congressional offices “don’t have any surplus funding in their MRA [Members’ Representational Allowance] account, but the funding is flexible, so what they would have to do is reduce the size of their staff” or cut back on constituent services.
Politicians are far from the only stakeholders concerned about the economic impact of the proposed overtime rule.
Publically funded colleges, with pressure to keep tuitions down, fear the added costs will force reduction to student services, cuts to employee benefits, and limit hours worked that will reduce important labor-intensive research.
As reported by The Wall Street Journal, “The University of Iowa says it would limit work hours of staff. And a state university in Missouri could cut some employee benefits.”
El pagnier K. Hudson, an assistant vice president of human resources at Florida International University, told InsideHigherEd.com that over 6,500 employees would be affected and raising “those employees’ salaries to meet the new threshold would cost more than $62 million.”
Barbara Carroll, Vanderbilt University’s chief human resources officer, said it would cost $7 million to increase the impacted employees’ salaries above the new threshold and guaranteed that “[a]lmost certainly less work will get done.”
Organizations that provide services to the disabled community, primarily funded via Medicaid, face an estimated $1.05 billion in additional costs, analysis performed by health research firm Avalere Health. These workers provide vital services to those in our communities that need help. However, without an increase in Medicaid funds, many of these non-profits have no way to increase revenue that is needed to deal with the increased labor costs from new overtime rules.
Chief Operating Officer Gabrielle Sedor at the American Network of Community Options and Resources, a non-profit trade association of employers that provide services to the disabled community, said that the overtime rule would force “over 20 percent (of member organizations)… to reduce services, and that's a real challenge, because in every state the need for services to people with intellectual disabilities is growing."
Tech startup firms are going to take a hit by the rule. Part of the business model is that many employees at tech start-up firms receive low pay but collect equity. The DOL, as proposed, does not take equity or bonus pay into calculating whether an employee meets the salary threshold exemption.
Recent analysis by the Mercatus Center estimates the new rule will have a one-time compliance cost on the industry of at least $317 million. These firms are ill-equipped to deal with the new overtime costs. Many do not possess the funds to increase salaries to avoid the higher salary exemption level. There is a reason that tech start-ups provide equity to compensate low salaries, employees have added incentive to increase productivity because the firm’s success is their own.
Even the DOL’s federal government colleagues at the Office of Advocacy in the Small Business Administration, which represent small entities before the federal government, have issues with the rule. In submitted comments, the Office of Advocacy said that the DOL’s analysis of the rule fails to “inform the public about the impact of this rule on small entities.” In addition, it specifically points out that the DOL’s examination of the rule did not take into consideration the impact on “non-profit organizations and small governmental jurisdictions serving a population of less than 50,000.”
So, it is not just Republicans and Big Business that oppose the DOL’s overtime rule, really. And it is not hard to see why. For instance, when the DOL first proposed the rule, the Florida Department of Economic Opportunity wanted to check the DOL’s methodology used to anticipate the cost. The most transparent administration in history denied the request.
Florida’s Department of Economic Opportunity decided to perform its own analysis. It found that in Florida alone, the costs would be $1.7 billion from the 195,000 new overtime eligible workers. In total, the DOL estimates the costs of the rule at $1.3 billion.
The DOL needs to rethink its overtime rule. It may have greatly underestimated the cost of the rule. An assorted group of impacted parties have pleaded with the DOL to scale back the rule. On top of that, millions of workers’ careers are in jeopardy by the possibility of being demoted to an hourly worker.
Hopefully, the bureaucrats at the DOL really listened to all the impacted parties concerns.