The High Cost of a Bad Overtime Rule

Former Department of Labor Wage and Hour Administrator David Weil urges Labor Secretary Alexander Acosta to defend an Obama era overtime regulation in a recent opinion piece [Defend Obama’s Overtime Policy, Oct. 25]. This is understandable, since he wrote the rule after all.

Yet he glosses over the fact that the Eastern Texas District Court struck down the rule for a reason. The Obama administration crafted an overtime rule that disregarded the intent of the law. The text of the Fair Labor Standards Act is abundantly clear in who is and is not exempt from overtime pay, and what factors to consider in making that determination.

The basis for the overtime exemption focuses on what duties an employee performs, not how much an employee earns. The law states “any employee employed in a bona fide executive, administrative, or professional capacity” is exempt from overtime pay requirements.

In the decision, Judge Amos Mazzant of the Eastern Texas District Court stated, “nothing in the EAP [executive, administrative, and professional] exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level.”

Besides not following the intent of the law, the Obama administration set a threshold that salaried employees – who also perform executive, administrative and professional duties – must earn to become exempt from overtime pay way above historical norms. In the past, the Department of Labor implemented a salary threshold test simply to ease enforcement by screening out clearly nonexempt employees.

The Obama administration failed to follow this precedent. The Obama administration overtime rule increased the salary threshold by 100 percent from $23,660 to $47,476.

There are also devastating economic consequences with a high salary threshold in the private sector and beyond. Local governments, nonprofit organizations and public universities would all be affected by a change in policy.

The state of Iowa, for example, estimates the overtime rule will increase costs on the state government and public universities by approximately $19.1 million in just the first year.

Nancy Duncan, associate vice president of human resources at the nonprofit Operation Smile, stated in testimony that the rule would increase payroll cost by $1 million a year. The organization cannot instantly raise $1 million in revenue to offset rising labor costs. Ultimately, setting too high a salary threshold means fewer children would receive Operation Smile’s assistance in getting life-altering surgeries to repair cleft lips, cleft palates and other facial deformities.

Setting a salary threshold too high can harm all private-sector employees on a management track who could be reclassified as hourly workers. For low-level managers who are reclassified and have their hours capped, it will greatly restrict their ability to receive flexible schedules, a benefit many professional employees value and to which they have grown accustomed.

The Department of Labor should not defend the overly costly and invalidated overtime rule. If the salary threshold needs to be modified, then the Department of Labor must take great care in making any changes by weighing how it may negatively impact workers and job creators.

Originally published to U.S. News and World Report.