Today, the Competitive Enterprise Institute along with 16 other organizations sent a letter to Congress in support of the Protecting Workplace Advancement and Opportunity Act (PWAOA), and any other action to block the imminent Department of Labor overtime rule.
A final rule is expected to be dropped tomorrow. As proposed, the administration planned on raising the salary threshold exemption from $23,660 to $50,440, but Politico reports that the threshold may have been lowered to $47,500. Basically, under the rule, salaried workers making under $47,500 are eligible for overtime.
Proponents tout the rule as giving workers a much-needed raise. Unfortunately, that is far from the case. Employers will take a variety of actions to keep labor costs constant, including reducing base pay, capping hours to avoid overtime costs, demoting salaried employees to hourly status, and hiring more part-time workers.
While a majority of employees impacted by the rule are unlikely to see a wage increase, many workers may lose status, stability, benefits, and income as an outcome of the rule. On top of the negative impacts on workers’ career prospects, the DOL’s rulemaking process failed to adequately measure the costs to small business, nonprofits, and small governments.
As Tammy McCuthen, former DOL Wage and Hour administrator, notes, the DOL’s regulatory flexibility analysis, which is supposed to examine a proposed regulation’s impact on small entities, has been widely criticized by small businesses as severely underestimating the costs of the rule. Another criticism is that DOL predicts it will only take a couple of hours for a small business to comply with the rule. As I posted previously, there are many steps a company must take to canvas its workforce and figure out how to best comply with the new overtime standard, which McCutchen, who has assisted numerous employers on reclassifying employees, says takes about six months and hundreds of hours.
Another aspect of the rule, the DOL proposed to automatically increase the salary threshold annually to the 40th percentile of salaried workers. This is a misguided approach for two major reasons.
The Fair Labor Standards Act, which governs wage and hour standards, contains Section 213(a)(1), which states that the overtime exemptions are to be “defined and delimited from time to time by regulations of the Secretary.” Putting increases to the salary threshold on autopilot disregards the congressional intent of the FLSA that explicitly says that the secretary is to issue a regulation to change overtime exemptions. Moreover, any kind of indexing of the salary threshold has been rejected by past administrations.
In the proposed rule, the DOL complains that the regulatory process is too “time-intensive” and the “nature of notice and comment rulemaking have all contributed to the Department’s difficulty in updating the salary level test.”
Well, if Congress intended to automatically increase the salary threshold then it would have said so in the FLSA. In addition, the point of the Administrative Procedure Act, which requires public notice and comment, was not to make it easy for government agencies to issue rules.
McCutchen points out the other problem with raising the salary threshold annually at the 40th percentile of salaried workers:
An index that recalibrates the 40th percentile each year, based on salaries of non-hourly paid employees, will be relying on an ever shrinking pool of such employees, causing a never-ending, upward ratcheting effect.
This upward ratcheting ‘becomes more pronounced if more nonhourly workers who failed the salary test are re-classified as hourly positions each year.’ For example, if half of the reclassified employees are paid hourly, the 40th percentile ‘will increase by 19.9 p% in the first year and by 94% over a five year period. This means that a salary threshold of $49,400 ($950 per week) in 2015 would increase to $95,836 ($1,843) by 2020, even in the absence of inflation.’
As I wrote in The Hill:
What can be done? Congress needs to step in to protect people from federal labor regulators. Senator Tim Scott recently introduced the Protecting Workplace Advancement and Opportunity Act (PWAOA), which nullifies the Department of Labor’s proposed rule and requires the DOL to go back to the drawing board in regards to analyzing the impact to small business. Unfortunately, such a bill would face a veto from the President.
A Congressional Review Act, which allows Congress 60 days to pass a resolution of disapproval that overrules a regulation, is another possibility to stopping the proposed overtime rule. However, this would likely suffer the same fate as the PWAOA—a presidential veto.
Yet, Congress does possess sole power of the purse. It should use it in the upcoming appropriations process to defund enforcement and implementation of the rule.
Hardworking men and women deserve a raise, but that can’t be doled out by Washington. Using the federal regulatory process to impose overtime pay will backfire, and workers will be the ones left short-changed.