Last summer when the Department of Labor proposed a massive increase in the salary threshold that determines whether many white-collar employees are eligible for overtime compensation, they certainly couldn’t have guessed that their allies on Capitol Hill would be upset. Yet, it has been reported recently that “House Democratic chiefs of staff are freaking out” over trying to figure out where to come up with the extra funds this regulation will require.
Some Democratic offices thought they could show solidarity by complying in advance with the new requirements. But the historically low salary levels and long and unpredictable hours many Congressional staffers work is making this much more difficult than anticipated. With limited and shrinking personnel budgets, making staffers eligible for overtime, or boosting their salaries to keep them exempt is not feasible. As proposed, the new salary threshold of $50,440 per year (up from $23,660) will result in many employees being reclassified from salaried professionals to hourly wage earners and therefore eligible for overtime compensation. There is room for the salary threshold to be increased, but not by 113 percent, a historically high increase.
What makes this proposal so problematic for these employers is that, just like members of Congress, they are incapable of increasing their revenues to cover the resulting increased labor costs.
Small businesses typically operate on restrictive cash flows and profit margins. Adding the increased labor costs of this proposal will be a devastating hit.
Nonprofits are dependent on philanthropy, and in some cases tax contributions to maintain operations. Employees in charitable nonprofits routinely work long and odd hours because their clients’ needs do not fall neatly into the typical eight-hour workday, or 40 hour work week. To avoid this significant budget hit, many groups will have to reduce their operations and other welfare services for people and families in need. For instance, Operation Smile (providing free surgeries for children around the world with cleft palates) said in their comments the increased costs would equate to almost 4200 fewer surgeries each year. Other charities such as Habitat for Humanity, the Salvation Army, Catholic Charities USA, the Boy Scouts, and the Boys and Girls Clubs of America filed similar comments describing how the proposed increase would force reductions in their operations.
Colleges and universities are largely dependent for their research programs on federal grants that cap salaries at a level below the new threshold. If the graduate students and postdoctoral researchers have to be reclassified and put on the clock, their ability to spend irregular hours in the lab conducting this country’s science and medical research will be severely compromised.
And local governments, of course, are dependent on tax revenues and are required to maintain balanced budgets. In a cruel double hit, if these local governments have to spend more on their labor costs, they will be less able to support the operations of local charitable nonprofits.
Not only will employers of all stripes take a hit from this new regulation, but employees will feel the pinch as well. Once reclassified as an hourly wage earner, they will lose flexibility in their work hours, and the now-expected ability to respond to emails and other electronic contacts outside the office (absolutely required for anyone working in Congress) will be lost as that time will have to be tracked and compensated.
Because the Congressional Accountability Act subjects members of Congress to the Fair Labor Standards Act this is the rare issue where members of Congress actually have a stake in the outcome that aligns with outside employers. Thankfully, members of Congress are now in a position to help all employers (including themselves) who are concerned about the impact of the Department’s proposed regulation.
The Protecting Workplace Advancement and Opportunity Act (S. 2707/H.R. 4773), introduced on March 17, would block the proposal from taking effect and require the Department to conduct a more comprehensive and detailed economic analysis before issuing a new proposed regulation. Cosponsoring this bill will send a message to the Department of Labor, on behalf of the small businesses, charities, academic institutions, and municipal governments, that its proposal went too far and that any future proposal must be responsive to the concerns of these employers.
Freedman is executive director of Labor Policy for the U.S. Chamber of Commerce