July 6, 2015

Obama Administration Releases New Overtime Regulation

Last Tuesday, the Obama administration released a proposed regulation that would increase the threshold for which salaried workers are eligible for overtime compensation from their employers. Under the Department of Labor’s (DOL) plan, the limit would increase from $23,660 annually, or $455 weekly, to $50,400 per year, or about $970 weekly. The department estimates the proposed change would affect approximately five million employees across the economy. 

Going forward, the salary threshold also would be adjusted automatically annually either through a fixed percentile or by using the consumer price index. (The DOL is asking for the public to comment on which standard it should use.) The Labor Department published a Q&A and the proposed rule, which is available here

The U.S. Chamber of Commerce discussed the negative effects this regulation will have on employees. The Chamber’s Seth Hackbarth wrote, “There will less opportunity for companies to grow and hire more workers. Profit margins for companies as a whole are already thin: In the mid-single digits overall and about half that for restaurant. Companies hit by the added cost of this new regulation will have a harder time investing in their workers and their businesses.” Indeed, National Retail Federation study found, “On balance, the net result of [increasing the salary thresholds] tend to offset each other – some employees gain additional overtime pay, however many of them will likely see hours or discretionary bonus awards reduced.” The NRF’s analysis was released prior to last week’s DOL announcement, but it estimated raising the overtime standard to $984 a week would cost businesses approximately $874 million annually. (As noted above, the DOL proposal raises the threshold to about $970 percent week.) 

The National Association of Manufacturers also discussed the impact the rule will have on the manufacturing industry. According to a NAM statement, “[T]his proposed regulation is another in a long list of regulatory roadblocks to healthy and robust economic growth and job creation.” 

MSCI will join NAM’s efforts to oppose this rule. As part of those efforts, NAM has asked employers and other trade associations to let NAM staff know how this proposed regulation would affect employees and members. MSCI will relay its members’ stories to NAM. If you would like to discuss the impact this rule will have on your company and your employees, please contact MSCI Vice President of Finance and Government Affairs Jonathan Kalkwarf. 

Interested parties have until Sept. 4, 2015 to comment on the DOL’s proposed standards. Instructions for doing so are available here. According to Politico, the proposed regulation contains no specific changes to the “duties test,” which defines which employees would be exempt from the new standards. However, DOL specifically said it would like to hear from the public about how best to alter the test, which indicates it is open to altering it.