House Committee on Education and Workforce Hearing: Bad for Business: DOL’s Proposed Overtime Rule

House Committee on Education and the Workforce

Subcommittee on Workforce Protections

Bad for Business: DOL’s Proposed Overtime Rule

Wednesday, November 29, 2023

 

Topline

• Republicans warned that the DOL’s proposed rule would impose significant burdens on employers and limit opportunities for workers.
• Members on both sides of the aisle discussed the impact of raising the overtime salary threshold.

Witnesses

• Paul DeCamp, Member of the Firm, Epstein, Becker & Green, P.C.
• Jagruti Panwala, Principal, Sita Ram LLC
• Judy Conti, Director of Government Affairs, National Employment Law Project
• Dr. Douglas Holtz-Eakin, President, American Action Forum

Opening Statements

Subcommittee Chair Kevin Kiley (R-Calif.)

In his opening statement, Kiley began by explaining that the Obama Administration proposed a rule that would have increased the overtime salary threshold by more than double in 2016 and at the time, then Chairman John Kline called the move extreme and drastic. Kiley said that today we are in a similar place with the Department of Labor (DOL) proposing a poorly conceived rule to change the overtime requirements. He noted the rule could not come at a worse time, as businesses are working to recover from the pandemic and deal with issues caused by inflation. Kiley added that the rule was issued under an Acting Secretary of Labor, Julie Su, who the Senate has declined to confirm for nine months. He said that every action taken by the DOL with an Acting Secretary is under a legal cloud and called on President Biden to end Julie Su’s tenure as the longest serving Acting Secretary in history and to nominate a different Secretary that can act competently and win Senate approval, so the DOL will be free of the legal uncertainty that clouds its important work. Kiley said that the proposed rule poses a threat to the livelihoods of the people it claims to help, affecting 3.6 million Americans and costing employers an estimated $1.3 billion forcing many employers to simply lay off their workers due to increased costs. He went onto say that employees that have exempt status enjoy greater freedom to pursue professional development opportunities and that non-profits in particular benefit from being able to offer employees benefits that would not be possible otherwise, like telework. He explained that the rule’s possible benefits for a small part of the workforce must be balanced against the burdens it imposes on nonprofits, workers, and consumers. Kiley said the most concerning part of the rule is that it puts the policy on autopilot and that future changes should be subject to the regular policy review, including conversations with stakeholders rather than this one size fits all formula. He concluded by urging the DOL to withdraw the rule until it has completed a more thorough consultation with stakeholders, and it must permanently withdraw the provision that would ties the hands of future administrations and Congresses.

Subcommittee Ranking Member Alma Adams (D-N.C.)

In her opening statement, Adams noted that low wage workers experienced the fastest real wage growth between 2019 and 2022 of anytime since 1979. She added that the economy added 14 million jobs since President Biden took office saying this growth was a direct result of the policies of President Biden’s policy choices to support workers and businesses. She also noted key legislation passed by the Biden Administration that aided workers and working families including the American Rescue Plan and the Inflation Reduction Act. Adams lauded President Biden for embracing a progressive pro-worker regulatory agenda by raising federal contract pay to $15 an hour and repealing harmful restrictions imposed by the previous Administration that allowed employers to misclassify workers and deny them overtime pay, minimum wage, and workers’ compensation. She explained the DOL’s proposed rule includes safeguards to update the threshold automatically and routinely, so that businesses and workers do not have to wait for the federal government to update it. She emphasized that these protections are essential for workers who are required to work long hours to provide for themselves and their families. Adams concluded by noting her concern that her Republican colleagues are attempting to undermine workers’ financial security by limiting access to overtime pay, saying that employees should not have to bargain for what they are owed.

 

Testimony

Paul DeCamp, Member of the Firm, Epstein, Becker & Green, P.C.

In his testimony, DeCamp noted the proposed rule rejects 85 years of DOL practice. He explained that since 1940, the DOL’s regulations have consistently embodied the principle that the purpose of the salary threshold is to screen out obviously nonexempt employees. He went on to say that weeding out those employees helps the Department, employers, and workers avoid wasting time analyzing job duties of employees whose pay is so low there is little chance they pass the duties test for exemption. DeCamp noted that while the DOL has repeatedly cautioned that the salary level must not be so high as to exclude a substantial number of workers, the rule would deny exempt statuses to at least 3.4 million workers who qualify for exemption today. He explained the rule’s proposed threshold would transform the salary threshold into a new regulatory tool that operates to deny exempt status to millions of workers whose job duties qualify for exemption. DeCamp also noted that the proposed rule seeks to implement automatic updates to the threshold every three years, sidestepping the rulemaking process. He emphasized that nothing in the Fair Labor Standards Act (FLSA) or Administrative Procedure Act allows the DOL to avoid the formal rulemaking process for salary threshold changes. He concluded that if anyone should make these changes, it is Congress.

 

Jagruti Panwala, Principal, Sita Ram LLC

In her testimony, Panwala discussed how the proposed rule would drastically impact her company’s entire business plan through a substantial increase in payroll taxes, insurance, and other indirect costs that she said are often left out of the discussion around this rule. She explained that some hotels may be forced to lay off employees to stay in business, and that many workers will most likely be reclassified. Panwala noted the benefits salaried positions afford employees, including the opportunity to learn aspects of the business beyond their immediate job duties. She said the DOL is ignoring the fact that there are different costs of living across the United States and emphasized that the automatic updates to the minimum salary threshold will create immense problems for hoteliers. Panwala concluded that the DOL’s misguided rule would provide less flexibility and force small businesses to lay off workers.

 

Judy Conti, Director of Government Affairs, National Employment Law Project

In her testimony, Conti argued the DOL’s proposed rule corrects the current overly broad exemptions, which exclude overtime eligible workers from the legal protections they should employ. She explained that employers have ample tools to deal with the impacts of the proposed regulation, including the better management of working times, hiring additional staff, or giving more hours to part-time workers. Conti noted that automatically updating the threshold is good for both workers and employers.

 

Conti explained that the current salary threshold is so low that it allows employers to easily misclassify employees each year, which results in workers being deprived of pay. She emphasized that this is a problem that DOL needs to mitigate and said it must be done through regulation. Conti noted the rule will provide new and enhanced protections for 3.6 million people who are working over 40 hours a week. She explained that excessive overtime is dangerous for workers, and can lead to low morale and higher turnover, which is bad for business owners. Conti cited the Economic Policy Institute’s findings that the new threshold will account for a mere 0.023 percent of the total wage bill employers paid in 2022. She concluded that the proposal to update the threshold will ensure overtime protections won’t erode and that employers will be able to plan for increases.

 

Dr. Douglas Holtz-Eakin, President, American Action Forum

In his testimony, Holtz-Eakin said that there is no compelling case to raise the threshold at this time.

He described the proposed rule as a poorly targeted redistribution policy, noting that only 2.4 percent of the impacted workers live below the poverty line. Holtz-Eakin estimated that roughly $20 billion additional dollars will have to be paid in overtime pay, which could come at the expense of additional investment of firms and could lead firms to pass along the costs to consumers. Holtz-Eakin concluded that the proposed rule’s consequences will be negative for the U.S. economy.

 

Question & Answer

Proposed Rule’s Impact on Businesses

Rep. Eric Burlison (R-Mo.) noted the rule poses a significant burden for businesses and asked Panwala if the rule would impact her business. Panwala explained that owners won’t have time to understand what this rule means for their businesses.

 

Rep. Mary Miller (R-Ill.) said the DOL’s proposal will create another burden for small business struggling to survive in the Biden economy. She asked if the proposed rule would force the hotel industry to fire employees. Panwala said yes, noting hotels run on a tight margin.

 

Miller asked what challenges the rule would pose for businesses that operate across multiple states. Panwala said it would create many operational challenges, forcing owners to look over their employees’ shoulders and noted that it would make it difficult to create financial projections to ensure businesses can still pay their other bills.

 

Miller asked how the rule would impact a business owner who has operations in multiple states. Panwala explained that the costs of living and the costs of running a property vary greatly from state to state. She emphasized that the one size fits all approach does not work.

 

Kiley asked if hotels would shut down if the proposed rule goes into effect. Panwala said absolutely. Kiley asked if the hotels that remain open would have to lay off workers. Panwala said yes, adding that hotels would also have to reclassify some salaried employees as hourly employees.

 

Overtime Threshold

Adams noted the overtime threshold has been allowed to stay flat for long periods of time. She asked Conti what that means for workers’ pay and time. Conti explained that if the overtime threshold is set as a static amount, it actually changes over time, and erodes and means less in terms of absolute dollars each year. She said this is detrimental to workers and lauded the proposed rule for giving employers the ability to plan.

 

Rep. Virginia Foxx (R-N.C.), the Chairwoman of the full committee, asked about the effect of raising the overtime salary threshold on currently exempt employees who will need to be reclassified. DeCamp explained that employees will move from receiving a steady biweekly salary to a great level of insecurity, knowing your income will depend on the business’s needs and workflow. He added that it is also seen as a huge demotion, morally.

 

Foxx asked why the DOL originally implemented an overtime salary threshold. DeCamp said the purpose was to weed out employees who were not doing managerial or supervisory work.  He explained that the salary threshold was meant to weed out people whose pay was so low that there was very little likelihood they would be exempt under the duties test.

 

Rep. Tim Walberg (R-Mich.) expressed his concerns that raising the threshold in such a short time frame would impose significant burdens on employers and limit opportunities for workers. He then asked Holtz-Eakin what economic difficulties are likely to surface should the proposal go into effect just four years after the previous rule. Holt-Eakin responded saying there are two major costs, the first is the administrative burden of the rule and the second cost is the economic adjustments to accommodate the additional wages and salaries that must be paid.

 

Legal Challenges

Burlison cited a similar rule proposed under the Obama Administration, which faced legal challenges. He asked DeCamp if there would be legal challenges to the proposed rule. DeCamp said yes because the rule is contrary to the FLSA. He cited the ruling by the District Court of Texas in 2016 in response to the Obama rule, which held that the DOL’s decision to raise the salary threshold so substantially that it would exclude millions of people from exempt status based solely on their compensation without taking their job duties into consideration was inconsistent with the FLSA. DeCamp predicted there would be a similar challenge to this rule.

 

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.