The rules are changing for how employers must compensate workers for overtime. The new rule was put out by President Obama’s Department of Labor and goes into effect on December 1st, 2016. What the new overtime rule means for your construction business is that the salary/income threshold at which your employees become eligible for overtime pay has just doubled from the 2004 standard of $23,660 to $47,476. That has the potential to significantly raise your costs.
Details of the New Overtime Rule
The details of the new Department of Labor rule specifies that private-sector employees become eligible for overtime pay when they earn $47,476 in a year. At present income rates, this will effectively qualify over 4 million workers to begin receiving time and a half for every hour worked beyond 40 hours in a week. This move is directed by the White House and will be put into effect without any congressional vote or approval. For most construction companies, that means their cost for workers will go up significantly—akin to a tax of sorts—and we’re not sure if the result will be higher costs of goods sold (including housing) or less hours for existing workers in order to avoid the overtime costs.
Industry heavyweights like the NAHB and ABC are coming out against the new overtime rule and issuing statements:
“The sheer arrogance displayed by the Department of Labor in failing to heed the concerns of the nation’s small business community will result in severe repercussions that will harm workers, small businesses, housing affordability, job growth and the economy.”
– Ed Brady, chairman of the National Association of Home Builders
“DOL’s overtime rule will rob employers of needed flexibility and employees of career advancement avenues, and it will have a disruptive effect on the construction industry as a whole”
– Kristen Swearingen, vice president of legislative and political affairs for ABC
New Overtime Rule Problems
The problem with the new overtime rule in general is that it hasn’t been implemented through legislative channels, but rather by fiat via the will of the Department of Labor and under the guidance of the Obama administration. This sort of “one size fits all” action blankets the rule across all states and takes all decision-making and options away from the elected officials and the states. With the rule being so broad—a full doubling of the salary or income threshold, the ramifications are—at best—unknown with respect to small businesses around the country. To work to reign in the new rule, ABC is supporting the “Protecting Workplace Advancement Opportunity Act,” legislation designed to “ensure the Department of Labor pursues a balanced and responsible approach to updating federal overtime rules.” Sponsors of the legislation include members of the House Committee on Education and the Workforce and the Senate Committee on Health, Education, Labor, and Pensions including Rep. Tim Walberg (R-Mich.) and Rep. John Kline (R-Minn.) and in the Senate by Sen. Tim Scott (S.C.) and Sen. Lamar Alexander (R-Tenn.).
One of the sponsors, Tim Walberg (R-MI), released the following statements upon introducing the law:
“In the 21st century workplace, we need to encourage policies that increase flexibility, reduce regulatory burdens, and create more opportunities for workers to pursue their dreams. Our nation’s outdated overtime rules are in need of modernization, but it must be done in a responsible way that doesn’t stifle opportunities for working families to get ahead. Unfortunately, the administration’s overtime proposal fails this test and should be sent back to the drawing board.”
New Overtime Rule Bullet Points
Here are the key takeaways of the new overtime rule:
- The standard salary level is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region ($913 per week or $47,476 annually for a full-year worker)
- The total annual compensation requirement for highly compensated employees, subject to a minimal duties test, is set to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)
- Salary and compensation levels are automatically raised or updated every three years to maintain the above percentiles
- The salary basis test is amended to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level
The big issue most opponents have with the new Department of Labor rule is that it burdens employers to an extent that will result in them hiring less new employees and curtailing the working hours of their existing labor force to avoid the penalties. For the most part we’d have to agree that the new ruling seems extreme, and it appears to be more of an effort to—ineffectively we think—force higher wages without considering the unintended consequences of business who have to keep in mind their bottom line. It’s those unintended consequences that make us think this is better left to the states to decide rather than the federal government—let alone one agency acting independently.
If you’ve got thoughts on the new overtime rule, please chime in via the comments below!
Here’s a link to the rule on the DOL website.
