The Department of Labor (DOL) finalized its rule regarding overtime pay under the Fair Labor Standards Act. The rule and wage threshold had not been updated since 2004, and this is part of the Obama administration's efforts to increase middle-class wages. Although everyone would like to see wages increase, mandating such increases is worrisome. NRCA is concerned the new rule will add an additional paperwork burden and increase labor costs for employers while reducing workplace flexibility and pay for some workers.
The details
The new rule will go into effect Dec. 1 and more than double the current salary threshold of workers who are eligible for overtime compensation from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). This is a slight reduction from the proposed wage threshold of $970 per week (or $50,440 per year) but still more than a 100 percent increase.
After the initial increase, the threshold will be updated every three years and tied to the 40th percentile of full-time salaried workers in the lowest-wage region of the U.S. (currently the Southeast). The proposed rule called for annual increases, so a three-year period is an improvement though the percentile is higher than the update from 2004, which used the 20th percentile.
Thankfully, DOL did not change the test to qualify as an executive, administrative or professional exempt worker. The proposed rule did not include any specific changes to the test but asked what should be done.
Also included in the final rule is an option for employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. However, such payments must be paid on a quarterly or more frequent basis and employers are "permitted" to make "catch-up" payments.
NRCA's efforts
NRCA filed comments in September 2015 that highlighted a number of concerns its members have with the proposed rule, but DOL largely ignored the comments.
In its comments, NRCA laid out other concerns with the rule, such as how it would be costly to implement. For instance, employers must look at each employee's hours, wages, job function and benefits package and evaluate how to comply with the rule. This could cause workers to be reclassified as nonexempt, losing valuable benefits such as flexible work schedules.
Employers also will face compliance and administrative costs to ensure employees do not exceed a 40-hour workweek. Because the rule is structured around an employee's hours worked on a weekly (not monthly) basis, overtime payments could fluctuate greatly given the construction industry's inconsistent and seasonal work schedule. This means businesses may have to institute new record-keeping procedures that could prove costly to accurately and efficiently calculate employees' hours while working to seamlessly interact with current payroll systems.
What now?
Congress has held numerous hearings on the rule to listen to opposition not only from the business community but also from nonprofit organizations, state and local governments, and education groups. NRCA is a member of the Partnership to Protect Workplace Opportunity Coalition, which has been actively working to combat the rule's negative effects. The Protecting Workplace Advancement and Opportunity Act (S. 2707/H.R. 4773) has been introduced in the House and Senate. The legislation would require DOL to further analyze the effects the rule will have on employers. It also would require an open comment period before a wage increase could be considered or changes to the duties tests be made. The outlook for this legislation is bleak with President Obama still in the White House.
However, there have been Congressional Review Act (CRA) resolutions (S.J. Res. 34/H.J. Res. 95) introduced that would nullify the overtime rule if approved by Congress and signed by the president. CRA resolutions only need a simple majority (51 votes) to pass the Senate, bypassing the typical 60 votes needed to proceed. There is a chance the rule could be overturned if Donald Trump were elected president though his position on the rule is unknown. Hillary Clinton has stated her support for the rule.
Given the legislative and legal options to block the rule from going into effect are limited, NRCA recommends you review the wage structures and classifications of your employees to ensure you comply with the rule by Dec. 1 and to prepare for potential payroll increases.
Andrew Felz is NRCA's manager of federal affairs.
