May 31, 2016

New Federal Overtime Rule Will Raise Business Costs, But Help Few Workers

As Connecting the Dots noted last week, the U.S. Department of Labor recently announced the final changes to overtime regulations for salaried employees. The final rule:

  • Set the minimum salary level for exemption at $47,476 ($913/week) and the salary level for the highly compensated test at $134,004;
  • Provided for automatic increases in the salary levels after three years (beginning Jan. 1, 2020), indexed to the 40th percentile of full time salary workers in the lowest wage Census region (currently the South region);
  • Allowed employers to count any bonuses paid on at least a quarterly basis toward 10 percent of the minimum salary level;
  • Did not revise the duties test; and
  • Set an implementation date of December 1, 2016, providing nearly 200 days for employers to be in compliance with the new requirements.

Research released last week by the American Action Forum (AAF) indicates this rule will impose significant costs on U.S. businesses without helping the middle-income workers it was meant to aid. 

According to AAF, while businesses would face nearly $3 billion in compliance costs and more than 2.5 million paperwork burden hours because of the rule, only 825,000 of the 4.2 million newly covered workers would regularly benefit from the revised regulation. Additionally, even for the workers that would be better off with this rule, the benefits would be minimal. AAF said the net average weekly pay increase would be only $5.48 and, for those who regularly work overtime, the increase would be just $19.97. Meanwhile, businesses would deal with the new costs by shifting more work to contractors and hiring fewer full-time workers. 

The negative effects of this rule will be felt throughout the economy, which is why, like MSCI, other industries, including startup companies and charities, also oppose the rule. To help members of our industry understand this rule, the National Association of Manufacturers will hold a free webinar on the rule on Tuesday, June 2 at 12 p.m. ET. Click here to register.