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Regulations Work Overtime to Hurt Employees, Small Businesses

Last week, the U.S. Department of Labor (DOL) announced revisions to the proposed rules interpreting the Fair Labor Standard Act’s regulations on the overtime compensation pay of white-collar, salaried workers. Currently, salaried employees making more than $23,660 annually are exempt from the DOL requirement that employers pay time-and-a-half for each hour over 40 hours weekly. The final rule, with several key changes to the proposed rule, will extend overtime pay protections to over 40 million American workers.

The most significant change to the DOL final rule is that it extends overtime pay benefits to all workers making over $47,476 – roughly double the current annual salary ceiling. It also increases the minimum salary required for a “highly compensated employee” exemption to the rule. This amount was increased from $100,000 to $134,004.

Additionally, these salary levels will be subject to an automatic increase every three years.

The logic behind this rule is that if employers are forced to pay their current workers for the overtime they are already working, the regulation will produce one of two outcomes: 1.) the extra compensation will go straight into the pockets of salaried workers, or, 2.) companies will instead decide to hire more workers, thus creating new jobs.

However, in application, the Department of Labor’s justifications fall short, as many companies will adjust employee hours or lower their salaries.

Business groups such as the U.S. Chamber of Commerce predict that these rules will have a crippling effect on small businesses and salaried workers.

By forcing businesses to compensate millions of workers for overtime hours, the Department of Labor is hurting the employees it was designed to help. Many salaried employees will not see additional pay as employers will arrange work schedules so that fewer employees work more than 40 hours.

Employees will also be pressured to work overtime hours “off the books” without receiving additional overtime pay. This could specifically affect positions that provide labor-intensive research or any other job that does not function on a predictable 8-hours-a-day schedule.

Those working more than 40 hours per week may be laid off or may have fewer opportunities for advancement. Advancement opportunities will also be cut short for hourly employees, as those hoping to work toward a salaried position will have to wait a great deal longer. The Department of Labor is not only crippling the finances of our small businesses, but is also undermining the efficacy of the American workforce.

Overtime pay regulations have been studied before, and the results are less-than-promising. A 1991 University of Texas study by economist Stephen Trejo found that downward pay adjustments occurred to offset increased overtime pay. A 2003 study by Trejo also found that overtime pay regulations do not reduce average work hours.

The Department of Labor overtime-pay mandate will have far-reaching impact on millions of American workers and small businesses. Congress should reject this poorly-analyzed attempt at regulatory overreach.

FreedomWorks is one of a coalition of 17 free-market groups urging Congress to reject the DOL overtime rule. The text of the coalition’s letter to Congress can be found below:

Members of Congress:

On behalf of the undersigned organizations and the millions of Americans we represent, we write to express our strong support for S. 2707 and H.R. 4773, the Protecting Workplace Advancement and Opportunity Act (PWAOA), and all efforts to defund, block, and otherwise nullify the Obama Administration’s effort to change our nation’s overtime rules. The administration’s proposed overtime rule, should it be made final, would threaten flexible work arrangements and paths to success.

The bills, sponsored by Senator Tim Scott (R-S.C.) and Congressman Tim Walberg (R-Mich.), respectively, would nullify the Department of Labor’s proposed overtime regulation. Specifically, the legislation requires the U.S. Secretary of Labor to conduct a thorough economic analysis on how updating overtime rules would affect small businesses and take into consideration cost-of-living differences across the country, among other research before proposing another overtime rule.

The undersigned groups believe workers should receive fair pay for a day’s work, but the overtime rule as proposed is a poor vehicle to do so.

Industries and organizations across the country—from universities to community care providers—would face drastic increases in labor costs as a result of the Obama administration’s new interpretation of the Fair Labor Standards Act. The administration’s proposed overtime rule would make an additional 5 million workers eligible for overtime pay by dramatically increasing the salary threshold exemption from $23,660 to $50,440. By increasing the threshold, many workers will lose salaried employment status and the benefits they depend on, like flexible work arrangements and health benefits.

Public colleges and universities fear the added costs will force reductions to student services, cuts to employee benefits, and limit employees’ work hours that could reduce important labor-intensive research.

Organizations that provide services to the disabled community, primarily funded by Medicaid, would face an estimated $1.05 billion in additional costs, according to analysis performed by health research firm Avalere Health. These workers provide vital services to those in our communities that need help.

The Small Business Administration’s Office of Advocacy, which represent small entities before the federal government, submitted comments that the Department of Labor’s analysis of the rule fails to “inform the public about the impact of this rule on small entities.”

Most concerning, the DOL’s methodology used to analyze overtime costs is unknown. The Obama administration denied the Florida Department of Economic Opportunity’s (FDEO) request to check the methodology used to anticipate the costs. The FDEO performed its own analysis. It found that in Florida alone, the costs would be $1.7 billion from the 195,000 new overtime-eligible workers in Florida, while the DOL estimates the direct and indirect costs of the rule would only be $1.8 billion nationwide.

A rule that could negatively affect millions of workers and the futures of numerous small businesses and industries cannot be issued without thorough analysis by the agency.

We encourage members of Congress to do everything in their power to nullify this rule and defund any future efforts to implement the final rule. We support the PWAOA so that any update to overtime regulations is vigorously vetted and serves the interests of all Americans. In response to the final rule, we also support Senate and House members pursuing a resolution of disapproval under the Congressional Review Act to block the overtime rule and its devastating consequences for small business owners and workers across the nation.

Thank you for your consideration.

Sincerely,

Competitive Enterprise Institute

American Commitment

Americans for Prosperity

Americans for Tax Reform

Campaign for Liberty

Center for Individual Freedom

Center for Worker Freedom

Council for Citizens Against Government Waste

FreedomWorks

Frontiers of Freedom

James Madison Institute

Jefferson Project

John Locke Foundation

Less Government

National Taxpayers Union

R Street Institute

Taxpayers Protection Alliance