More than 4 million U.S. workers will become eligible for overtime pay under rules issued Wednesday by the Obama administration, but not everyone is thrilled with the change.
The policy changes, which will go into effect on Dec. 1, are intended to counter erosion in overtime protections, which date from the 1930s and require employers to pay 1.5 times a worker’s regular salary for any work past 40 hours a week.
However, they also could bring headaches to employers and a rise in prices for consumers, said the president of a Wichita human resources company.
“Every business is going to make adjustments based on what’s good for them, not necessarily what’s good for the employee,” said Bill Maness, president and CEO of Syndeo, a human resources and payroll outsourcing company based in Wichita.
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“While this appears to be great for the employee, it’s not great for those who pay the wages. In the end, consumers will pay for this.”
In the fast-food and retail industries, in particular, many employees are deemed “managers” and work long hours but are paid barely more than the people they supervise.
Under the new rules, first released in draft form last summer, the annual salary threshold at which companies can deny overtime pay will be doubled from $23,660 to nearly $47,500. That would make 4.2 million more salaried workers eligible for overtime pay.
Most hourly workers would continue to be guaranteed overtime.
The White House – which bills the move as a win for workers – estimates that the change will raise pay by $1.2 billion a year over the next decade. But some companies may instead choose to reduce their employees’ hours to avoid paying the extra wages.
“This is going to really upset the apple cart for a lot of small businesses in how they pay their employees,” Maness said. “Companies that pay people $35,000 to $45,000 per year in positions that don’t require a lot of technical expertise, they will have a mess on their hands.”
Impact on business owners
Maness, along with a number of business groups nationwide, said the changes will increase paperwork and scheduling burdens for small companies and force many to convert salaried workers to hourly ones in order to more closely track working time.
Syndeo, Maness said, contracts with close to 100 Wichita businesses for its services.
“Any business that runs a tight ship when it comes to profitability won’t be able to increase labor costs by 20, 25 or 30 percent,” Maness said. “This will probably help grow our business, but I don’t like it.
“I’d rather have businesses see the value of what I do instead of them coming to us because they can’t handle all these (government regulations) anymore.”
The overtime threshold was last updated in 2004 and now covers just 7 percent of full-time, salaried workers, Obama administration officials said. That’s down from 62 percent in 1975.
Attorney Forrest Rhodes, a partner at the Foulston Siefkin law firm, said the changes could also affect nonprofits in a significant way. Rhodes said he handles much of the work on wage and hours issues at the firm, which has locations in Wichita, Topeka and the Kansas City area.
“During the public comment period to the Department of Labor for these changes, there were a lot of comments from nonprofits in particular,” Rhodes said. “That’s an industry that can’t just decide, by and large, to pay more. They’re not going to necessarily have an expense that can be passed on.”
Molly Fox, a spokeswoman for Goodwill Industries of Kansas, said her organization will have to study exactly how the changes might affect it.
“Goodwill will most certainly be affected by the change,” Fox wrote in an e-mail Wednesday. “We just don’t yet know the extent. We, of course, will follow all federal guidelines.”
Wages stagnant since 1990s
The rule is intended to boost earnings for middle- and lower-income workers; those wages have been stagnant since the 1990s, said Labor Secretary Tom Perez.
Despite their titles, some have complained in lawsuits against chains like Chipotle and Dollar General that they spend the vast majority of 50- or 60-hour weeks working cash registers or performing other tasks typical of regular employees.
Perez said the administration took several steps in the final rule to address business concerns: The threshold was lowered from the original proposal of $50,440, bonus payments can count toward the threshold, and the rule will have a long phase-in before taking effect.
“A lot will depend on how employers handle this,” said Rhodes, the attorney. “The regulations don’t set rules for how employers define someone’s pay when they convert from exempt to non-exempt.
“The employer can adjust the employee’s hourly rate as part of the change to account for the overtime the employee is expected to work.”
Contributing: Associated Press