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White House Plan to Extend Overtime Pay Sparks Businesses' Outcry--Update
DOW JONES & COMPANY, INC. 3:04 PM ET 6/30/2015
A White House proposal to expand overtime eligibility to around five million more Americans drew fire from companies and business groups, which warned it will curtail work hours and dent job growth as employers work around the rule to control costs.

The Obama administration defended the plan, long in the works, to more than double the eligibility threshold for overtime pay, to $970 a week from the current cutoff of $455 a week, last adjusted in 2004. Details of the proposed rule were released on Tuesday.

Labor Secretary Thomas Perez said employers will have a range of options to comply with the new regulation, but he expects they will end up paying U.S. workers as much as $1.3 billion more in overtime wages each year.

The U.S. Chamber of Commerce called the proposal another example of the administration being divorced from reality and adding more burdens on employers. The trade group said the rule would cause workers to lose benefits, flexibility and opportunities for career advancement.

It "will not guarantee more income, but instead will negatively impact small businesses and drastically limit employment opportunities," said Randy Johnson, a senior vice president at the Chamber.

Other business groups, including the National Restaurant Association and the National Retail Federation--two sectors expected to be heavily affected by the new rule--also weighed in with criticism.

"The administration seems to be under the distorted impression that they can build the middle class by government mandate. Turning managers into rank-and-file hourly workers takes away the career opportunities" for a path to the middle class, said David French, the retail federation's senior vice president for government relations.

The proposal is the fulfillment of an executive order President Barack Obama issued last year to update overtime rules diminished over the years by inflation.

The Obama administration says raising the salary threshold will help address the erosion of long-standing rules that have left millions working overtime without added compensation.

When Mr. Obama issued his executive order for the rule last year, the White House said 12% of salaried workers were below the current threshold, compared with 18% in 2004 and 65% in 1975.

"Right now, too many Americans are working long days for less pay than they deserve," Mr. Obama wrote in an op-ed published Monday on the Huffington Post.

Under the current rules, workers who are paid by the hour or earn a salary of less than the threshold generally are eligible for overtime pay, while those with salaries of at least that amount who work in white-collar jobs generally aren't.

The threshold has been raised rarely in recent decades, but as part of the proposal the level would be tied either to wage growth or inflation to ensure its buying power doesn't erode. Mr. Perez said the administration believes indexing is "a critical linchpin" and will ask stakeholders, during a 60-day comment period, to weigh in on the best way to do that.

For months, critics have argued that the regulatory changes, which won't require congressional approval, would spur employers to circumvent the rules to control costs. That could include scaling back salaried workers who become newly eligible for overtime pay under the rule to hourly positions limited to 40 hours a week of work.

Before the proposal was released, White Castle System Inc., a hamburger chain with about 400 general managers who earn annual salaries of between $45,000 to $54,000 and are exempt from overtime pay, had estimated it would cost the company between $8 million and $12 million a year to compensate the managers for the overtime they work, said Jamie Richardson, a vice president of the Columbus, Ohio, company. Mr. Richardson said Tuesday that the majority of those managers will qualify for overtime pay under the new salary threshold. "We'll need to figure out how to account for that added cost," he said, declining to speculate how.

The new rule also could result in businesses reducing employees' hours or shifting certain lower-level duties to higher-level managers who are exempt from overtime rules.

The rule is "going to force more people into part-time work, and we're already seeing that with Obamacare," said Scott Gittrich, the founder and president of Toppers Pizza Inc. in Whitewater, Wis. He said he would adjust employees' schedules and base wages to avoid spending more on labor under the new rule.

The proposal as written doesn't further expand the overtime-pay eligibility by narrowing the white-collar job duties that make many employees exempt. Some employers in the restaurant industry, in particular, were concerned the proposal would start requiring managers who spend a certain amount of time doing nonmanagerial duties to be paid overtime regardless of salary. Those employers said that change would upset the fluidity of their workplaces, which rely on managers jumping in to help with tasks that hourly workers perform.

Mr. Perez said the agency has received mixed input so far on the issue of how to define exempt jobs but remained open to suggestions on "whether it is prudent to make specific changes."

That is likely to be a battle in coming months between business groups and unions and others representing workers.

The proposal drew a warm response from many Democrats in Congress and on the 2016 campaign trail, but critical commentary from Republicans.

On the campaign trail, Democratic presidential candidate Hillary Clinton tweeted that it is "a win for our economy and workers nationwide." Sen. Bernie Sanders, an independent from Vermont also in the Democratic race, called the changes long overdue.

Former Texas Gov. Rick Perry, a Republican presidential candidate, said the government shouldn't mandate how much employers pay because "unlike the federal government, employers don't have the luxury of living beyond their means."

In Congress, the Senate labor committee's chairman, Lamar Alexander (R., Tenn.), said the rule would discourage people such as job seekers who discover there is only part-time work available. "What Washington owes these workers is policies that create better opportunities," he said.

Sen. Patty Murray (D., Wash.), the top Democrat on the labor committee, said the rule would be good for the economy and help ensure "workplaces work for all families, not just the wealthiest few."

Write to Melanie Trottman at [e-mail]

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(END) Dow Jones Newswires
06-30-151503ET
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