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House Committee Examines Overtime Rule's Negative Impact on Non-Profits and Universities

The House Education & Workforce Committee held a hearing today that examined the Department of Labor’s recent overtime regulation’s impact on non-profits and universities.

Michael Rounds, Associate Vice Provost for Human Resources Management, testified on the hardships that the University of Kansas would experience from the new overtime salary threshold. In the final rule, the DOL raised the salary threshold for overtime eligible salaried employees from $23,660 to $47,476.

The University has dealt with “two state directed budget cuts” this year and more expected in years to come. In essence, the overtime rule amounts to an unfunded mandate. And the costs are not inconsequential. In June, the University of Kansas had 354 employees that are currently exempt but will become non-exempt, and overtime eligible under the new rule.

If they chose to comply with the rule by raising salaries to the new threshold, it would cost $2,937,980. A similar number, $2,303,554.25, is the cost to pay these employees overtime pay as non-exempt employees.

Rounds points out the school does not have funds available to offset added costs of the overtime rule and operates on a fixed budget. The result of overtime costs will be a “reduction of services and/or the elimination of positions.”

At the hearing, Representative Phil Roe (R-Tenn.) said the University of Tennessee stands to incur $9 million in additional costs from the government wage mandate, which amounts to a 2 percent tuition hike on all students.

Another witness, Chief Human Resources Officer at Easter Seals New Hampshire Tina Sharby, spoke about difficulties the non-profit community would have with efforts to comply with new overtime requirements. Easter Seals provides services to individuals with special needs and disabilities and is primarily funded by Medicare, Medicaid, and other state and federal funds.

Sharby notes a problem faced by many non-profits dependent on federal funds, “[A]s a nonprofit, Easter Seals NH is unable to raise prices on products or services to clients to cover these added overtime costs. Instead, the organization will have to reduce services and care for clients, mostly individuals with disabilities — already a vulnerable and underserved population in our country.”

A number of dedicated employees at the non-profit earn $43,000, a salary under the new threshold of over $47,000. To comply, Sharby said, “Easter Seals NH will need to reclassify 280 employees from salaried to nonexempt status, resulting in the implementation of a ‘cap’ on overtime work, limiting career opportunities and reducing flexible work schedules that both attract our staff and enable us to provide certain services.”

Capping overtime work severely impacts Easter Seals’ employees’ ability to provide much needed service to the neediest people. For example, many care coordinators earn under the new salary threshold and with no action would become newly overtime eligible. Their duties include giving 24/7 service to veterans and service members. An unintended consequence of the rule is if Easter Seals feels its best option is to reclassify these workers as non-exempt then “they will no longer be able to provide these critically needed services around the clock to our community.”

As I wrote in RealClearPolicy.com, hopefully “Congressional Democrats [will] take the concerns of those who will be negatively impacted by the rule seriously—especially since many of them are traditional supporters of the Democratic Party.”