In June, we launched our series on the Department of Labor’s revised Fair Labor Standards Act (FLSA) rules on overtime pay. The DOL projects this change could impact more than 4 million American workers when it goes into effect December 2016. In Part II of our series, we explored the uncertainty behind this change and how it impacts the nonprofit sector specifically. In this installment, we examine how this has become a key political issue, and why its future is still anything but certain.
The Republican and Democratic conventions have wrapped up, and as always, the parties asked Americans if their lives are better off today than they were four years ago. It’s a leading question sparking many debates, but there’s one common denominator that impacts every American worker – income growth. This particular trend has not been kind to most workers, as their long-term average real income growth has stagnated and income inequality has been rising for decades.
The Fair Labor Standards Act was ushered in as a part of President Franklin Roosevelt’s “New Deal” programs in the 1930s and ’40s. Arguably, the New Deal was the leading driver behind the sustained real income growth for the mostly salaried middle class in the three decades after WWII. In our original FLSA overtime update blog post it was noted that approximately 62 percent of salaried workers in 1975 were eligible for overtime pay. That number has plummeted to just 8 percent, because of the current low threshold of $23,660 (annual salary for a full-year employee) which hasn’t been updated since the ’70s to reflect wage inflation adjustments.
The Modernizing of Overtime Protections
This sparked President Obama in March of 2014 to sign a Presidential Memorandum to have the Department of Labor (DOL) modernize the FLSA and its overtime protections. In 2015, the DOL floated its proposed FLSA changes and made them available for public comment, which inspired lots of direct feedback.
In a preemptive move, two Republican congressmen proposed a bill this past March, called the Protecting Workforce Advancement and Opportunity Act, that sought to nullify any FLSA overtime changes. This bill was stalled, naturally, due to the threat of a presidential veto. Although the final rule released in May 2016 had a lower salary threshold compared to the original 2015 proposal, the impact of these FLSA changes are designed to be widespread, starting this December during the lame duck presidential timeframe.
All of this should not have been a shock. Back in 2012, President Obama and the Democratic party had signaled their intention within their party platform, stating:
“His administration will continue its fight against the exploitative practice of employers fraudulently misclassifying workers as independent contractors or white-collar workers to evade taxes or deny them protections and overtime benefits. As new employment relationships evolve away from the traditional employee-employer model, we need to make sure our labor laws are modernized and keep pace with changes in our economy.”
Fast forward to today, and although President Obama and the DOL have set the stage for change, the fight over these new FLSA overtime regulations is building. On June 9, the Republican-controlled House of Representatives held a three-hour hearing titled, “The Administration’s Overtime Rule and Its Consequences for Workers, Students, Nonprofits, and Small Businesses.” In the hearing, two of the four invited experts were from the nonprofit sector, including Tina Sharby, Chief Human Resources Officer of Easter Seals New Hampshire and Michael Rounds, Associate Vice Provost for HR Management at the University of Kansas.
Impact on Nonprofits
Mrs. Sharby testified, “The final overtime rule is too much, too fast, and the rule will have a far-reaching negative impact on Easter Seals New Hampshire.” Adding, “… the administration unfortunately missed a real opportunity to put forth a rule that works for both employers and employees.” She cited the struggle between balancing critical services like crisis response for veterans and the estimated $425,000 impact this will have on their budget next year.
Providing a higher education perspective, Mr. Rounds focused on the impact in terms of services and employees stating, “An increase of 100 percent+ at one time in 2016 is difficult to absorb without significantly impacting university services.” To comply, he added, “KU may increase the salaries of a few individuals whose current pay is close to the new salary threshold, but will need to reclassify the majority of impacted employees to hourly status.” He pointed out that widespread reclassification at KU may impact 354 employees, while the cost of compliance will raise their expenses by $3 million annually.
The political storm is continuing to brew this summer. Forty Senate Republicans issued a resolution outlining their own disapproval, stating, “Congress disapproves the rule submitted by the Department of Labor relating to defining and delimiting the exemptions from minimum wage and overtime pay requirements … and, such rule shall have no force or effect.” This in combination with a similar strongly supported House resolution means the battle will continue.
The Democratic Party is also digging in, stating on its 2016 platform, “We will defend President Obama’s overtime rule, which protects millions of workers by paying them fairly for their hard work.”
This issue is primed to be a part of the presidential debates. These changes could be overturned or thwarted if the Republicans retain their Congressional majority and also take the White House. This possibility adds even more uncertainty, as employers in both private and nonprofit sectors continue to analyze these changes and start to make key decisions about their workforce and related services.
We’ll continue to explore the new FLSA overtime rule as we get closer to December, and welcome feedback about how your own nonprofit may be planning for its impact and what changes it may bring you.