[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
DAMAGING REPERCUSSIONS: DOL'S OVERTIME RULE, SMALL EMPLOYERS, AND THEIR
EMPLOYEES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
JUNE 23, 2016
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-066
Available via the GPO Website: www.fdsys.gov
______
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HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
CRESENT HARDY, Nevada
WARREN DAVIDSON, Ohio
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Jan Oliver, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Adam Robinson, Co-founder/CEO, Hireology, Chicago, IL,
testifying on behalf of the Job Creators Network............... 5
Hon. Jerrie Tipton, Commission Chair, Mineral County, Hawthorne,
NV, testifying on behalf of the National Association of
Counties....................................................... 7
Mr. Albert F. Macre, General Partner, Payroll + Services,
Steubenville, OH, testifying on behalf of the National
Federation of Independent Business............................. 8
Ms. Christine V. Walters, JD, MAS, SHRM-SCP, SPHR, Sole
Proprietor, FiveL Company, Westminster, MD, testifying on
behalf of the Society for Human Resource Management............ 10
Mr. Ross Eisenbrey, Vice President, Economic Policy Institute,
Washington, DC................................................. 12
APPENDIX
Prepared Statements:
Mr. Adam Robinson, Co-founder/CEO, Hireology, Chicago, IL,
testifying on behalf of the Job Creators Network........... 27
Hon. Jerrie Tipton, Commission Chair, Mineral County,
Hawthorne, NV, testifying on behalf of the National
Association of Counties.................................... 30
Mr. Albert F. Macre, General Partner, Payroll + Services,
Steubenville, OH, testifying on behalf of the National
Federation of Independent Business......................... 38
Ms. Christine V. Walters, JD, MAS, SHRM-SCP, SPHR, Sole
Proprietor, FiveL Company, Westminister, MD, testifying on
behalf of the Society for Human Resource Management........ 41
Mr. Ross Eisenbrey, Vice President, Economic Policy
Institute, Washington, DC.................................. 49
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
ABA - American Bankers Association........................... 58
CUPA-HR - College and University Professional Association for
Human Resources............................................ 60
CUNA - Credit Union National Association..................... 62
ICBA - Independent Community Bankers of America.............. 65
IEC - Independent Electrical Contractors..................... 66
IIABA - Independent Insurance Agents & Brokers of America.... 69
NAFCU - National Association of Federal Credit Unions........ 72
NAMIC - National Association of Mutual Insurance Companies... 74
NRF - National Retail Federation............................. 79
Partnerships to Protect Workplace Opportunity................ 81
WorldatWork.................................................. 82
Gila County Board of Supervisors............................. 84
DAMAGING REPERCUSSIONS: DOL'S OVERTIME RULE, SMALL EMPLOYERS, AND THEIR
EMPLOYEES
----------
THURSDAY, JUNE 23, 2016
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:14 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[Chairman of the Committee] presiding.
Present: Representatives Chabot, Luetkemeyer, Huelskamp,
Radewagen, Hardy, Kelly, Davidson, and Velazquez.
Chairman CHABOT. The Committee will come to order. I want
to thank everyone for being here today.
Last month the Department of Labor finalized the overtime
rule which will affect millions of small employers all across
this country. The Department of Labor has heralded this rule as
a long overdue action that will provide tremendous benefits to
workers. However, like so many of this Administration's
policies, this one-size-fits-all will do, I believe, far more
harm than good.
I have been meeting with small business owners, as Chairman
of this Ccommittee, from all across the country. In fact, I
just had a group of restaurant owners in my office right before
this meeting, and I would like to share with you some of the
things that they have told me.
They are only successful if they treat their employees
well. Many give their employees the flexibility to leave work
early and provide paid time off. They pay their employees as
much as they can afford. When they can provide a bonus or a
raise, they do. And when budgets are tight, many of the owners,
the people who own these businesses, forgo paying themselves,
so that each of their employees can take home a full paycheck.
Countless small employers, including small businesses,
small nonprofits, and small local governments, do not have the
profit margins or the budget flexibility to increase currently
exempt workers' salaries to the new salary level.
The Department of Labor seems to think that employers will
simply be able to raise prices or find extra money elsewhere.
This just is not the case, particularly in rural parts of the
country where the cost of living and wages are lower or for
cash strapped technology startups that often pay lower based
salaries, but provide equity in the companies as incentive to
work there.
For many small employers, their only choice may be to shift
workers from salaried positions to hourly status and require
them to punch a time card. This means that many workers,
particularly entry level managers, will have reduced
flexibility, reduced paycheck certainty, and reduced benefits,
as well as fewer opportunities for career advancement.
Numerous small employers weighed in on this proposal and
told the Department of Labor that the unprecedented salary
level increase would have very negative repercussions. They
asked for a common sense rule that recognized that not all
employers have the same resources or utilize the same
compensation structures. Unfortunately their pleas fell on deaf
ears.
I want to assure the small employers here today, and those
tuning in from across this great country, that while the
Department of Labor didn't listen to you, this Committee will.
We are.
The December 1st compliance deadline is rapidly
approaching. So today we want to hear how small employers are
working to comply with these new requirements and what
challenges that you are encountering.
We want to thank the witnesses, particularly those who have
traveled from all across the country to be here today. And we
are looking forward to hearing your testimony.
And I would now like to yield to the Ranking Member, Ms.
Velazquez, for her opening statement.
Ms. VELAZUEZ. Thank you, Mr. Chairman.
Overtime pay and the Fair Labor Standards Act are
cornerstones of economic fairness in our society. For nearly 80
years overtime rules have ensured that millions of workers are
justly compensated when they work longer than the traditional
40 hour workweek. Yet, more and more Americans are working
longer hours than ever before.
Those employed full-time report working an average of 47
hours per week and nearly 40 percent report logging 50 hours or
more. Preserving the right to overtime pay is particularly
crucial at a time when lower and middle-income families' wages
are stagnant. These changes in the broader economy landscape
prompted the Department of Labor to examine whether the
standards used to determine which employees are eligible for
overtime no longer reflected economic realities. In fact, it
has been estimated that just 11 percent of salaried workers
qualified for overtime. This is a significant decrease compared
to 40 years ago when two out of three workers received time and
a half working overtime.
In May the Department of Labor published its final revision
of the overtime rules. The new regulations will extend overtime
pay to 4 million workers currently exempted and strengthen
protections for 6 million white collar and 3 million blue
collar salaried workers within the first year of its
implementation. This is the government's most significant step
to address income inequality in recent memory.
The new overtime requirements will bring a number of
important benefits to working families and to our economy as a
whole. Lower wage workers tend to quickly spend any additional
earnings they make. This means that if workers start receiving
additional pay, they will likely spend that money stimulating
their local economies, in many cases supporting small
businesses in their community.
Likewise, if businesses elect to hire more workers, rather
than having employees work overtime, then there could be
potential job creation, furthering economic opportunity.
Despite these positive outcomes, we have heard concerns as to
how these regulations will impact the small business community.
Increasing the salary threshold and the number of workers
eligible for overtime pay could augment compliance and labor
costs, putting financial strain on small business owners. This
fact is particularly true for small employers located in low
wage regions and in industries that operate with low profit
margins.
More concerning is that small businesses have commented
that the high costs of this rule could lead to hourly cutbacks
to employees or even salary adjustments. Such actions runs
counter to the goals of this rule and could ultimately harm
employees.
Now that the rules have been finalized, we in Congress can
get a better understanding of their impact. All of us want to
see workers treated fairly and it has become clear that the
overtime rules were due for an update. However, it is critical
that we understand the new rules' impact on small businesses.
This hearing is intended to accomplish that.
I thank the witnesses for being here today. And look
forward to your comments. I yield back, Mr. Chairman.
Chairman CHABOT. Thank you. The gentlelady yields back. And
if Committee members have opening statements prepared, we ask
that they submit them for the record.
And I would now like to take just a moment to review our
rules here relative to timing. It is pretty simple. We operate
by the 5 minute rule. Each of you gets 5 minutes to testify and
each member gets to ask questions for 5 minutes. Sometimes we
go into a second round, sometimes we don't, depending on time.
There is a lighting system to help you out. The green light
starts out, it is on for 4 of the 5 minutes, the yellow light
comes on for 1 minute to let you know you are kind of getting
near the red light, which means you are supposed to conclude
your testimony by then if at all possible. We will give you a
little time in addition if you need it, but we would ask you
not to abuse it and stay within it as closely as you can.
And now I would like to introduce our distinguished panel
here today. We will begin with you, Mr. Robinson. Our first
witness will be Adam Robinson, the cofounder and CEO of
Hireology, a Chicago-based technology firm that was launched in
2010 to revolutionize the hiring process. In 2015 Mr. Robinson
was added to the Chicago Tribune's Blue Network, a listing of
Chicago's most influential entrepreneurs and innovators, and
named a ``Top 25 HR Industry Game Changer Under 40'' by
Workforce Magazine.
Under his leadership, Hireology has been recognized
nationally by Entrepreneur magazine as a ``Top Company
Culture'' and by Crain's Chicago Business as a ``Best Places to
Work'' for both Millennials and Generation X. Mr. Robinson is
testifying on behalf of the Job Creators Network today and we
welcome you here.
Our next witness is the Honorable Jerrie Tipton. Ms. Tipton
is the chairman of the Mineral County Board of Commissioners in
Nevada. Commissioner Tipton was elected to the Board in 2006
and also serves as Mineral County's representative on many
associated boards, including the local Conservation District.
She and her husband have a livestock operation and a business
that supports exploration drilling in the region.
Commissioner Tipton is also an active member of the Nevada
Association of Counties. Today she will be testifying on behalf
of the National Association of Counties. And we welcome you
here as well, as a former county commissioner myself we
especially welcome you.
Our third witness is Mr. Albert--is it Macre?
Mr. MACRE. Macre
Chairman CHABOT.--Macre, who is testifying on behalf of the
National Federation of Independent Business, NFIB. He is the
owner of three small businesses, including a small payroll firm
based in Steubenville, Ohio, called Payroll + Services, which
has served 200 small to medium size businesses since 1994. Mr.
Macre also--did I pronounce that right?
Mr. MACRE. Macre.
Chairman CHABOT. Macre--I have a mental block and it--
Macre, sorry about that. Everybody is always mispronouncing my
name so--Mr. Macre, also currently serves as an assistant
professor of accountancy at the Franciscan University of
Steubenville and lends his expertise to various boards and
organizations such as the NFIB/Ohio Leadership Council and the
Ohio Business Gateway Steering Committee.
He received a master of accountancy from Miami University
in Ohio with an emphasis in financial accounting and taxation.
A great university. The head of our Small Business Committee, a
Miami graduate, my brother a Miami graduate, our son a Miami
graduate so a great school.
Our fourth witness is Ms. Christine Walters. She is an
attorney and the sole proprietor of FiveL Company in
Westminster, Maryland, and will be testifying on behalf of the
Society for Human Resource Management. Since 2002, Ms. Walters
has provided full-time human resources and employment law
consulting to small businesses and small nonprofits.
Prior to starting her firm, Ms. Walters worked nearly 10
years in human resource administration. She has also served as
an adjunct faculty member of Johns Hopkins University and
worked in a law firm, Saul Ewing L.L.P. Ms. Walters has
received numerous nominations and awards for her work,
including the small business of the year award by Baltimore
Washington Corridor Chamber of Commerce in 2010.
Congratulations for that and we welcome you here.
And I would now like to yield to the ranking member to
introduce our fifth and final witness.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure
to welcome back Mr. Ross Eisenbrey, vice president of the
Economic Policy Institute. Prior to joining EPI, he worked as a
former commissioner of the U.S. Occupational Safety and Health
Review Commission and as the policy director of the
Occupational Safety and Health Administration. Welcome.
Chairman CHABOT. Mr. Robinson, you are recognized for 5
minutes.
STATEMENTS OF ADAM ROBINSON, CO-FOUNDER/CEO, HIREOLOGY,
CHICAGO, IL, TESTIFYING ON BEHALF OF THE JOB CREATORS NETWORK;
THE HONORABLE JERRIE TIPTON, COMMISSION CHAIR, MINERAL COUNTY,
HAWTHORNE, NV, TESTIFYING ON BEHALF OF THE NATIONAL ASSOCIATION
OF COUNTIES; ALBERT F. MACRE, GENERAL PARTNER, PAYROLL +
SERVICES, STEUBENVILLE, OH, TESTIFYING ON BEHALF OF THE
NATIONAL FEDERATION OF INDEPENDENT BUSINESS; CHRISTINE V.
WALTERS, JD, MAS, SHRM-SCP, SPHR, SOLE PROPRIETOR, FIVEL
COMPANY, WESTMINSTER, MD, TESTIFYING ON BEHALF OF THE SOCIETY
FOR HUMAN RESOURCE MANAGEMENT; AND ROSS EISENBREY, VICE
PRESIDENT, ECONOMIC POLICY INSTITUTE, WASHINGTON, D.C.
STATEMENT OF ADAM ROBINSON
Mr. ROBINSON. Thank you, Chairman Chabot, Ranking Member
Velazquez, and members of the committee for the opportunity to
testify about the impact of the Department of Labor's new
overtime rule. This rule requires employers to provide overtime
pay to employees whose salary is less than $47,500, which is
about double the existing threshold.
What I want to do in my time today is focus on how this
rule will adversely affect technology startups and high growth
small business owners like me and what that means for the
people we employ. I am the CEO and co-founder of a human
resources technology business called Hireology. We have
streamlined and improved the hiring process to help companies
eliminate bad hires and identify good ones.
We have also fielded hundreds of confused inquiries from
our customers about how to comply with this rule. As a result,
we have a unique perspective to speak about its impact. Like
most Federal regulations, the overtime rule is a one-size-fits-
all policy that doesn't distinguish among firm size, sector,
location or comp structure. This means that companies that
don't fit the Department of Labor's outdated model will
disproportionately be hurt by the rule. Take the capital
constrained technology startup sector that I work in for
example. Employees at these companies trade long hours and
lower pay for the opportunity to get amazing professional
experience early in their careers and the potential for a
significant financial windfall later on.
Are we exploiting these employees? Of course not. Those
working at tech startups voluntarily recognize that their
positions are high-risk, high-reward ventures and that they may
have to go years with below market pay to get a big pay out in
the end. Do we want to regulate these opportunities out of
existence?
Looking back on when I started my company in 2010, I can
tell you with 100 percent certainty that I would not have been
able to hire my first employee had this rule been in place. My
company now has 100 employees with median, median annual
compensation that exceeds $70,000 a year, well above the U.S.
average. How many ``Hireology's'' won't get started as a result
of this rule, making that first employee unaffordable for the
entrepreneur. Are fewer good paying jobs created and fewer
businesses launched outcomes that this ruling is desiring? I
don't think so.
Sales professionals, the lifeblood of almost every company,
also suffer from this rule because their commission-based
compensation structure doesn't align with the Department of
Labor's vision of the workplace. Consider what my company is
facing, 40 of our 100 full-time salaried professionals are
salespeople whose success, like with most sales positions,
depends on persistence. That means working until the sale is
made, whatever the hours. We pay new sales people a base salary
of $40,000 a year. And those who hit their quota can earn
$70,000 to $120,000 a year or more. This compensation structure
is pretty typical in software startups and sales sectors
because it allows employees to directly share in the profits
they produce for the company.
However, the overtime rule forces us to choose between
raising base salaries to the new exempt threshold or convert
everyone on the sales team, about half my business, to an
hourly rate, capping hours at 40 a week. Both alternatives are
very unattractive. A 20 percent pay increase for new hires to
put them above the threshold would hamstring our expansion
plans, but capping hours at 40 a week would mean a loss of
earning potential for all of our sales people, and add costly
time tracking overhead to our bottom line. Both paths result in
less opportunity and fewer middle class jobs.
To the extent that employers like me are forced to
reclassify employees as hourly to avoid unexpected overtime
costs, these high paying job opportunities will be reduced.
Millions of Americans have entered the middle class by securing
a salaried job when working their way up by working until the
job gets done. That means sometimes during a busy season, a
financial month-end, or when a coworker is out sick, working
longer than 8 hours a day. In return these employees are
rewarded with the flexibility, benefits, bonuses, status, and
promotions that come with a salaried position. It is not
exploitative. It is a key tenet of American work culture and
startup culture.
Reduced middle class job opportunities as a result of this
rule will be compounded in parts of country with lower
standards of living. Companies in Chattanooga will have a much
more difficult time complying with a $47,500 salary threshold
than companies in Chicago. As a result, the rule will be
another hurdle for smaller communities across the country that
are still suffering from high unemployment and a lack of middle
class job opportunities.
I urge you to pursue legislative solutions to undo the harm
that will be inflicted by this overtime rule. At a time when
the middle class in this country is already being squeezed, the
tech sector, sales jobs, and middle management positions are a
few areas that still provide relief. The overtime rule
threatens to close those career pathways that have been paved
by hard work.
Thank you for your time today, and I am happy to take any
questions.
Chairman CHABOT. Thank you very much. Commissioner Tipton,
you are recognized for 5 minutes.
STATEMENT OF THE HONORABLE JERRIE TIPTON
Ms. TIPTON. Thank you, Chairman Chabot. Is that right?
Chairman CHABOT. Chabot like rabbit, but yeah.
Ms. TIPTON. Chairman Chabot, Ranking Member Velazquez and
members of the Committee, thank you for the opportunity to
testify today on the impact of U.S. Department of Labor's
overtime rule on entities including small governments.
My name is Jerrie Tipton, I serve as chair of the Mineral
County Nevada Board of Commissioners, and today I am
representing the National Association of Counties.
Mineral County has a population of 4,479. Our county
employs 102 full-time salaried workers--no 102 full-time
employees and has a median household income of the county of
$38,664. Mr. Chairman and members of the Committee, as you
continue to assess this new rule and the potential impact on
small entities, including counties, I would like to highlight
three observations.
First, America's 3,069 counties employ 3.6 million people
and deliver public services to more than 300 million Americans.
Because of our role as employers we are concerned that the new
rule could have unintended consequences for counties,
especially small and rural counties, hindering our ability to
provide crucial services to the communities from transportation
and health, to public safety and emergency services.
Almost 70 percent of counties are considered rural, with
fewer than 50,000 residents. Together we employ over 410,000
full-time workers, and serve almost 40 million Americans. Most
of us do not have the flexibility in our local budgets to pay
the newly eligible employee overtime pay, especially as soon as
December. Rural counties have been doing more with less, and
without new revenue sources it is hard to see any alternative
than to cut services that benefit the residents to pay for this
rule.
Second, the new rule does not adequately address the wide
variations in local labor markets across the country. Labor
markets across the country vary dramatically in our counties.
However, the DOL's overtime rule takes a one size fits all
approach. Let me explain why this is a problem. In 34 of the 50
States, local government employees earned less than $46,000 a
year, less than the new salary threshold. In 97 percent of the
counties in the South Census Region, the average wages in local
government are less than the new threshold. That is why DOL
rule does not provide an accurate picture of the major
differences in labor markets across the local communities.
Finally, the new rule will have broad consequences for
taxpayers and county services. Many counties are still
struggling to recover from the recession and may not have the
resources to absorb sudden spikes in labor costs. According to
the NACo's County Economies 2015 report, only 214 of those
county economies have fully recovered to their pre-recession
levels. In Mineral County the new rule would make 13 to 17 of
our full-time, 102 full-time employees eligible for overtime
pay.
The additional cost would be up to $45,000 a year for us.
It might not seem like a lot but it poses quite a financial
challenge since counties are limited in our ability to generate
local revenue. In fact, more than 40 states limit the county's
ability to collect sales tax and/or property tax and other
fees. This leaves us with a difficult choice: Which critical
local services do we cut to fund the rule?
Additionally, 62 percent of counties nationwide have
considerable federal land within their boundaries. Federal
lands are not subject to local property taxes, further reducing
the local property tax base. Moreover, many counties have
budget years that run from July 1st to June 30th, which means
their budgets have already been approved for the coming fiscal
year. In my county, we finalized our budget before the 1st of
June and had it certified and approved by the State of Nevada.
Since the DOL rule goes into effect in December, it doesn't
take into account that our finances are already set through
next July. It complicates our ability to comply with the rule
in the short term. And furthermore, counties have limited human
resource personnel and advisory staff.
While the DOL estimated the small entities may incur $100
to $600 in compliance costs, counties typically spend a higher
amount of time and money on compliance because we have less
staff capacity and in-house expertise. Many counties may need
to hire outside consultants which is again costly.
Finally, comp time not a complete solution for counties.
Where the DOL rule allows us to provide comp time this isn't
realistic since we have such a small number of employees to
start with. If one key employees uses comp time, I may not be
able to carry out public services that protect the community.
For example, we have one librarian who is now eligible for
overtime pay. If she uses comp time, we would have to shut the
library down and that would create a problem for some of the
residents because the library is the key source for Internet
access in a county with limited broadband service.
In conclusion, while we share the same goal of fair wages,
we are concerned that the new rule will impose considerable
burdens on the counties. We stand ready to work with Congress
to help craft policies that are fair to workers and workable
for county governments.
Thank for the opportunity to testify and I will be happy to
take any questions.
Chairman CHABOT. Thank you very much. Mr. Macre, you are
recognized for 5 minutes. And feel free to mispronounce my name
if you so choose.
STATEMENT OF ALBERT F. MACRE
Mr. MACRE. Good morning, Chairman Chabot, Ranking Member
Velazquez and members of committee. My name is Albert Macre. I
am a CPA, and the owner of several small businesses located in
eastern Ohio, one of which, Payroll + Services, is affected by
the new Department of Labor overtime rules for salary exempt
personnel. And I am pleased to be here on behalf of the
National Federation of Independent Business to discuss these
rules at today's hearing.
NFIB is the Nation's leading small business advocacy
organization, representing 325,000 independent business owners
located throughout the United States, 25,000 of which are
located in my home state of Ohio and several who are here to
support me in my testimony today.
As a small business owner with several salaried employees
positioned between the current exempt overtime earnings
threshold and that created by the DOL new rule, I now find
myself standing with countless other small businesses forced to
swallow more government medication prescribed before an
accurate attempt at diagnosis has been completed.
NFIB believes that the rule will have a substantial
negative impact on small businesses and their employees.
Frankly, the 100 percent increase in the salary exempt
threshold to $47,500 is too much too fast. To put the
significance of this into perspective from the time the last is
salary threshold was increased in 2004, the Consumer Price
Index has only risen by 28 percent.
To make matters worse, the threshold will be automatically
updated every 3 years. And while the rule does allow for the
use of nondiscretionary bonuses and incentive payments to
satisfy up to 10 percent of the standard salary level, the
reality is that few administrative and lower level supervisory
personnel receive such compensation.
NFIB estimates that the new rule will impact approximately
40 percent of small businesses, while the Department of Labor
has said that the rule would affect over 4 million employees.
Instead of increasing wages for certain employees as the DOL
might project, the rule will force small business owners to
take more control of employee hours and benefits to keep costs
in check. These controls could ultimately result in employees
taking home less money annually. And don't underestimate the
impact on employee morale as affected employees are told that
they must now punch a time clock for the first time in their
careers.
In addition to these negative impacts, the implementation
window is very short. This rule will become effective on
December 1, 2016, just over 5 months from now. Given that many
small businesses are still struggling with the implementation
of the Affordable Care Act 5 years after enactment, this window
of compliance barely seems cracked open.
From a personal perspective, this rule is likely to have
negative consequences not only to my company but my employees
as well. Payroll + opened in 1995 in response to my clients'
desire to farm out payroll processing services to a local, low
cost provider. We currently have three salaried employees
earning above the current threshold and below the new amount.
We operate on a 30 to 35 hour workweek for 8 months of the year
but do incur substantial overtime during the four payroll tax
months.
Our employees appreciate the certainty of their salary-
based take home pay each period. They also appreciate the fact
that they don't have to punch a time clock every day. And I
estimate that the roughly 600 hours of overtime our employees
work each year are offset by the less than 40 hour workweek the
remainder of the year.
Unfortunately, the law doesn't allow me to bank the short
weeks to offset the long weeks. In addition, we pay 100 percent
of our employees' health insurance and have done so since we
opened our doors.
Without getting into the analytical weeds, in order to keep
employee take home pay consistent, we are contemplating a
system of salary advances to be recovered during the overtime
months. In order to keep our cash flow level, we are
contemplating for the first time in 20 years requiring
employees to bear a share of the cost of their health insurance
benefits.
DOL's new overtime rule will have a significant, and in my
belief, negative impact on employers and employees alike. In
order for small businesses to avoid costly overtime pay,
managers move from their salaried positions to hourly jobs will
need to keep time cards and be prohibited from working
overtime, including answering email from home. This will not
only be a burden financially, but in terms of productivity, as
managers and supervisors will only be allowed to work when
permitted. From an employee perspective, the flexibility that
so many had will become a thing of the past.
NFIB anticipates the changes will hit hardest those low- to
mid-level managers. These managers currently make less than the
proposed threshold but value workweek flexibility and benefits
such as health insurance and employer provided pension
benefits. Also fewer salaried managerial positions would signal
to employees that there is little opportunity for growth at the
company. These consequences will severely hamper opportunities
in growth and development, not just for the small business but
their employees as well. Unfortunately, neither can afford it.
Thank you for allowing me to share my thoughts with you and
at the appropriate time I will answer questions.
Chairman CHABOT. Thank you very much. Ms. Walters you are
recognized for 5 minutes.
STATEMENT OF CHRISTINE V. WALTERS
Ms. WALTERS. Thank you. Good morning, Chairman Chabot,
Ranking Member Velazquez, and Committee members.
I am Christine Walters, sole proprietor of FiveL Company
where I serve as an independent human resources and employment
law consultant to numerous nonprofit and small business
clients. Prior to that I worked as an in-house HR practitioner
for 12 years in the nonprofit sector, including government
contracting.
I appear before you today on behalf of the Society for
Human Resource Management or SHRM.
I appreciate the opportunity to share a little bit about
what this new overtime rule means for my clients, as well as
SHRM's reaction to the final regulation.
In short, Mr. Chairman, while SHRM supports an increase to
the salary threshold, we agree that the final overtime rule may
be too far too fast. Small businesses and nonprofits in
particular may be disproportionately impacted by the rule's
dramatic and more than 100 percent increase to the salary
threshold, and this threshold may escalate since the final rule
includes an automatic update every 3 years.
Let me explain briefly how the rule may impact some of my
clients, their employees, and the services that they provide.
Let me start with the employees and how they may be impacted.
Under the final rule, newly nonexempt employees will likely
face reduced workplace flexibility or I will call it work flex.
Today, many employers provide exempt employees with work flex
opportunities, such as, for example, the ability to leave work
early next week, such as for a parent-teacher conference, in
consideration of having worked extra hours this week, and to do
that without using paid leave and without reducing their pay.
In fact, employers are generally prohibited today by law from
docking an exempt employee's pay for a partial-day absence.
And that is at the heart of exempt compensation. The salary
is based on an understanding that an employee's work schedule
regularly exceeds 40 hours a week and that employee is paid the
same wages every week regardless of hours worked, whether it is
46 or 36.
However, employees classified as nonexempt cannot be
granted the same flexibility that I just described. If they
work in the private sector more than 40 hours this week, they
must be paid overtime, and that cannot be offset by taking
hours off from work next week. Thus I find most employers
require nonexempt employees to use paid leave for any partial
or full day absence. And if an employee has no paid leave
remaining, then the absence from work may be without pay where
that is permitted by state or local law.
It is clear to me and others that nonexempt employees do
have fewer options and less flexibility to manage work-life
needs than exempt employees.
And while the rule affects all employers, the rule will
drastically impact the operations of small business and
nonprofits who cannot simply raise the fee or price for the
services they offer to offset those increased labor costs. They
must find a way to raise additional funds, obtain an increase
from public or private sector funding sources, all of which are
limited.
For example, one of my clients provides rehabilitation
services to a disadvantaged population of whom 85 percent
currently meet the poverty threshold. This organization will
not and really cannot transfer those increased labor costs to
their low-income consumers. They have to face some unattractive
alternatives. One might be reassigning the overtime duties that
are currently performed in excess of 40 hours in a week to
those employees who will remain exempt, and that is likely to
adversely impact those coworkers' working relationships as well
as the employer and employee relationship.
And the impact won't be just in the form of expenses, but
also in the form of compliance. The Office of Advocacy of the
U.S. Small Business Administration noted that increasing the
salary level would add significant paperwork burdens on small
entities, particularly businesses in low-wage regions and
industries that operate with a low profit margin.
For example, employers also have to consider federal,
state, and local laws and regulations that apply to nonexempt
employees, including and not limited to dictating pay
frequency, paid leave mandates, minimum wage, fair and
predictive scheduling requirements, limits on mandatory
overtime, on-call pay, travel pay, waiting pay, pay before and
after a holiday, to name a few.
So for small businesses and nonprofits who often have a
one-person HR manager/payroll manager, navigating all these
complex rules can add an additional compliance burden that is
overwhelming.
So with that, in closing, SHRM and employers across the
country have serious concerns with the implementation of the
final overtime rule at this time. We strongly support House
Resolution 4773, Protecting Workplace Advancement and
Opportunity Act. It simply seeks more time for further study on
the economic impact of the rule and what it will have on
employers for varying sizes, industry sectors, and locales.
SHRM and its members look forward to working with Congress to
improve this rule in a way that works for employers and
employees.
I thank you and also welcome your questions.
Chairman CHABOT. Thank you very much.
Mr. Eisenbrey, you are recognized for 5 minutes.
STATEMENT OF ROSS EISENBREY
Mr. EISENBREY. Thank you, Mr. Chairman, Ranking Member,
members of the Committee. I am Ross Eisenbrey with the Economic
Policy Institute, a small nonprofit with one HR manager who
somehow manages to have us comply with the law.
And we have looked at this, and the amount of time it takes
to figure out what this rule does and comply with it is
minuscule since what it says simply is, if you make less, if
you pay your employee less than $47,476 a year, pay overtime.
That is what the law does.
It makes it much easier to comply for nonprofits. We have
talked to nonprofit managers who say that they have maybe even
100 employees at various nonprofits scattered across the
country that they supply HR services to and it will make the
job so much easier for them. They don't have to look at duties
tests. They don't have to figure out whether somebody is an
administrative employee or qualifies as a professional. They
just know, if is less than $47,476, that is the end of the
story.
The rule that the Department has issued increases the
number of salaried workers who are entitled to overtime pay and
does several important things. It will encourage employers to
give raises. And the rulemaking record is full of employers and
employer associations who did surveys and their members say
they will raise their employees above the threshold. So there
will be pay increases across the country as a result of this
rule.
It will reduce the excessive number of hours worked by
millions of others, giving them a better work-life balance. It
will ensure that salaried employees get paid time and a half
when they work more than 40 hours in a week. And it will cause
employers to create more than 100,000 jobs, according to the
National Retail Federation, in its sector alone. And Goldman
Sachs affirms that view. This is a job-creating rule.
They make it clear, the rules make it clear that it doesn't
matter whether you are salaried or hourly, blue collar or white
collar or pink collar, you will be entitled to overtime pay if
you make less than $913 a week. This provides clarify that will
prevent litigation. It tells people their rights in a way they
haven't known them before.
It is popular. The Gallup Poll found that 67 percent of the
public supports making more employees eligible for overtime pay
and only 14 percent oppose it.
It carries out the statutory intent of the Fair Labor
Standards Act, and this is the Department's duty after all. The
law says that everyone is entitled to overtime pay,
essentially, except bona fide executives, bona fide
professionals and administrators. There is no exception from
the rule for salaried workers, white collar workers,
supervisors, paraprofessionals, or, incidentally, sales
employees. The exemption applies only to a narrow class of
genuine professionals, genuine executives, and other highly
paid employees whose independence and bargaining power make
protection against overwork unnecessary.
Being called a manager and being paid a salary of $35,000
or $40,000 a year doesn't make you that kind of an executive.
Dawn Huey, a woman I met who lives in Swartz Creek, Michigan,
was a dollar store manager for almost 3 years. When she was
hired, she had 28 years of retail experience and felt she had
finally climbed up the ladder into the middle class. She was
told she would work 44 hours a week at about a $35,000-a-year
salary.
But the 44-hour weeks quickly stretched into 60 and 70
hours with no overtime compensation. She wasn't allowed to hire
enough staff to do all the work, so she did it herself; 13-hour
shifts from open to close became common. At one point, she went
4 straight weeks without a day off and usually worked holidays
with no overtime compensation. The first 4 to 5 hours of every
day she was the sole store employee, she worked the cash
register, did inventory, stocked shelves, moved heavy boxes.
She literally ran the store on the run and ended the day
mopping floors from front to back.
You hear from some employers and lobbyists about
flexibility that salaried workers have. Here is what Dawn said:
``The idea that I had been hired with a flexible salary was a
cruel joke.'' There were times her executive--her so-called
executive salary--divided by her weekly hours was less than the
minimum wage, and that was legal because exempt executives are
exempt from the minimum wage too.
Her story is repeated all across America at major
corporations and their small business franchises from Burger
King, to Dunkin' Donuts, to Walgreens. The new rule will not
completely eliminate that kind of abuse of overtime, but it
will make it more costly, and therefore less likely.
This rule has great benefits for people like postdoctoral
researchers who are paid $43,000 a year on average and work 55
hours or 60 hours a week. They will get salary increases at
universities all across the country because it will be much
cheaper for a university to pay them a more reasonable salary
for their Ph.D. in science and their science research abilities
than it will be to pay them the overtime that would otherwise
be required.
The truth of the matter is that the rule will hardly make a
dent in most employers' payrolls and profits. And I encourage
you to look at the Department's rulemaking where table 30 shows
that the impact on every industry group is less than one-tenth
of 1 percent of payroll. Only transportation and utilities will
experience costs as great as 1 percent of profits.
That is a tiny price to pay for a rule that will provide a
better work-life balance for millions of Americans, that will
improve health and productivity, reduce employee turnover, and
put more money into the pockets of millions of middle class
Americans.
Chairman CHABOT. Thank you very much.
We will now turn to ourselves and ask questions. I
recognize myself for 5 minutes.
I had a number of questions I was going to ask but your
testimony, Mr. Eisenbrey, I am going to shift direction. I
think that perhaps all the concerns that I have heard from
America's small businesses for months and months and months
now, and perhaps the panel here today, our concerns must have
been unfounded. This is a good rule that is going to benefit
workers all over the United States apparently.
I would be happy to open it to the other witnesses. Do you
want to tell the panel why you think that perhaps the point of
view that you just heard testified to by Mr. Eisenbrey is
incorrect or is he right?
Mr. Robinson.
Mr. ROBINSON. Thank you, Mr. Chairman.
I can comment pretty directly there. I mean saying it is so
easy, all you have to do is pay overtime to people that make
less than $47,500 a year is like telling me 5 years ago: The
ACA is so easy, just buy everybody health insurance, no
problem.
Chairman CHABOT. Yeah. And the ACA, for anybody who may be
watching out there, is the Affordable Care Act, or some people
refer to it as the un-Affordable Care Act or ObamaCare, that is
what you are referring to.
Mr. ROBINSON. Correct. And we do provide and have always
provided health care for our employees, but it makes the
compliance so much harder.
And buried in table 30--and I haven't read that report--but
buried in table 30 is Hireology and thousands of other
technology startups. And I am telling you firsthand this is
going to take our cost up 20 percent, not a tenth of a percent,
20 percent.
And, yes, we can do that, but what that means is we shift
very, very scarce resources from one part of the business,
where we can maximize our growth and create more opportunity,
to complying with this rule and to hitting a salary threshold.
And the net effect for those employees that we bump base is
we have to reduce their upside, because you cannot take up
fixed cost and not reduce variable upside. There is just not
enough money to do that.
Chairman CHABOT. Let me go ahead and ask another question.
Commissioner Tipton, I will turn to you, if I can.
In your testimony, you explained that Mineral County, your
county, doesn't have the flexibility within its budget to
comply with the overtime rule by December 1, and that you don't
see any alternative to cutting services. What type of services
would you have to cut? And how would this affect the residents
of your county that you represent?
Ms. TIPTON. Okay. Our budgets are set. The State of Nevada
says this is when your budget cycle is. They are done.
For us, we can't raise revenue. Mineral County is 2 cents
over the state cap already paying off a school bond debt. We
had less than 1.5 percent of our land base has taxable
infrastructure on it out of 3.4 percent private land and the
rest of it is federal in one form or another. There is nothing
to raise taxes on.
What it is going to mean is, in order to make this work, if
we have to fall in compliance, and we are going to have to, we
are either going to reduce, to start with, what is considered
nonessential services like the library, the park and rec. And
my offset to that is in that community, if I don't have
something for those kids to do, I am going to have it them in
JPO.
Chairman CHABOT. And JPO is?
Ms. TIPTON. Juvenile protection.
Chairman CHABOT. Thank you.
Let me shift over to Mr. Macre now, if I can.
Sir, could you give us some examples of employee perks and
benefits that are likely to have to be reduced because of this
new overtime rule.
Mr. MACRE. From our perspective, again, not only are we a
small company, but we are a small payroll company that performs
payroll services for other small companies. A lot of those
businesses do provide pension benefits, 401(k) contributions,
health insurance. There is not a finite number of dollars here.
In Mr. Eisenbrey's testimony he said, if they make over $47,500
just pay them overtime. Well, hell, that is real easy, but
where does this money come from?
We figured that that increase in overtime cost to our
small, little company would entirely consume the revenue that
is generated by 12 clients. So where do we just magically get
this 8 to 10 percent increase in size to automatically cover
this? So we are likely to have to for the first time, like I
said, take health insurance dollars from these employees.
And the way I projected it, our take-home pays are actually
going to decrease as a result of paying our employees more. The
math is a little bit funky, but accountant math and economics
math are a little bit funky at times. But we have determined
that actually payroll, net pay, could decrease as a result of
gross wages going up.
Chairman CHABOT. Thank you very much. My time has expired.
The Ranking Member is recognized, Ms. Velazquez of New
York, for 5 minutes.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Eisenbrey, from 1979 to 2013 inflation-adjusted wages
have grown 15 percent for the bottom 90 percent of income
earners, while wages for the top 1 percent have grown 137
percent. I think that it is very clear that something has to be
done. How will this rule accomplish that?
Mr. EISENBREY. It is a great question and it answers Mr.
Macre's query, which is the money will have to come, as he
says, from somewhere. Where it will come is from the owners of
the businesses. There is no question about that. And if you are
the owner of a business, you can not like that or you could be
like Mitchell Kaplan at Kaplan Stahler in Las Angeles who said:
I make a good income, and the law will change and I will pay my
people more.
Executive salaries have increased in the United States so
much faster than salaries at the bottom, the share of national
income that goes to business owners has increased so much that
we now have a trillion dollars less that is being paid to the
labor force in the United States than we otherwise would have
if we had the kind of equality that the Ranking Member
mentioned.
Ms. VELAZQUEZ. California has the highest state overtime
standards and over the last 5 years has led the country in
employment growth. Is what California did a model for the
Nation?
Mr. EISENBREY. That is exactly right.
Ms. VELAZQUEZ. And how do these findings compare to the
testimony we have heard today?
Mr. EISENBREY. The fact of the matter is that employment
growth depends on businesses having customers, and businesses
have customers when working people are paid enough that they
can go out and shop and buy things. California has been the
leader in the overtime threshold at $41,500 and, as you say,
its employment growth is much faster than the Nation as a
whole. It is not proof, but it is a real indication that this
kind of policy, putting more money into the pockets of the
workers, is good for the economy overall.
I would just like to say that back in 1975, for example,
and in the 1960s, we had a much higher threshold. Small
businesses did not suffer then, they managed. I am old enough,
maybe older than the rest of the people on the panel, to
remember working back then when the threshold in today's
dollars would have been $64,000.
So this is a much easier rule to adjust to than businesses
had to adjust to in the past. They did it well then, they can
do it today.
Ms. VELAZQUEZ. Thank you.
As we all know, the cost of living and therefore wages
drastically differ based upon the location of the business. And
this one was one the most common concerns in comments filed,
that the proposed changes do not account for the diverse
economies across the country.
Why did DOL choose to go with a national minimum salary
threshold instead of keying it to government data on regional
cost-of-living differences?
Mr. EISENBREY. What the Department did was actually it did
what some people will call one-size-fits-all, but the one size
was fit to the poorest region in the country. They set the
salary at the 40th percentile for salaries in the South, in the
poorest of the four census regions. As I say, it is a very
modest level. This is not an executive salary in New York and
an executive salary in Boston. It has been set at the level for
an executive salary in Chattanooga or in Tipton, Nevada.
Ms. VELAZQUEZ. Small-business owners, and we heard them
here, are warning that they may have to move currently salaried
employees to hourly rates. This can be construed as a demotion
by these workers and can impact their morale and even their
fringe benefits. Is there a way for small businesses to avoid
such changes under the final rule?
Mr. EISENBREY. Yes. If you look in the comments that were
submitted for the record, there are numerous comments where
employers say they will not do that, they will either reduce,
just hold people to 40 hours a week. They don't have to change
them to hourly. That is not the majority of the survey findings
that I see in the record in the comments that were submitted.
There is nothing in the rule that says that you have to
change someone from salaried to hourly. This Committee had a
witness who made this claim back in the fall. She herself was
already tracking the time of workers and giving them bonuses
based on the extra time that they worked.
So there is nothing in the rule that dictates how an
employer responds to this. There are a variety of different
responses possible. I have talked to employees, incidentally,
who have already in some cases been switched to receiving
overtime. I am not sure whether they were salaried or hourly
after the change. But they said: This doesn't feel like a
demotion to me, I am happy getting the overtime.
Ms. VELAZQUEZ. Thank you. I yield back.
Chairman CHABOT. The gentlelady's time has expired.
The gentleman from Missouri, Mr. Luetkemeyer, who is the
vice chairman of the Committee, is recognized for 5 minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman, and I appreciate
the opportunity.
I think we need a little clarification here. I was
listening to Mr. Eisenbrey's testimony, and he made the comment
that we have 117,000 new workers that are going to be hired.
Those, according to the study that he quoted, an Oxford
Economics study that was commissioned by National Retail
Foundation, those are part-time workers, by the way.
And those part-time workers are required to be hired
because you are going to have to have somebody else to do the
additional work that the people who have been working will not
now be doing because you are not going to pay them overtime. It
is cheaper to hire someone part-time than it is to pay them
overtime. So it is a part-time worker.
Also, you made a comment with regard to 42 million new
people that are going to be eligible for overtime. The same
study indicates that three-quarters of those people right now
don't get overtime. So you are only talking about 825,000
people. And the same study also indicates that they probably
would get about 1 hour per work of overtime, which would be
about $20 per week that they would increase.
In the meantime, the Regulatory Flexibility Act analysis by
DOL itself indicates that there would be $3,265 of total
compliance costs, including wages, which means that for $20 an
hour for the employees it is going to cost the employer $3,265
for the individual. Plus, the employee is probably going to
lose benefits, flexibility from the standpoint of health
benefits, retirement benefits.
And, Mr. Macre, you deal with a lot of small businesses. Is
that the experience that you see with what is going on, that
people are going to have to hire part-time workers to make up
the difference, cut back on benefits to be able to make the
bottom line?
Because at the end of the day, as Mr. Eisenbrey made the
comment a while ago, I don't think he understands there is only
a finite number of dollars in each one of the pockets of the
owners. You can only pay for so much increase in cost. You
can't continue to pay to increase this otherwise your
competition is going to eat you and you are going to go out of
business.
Mr. MACRE. Well, again, where we are, we are in eastern
Ohio, we are in that Appalachian area, we really can't raise
fees. So it was pointed out that the money could come from the
owners' pocket, and I would be happy to send you my K-1 from
Payroll + Services. There is no money that goes into my pocket
from that business. So it is going to come from the employee's
pocket.
The business was never designed to generate immense amounts
of profits. It was designed to generate a service and actually
to employ people. That is probably an anomaly in the business
world, but that is the way it was set up.
So I don't it know what option we have other than to reduce
costs, because, again, the increasing revenue option is
probably off the table.
Mr. LUETKEMEYER. Commissioner Tipton, you are in a unique
situation where you can't go out and price your product. You
are delivering services with a finite number of tax dollars.
How do you anticipate trying to do this? Are you going to wind
up having more part-time workers, are you going to reduce the
benefits, health insurance, retirement benefits for the
employees? I mean, how are you going to make the same number of
dollars stretch to comply with the rules?
Ms. TIPTON. Yes, sir. I am not the king of the world, and
so this is something that we have been having conversations on
at the board level. Our options are right now Mineral County
pays 100 percent of the employee benefits and at least half of
their retirement right now. We are either going to have to say,
okay, boys if we have to do this, then those of you we are
doing this for, you are going to have to pay part of your
benefits. And if it is sauce for the goose, is it also sauce
for the gander, see? So do we make everybody pay part of their
benefits?
I look for us to reclassify some of those individuals and
take them out of a salary exempt to an hourly exempt, and what
business does not get done does not get done. We can't afford
to hire part-time people, not even school-to-career people 19
hours a week to pick up the slack. We don't have the revenue,
sir.
Mr. LUETKEMEYER. Mr. Robinson, what kind of a problem do
you have with employee morale when you have to reclassify
somebody down to an hourly worker? Even though they are making
the same amount of money, now they lose benefits, lose
retirement, even though they are doing the same job, but they
are being viewed as an hourly worker.
How does that work with employee morale? And if you do wind
up paying benefits, how is that going to affect the rest of the
employees who don't get the benefits?
Mr. ROBINSON. Well, it is going to have an impact. And I
invited my whole company to tune in and listen to this, and we
are going to have a talk about it when we get back to Chicago
and explain why we are having to take these actions.
We offer our employees unlimited time off. We don't track
time off. People need to take time, they get the job done, they
can take 2 weeks, they can take 3 weeks if they want, with
permission to do that. They can take as much or as little as
they want. They can work from home 100 percent. They can come
in the office 100 percent of the time. They can do whatever
they want. We don't track any of that.
Let me state for the record, our goal, we would love to see
wages lifted as well. We share that goal. You do that by
attacking opportunity and growing it, right, and employing
people, that is how you do that.
And I would invite Mr. Eisenbrey to come in and tell my
sales force that they are not a bona fide professional. These
folks went to school, it is 100 percent college degree, most of
them are carrying huge student loan payments. They have
invested in themselves to get ahead.
And imagine me walking back in there and saying: Hey, guys,
here is your new time clock. We are going to punch it. And I
know you are really striving to make that extra money, but you
can't over 40 hours a week. And you can't work from home
anymore unless we put this time-tracking app on your phone. And
by the way, don't respond to customer inquiries after 5
o'clock, they are just going to have to wait till tomorrow.
And so this cascades and impacts our ability to compete
against big players. All we can do is work harder to earn that
business. I am concerned at every level of how we have built
this company that we are negatively impacted.
Mr. LUETKEMEYER. Thank you. I yield back. Thank you, Mr.
Chairman.
Chairman CHABOT. The gentleman yields back.
The gentleman from Nevada, who is the chairman of the
Subcommittee on Investigations, Oversight and Regulations, Mr.
Hardy, is recognized for 5 minutes.
Mr. HARDY. Thank you, Mr. Chabot, for holding this hearing.
I think it is highly important.
Mr. Eisenbrey talks about these groups with the realtor
folks being on board with this situation. I have heard nothing
but negative in my office from everybody that I have talked to,
whether it is NFIB or the real estate folks. So I guess I am
getting a little bit different data than maybe you are getting.
Mr. Eisenbrey, have you ever been an employer? Have you
ever had your own business?
Mr. EISENBREY. I am an employer now.
Mr. HARDY. Have you had your own business?
Mr. EISENBREY. I am the vice president of a 40-person
nonprofit.
Mr. HARDY. So you consider that----
Mr. EISENBREY. So I have to meet a payroll, yes,
absolutely.
Mr. HARDY. Okay. Interesting.
With the comments that have been made here, you know, we
have had a letter that has gone out, myself and Mr. Knight, we
joined together, over 100 Congressmen signed on to it,
bipartisan letter. This has been one of the most disturbing
rules for the business sector that I ever listened to, even
with the state legislature. We do things that more directly
impact. But this across-the-board legislation, and in my
district every county is going to get hit by this. Even the Las
Vegas area is going to get hit very hard by this.
So, Ms. Tipton, I would like you go in, you talked about
you have 100 employees, tell me what kind of impact that is
going to do overall. And maybe even dabble into--all of you
would like to maybe dabble into what is going to maybe happen
to the hiring process. We have talked about the impact on those
that are employed. What happens to the future of the hiring
process?
So, Ms. Tipton, I will give you first.
Ms. TIPTON. Thank you.
For Mineral County, depending on how the board determines
we are going to handle this, we may not hire anybody. That is
the bottom line. We have a finite amount of resources.
If I had an ask of this commission, see if Congress can't
step back and look at this from a more commonsense standpoint
maybe. Look at a sliding scale. $28,000 dollars is ridiculous,
and we all know that, even in Mineral County, that is one of
the poorest of the poor.
But look at this from a different--what is your population
base? And when you are talking regional, if you throw
Intermountain West into the Pacific Rim, the rural
Intermountain West falls off the board. It doesn't even get
looked at. You throw 15 counties in Nevada in with the two
urban counties in Nevada, it doesn't get addressed.
What is your public to private land? All of you back here,
you have private land that you have taxes on, and every square
inch of your land back here produces. Ours doesn't and it can't
because of the nature of the beast.
What is it going to do to us, Congressman? We won't hire.
We will not increase hiring. We can't. We can't afford to.
Mr. HARDY. Anybody else care to address that?
Ms. WALTERS. I would share one thought and that is the
challenge in the recruiting process. I think in 1938, when the
FLSA was enacted, America had a very different economy. We were
strong in manufacturing. An employer would have the same job
with lots of employees working in the same job, so that if
those employees were cut to 40 hours, creating those part-time
jobs would be--could be full-time employees, easier to recruit.
Today, for example, one company I know, they have 38
employees. They have 32 different job titles. So when it comes
to reclassifying some of those employees who are exempt today
to nonexempt, and then trying to recruit a part-time worker, to
work those hours over 40 at straight time, it is going to be
incredibly challenging, I think, to find someone who was
qualified and interested in working.
And Ranking Member Velazquez, I think you said today the
average may be 47 hours a week and working 7 hours overtime a
week. And so the ability to merge those extra hours into a
full-time job is just not feasible because they are all
different jobs. So I think that is a challenge that is on the
table as well.
Mr. HARDY. You know, the issues that we have also heard
about is the education system, whether it be at the higher ed
or the K through 12 situation with certain counties and areas
and how that overtime ruling will impact our university system,
and the individuals coming out of those higher ed programs. A
lot of schools pride themselves in how they place their
graduates and the opportunity they have for the students.
Do any of you hire from the university systems, and is that
going to impact their opportunity to maybe enter into a job in
the future?
Chairman CHABOT. And the gentleman's time is expired, but
you can answer the question if you like. Ms. Walters.
Ms. WALTERS. Thank you. One academic client I have, they
are estimating the biggest impact to them will be for their
coaches and their academic counselors. The coaches operate
very, very independently now. They coach evenings, weekends,
flexible hours, do not track time. Currently, they are properly
classified as exempt, based on the salary increase they may,
need to be reclassified as nonexempt. So that is a big
philosophical change, you know--the issue of what I hear--a
common response from employees is a trust issue. What are you
telling me? Why do I have to track my time today and I didn't
yesterday? Is it because you no longer believe I am really
working, I am really producing?
Also for the admissions counselors, folks who, again, have
come out of school, many have a certification. They belong to a
professional, a national association. They travel, they go to
college fairs. You know, they are the representative of the
university or the college. Converting them to nonexempt I
think, again, is going to be this philosophical, employee/
employer relations challenge of, I don't understand.
So it is, I think, starting the dialogue with why we are
changing and then what the strategy is. And I think the beauty
of part of this dialogue is, as I don't disagree with some of
what Mr. Eisenbrey has shared, what I would reverse is I think,
yes, the analysis becomes easier. If you make less than $913 a
week, you need to be reclassified as nonexempt, but I don't
think that is the end. I think that is the very beginning.
And what I am hearing employers say is, okay, now what do I
do and how do I do it? For example, I have heard at least seven
different options how employers may respond to the new
regulations. Four of those seven would not result in the
employee receiving any more compensation than they do today.
Three would. And so employers are trying to figure out which
option is going to work for them, what the fiscal impact will
be to their company, and what the relationship impact will be
to their employees.
So it is just a lot of dialogue, and I think we are asking
for time to just, you know, have the economic study, figure out
what the impact is, and then move forward in a way that is
going to work really well for the employees and the employers.
Chairman CHABOT. The gentleman's time has expired.
The gentleman from Ohio, Mr. Davidson, who is a relatively
new addition to this Committee--and for those who may not know
replaced Speaker Boehner in the House--is recognized for 5
minutes.
Mr. DAVIDSON. Thank you, Mr. Chairman.
Guests, thank you for coming here and thanks for your
testimony.
The past 15 years I have spent growing small manufacturing
companies. I had very little background with politics other
than as a news junkie and decided to run for office, so pretty
recently here from the small business world. Our businesses in
Ohio have about 200 employees and will have some firsthand
experience from it, but I have enjoyed some roundtable
feedback.
And I will say, Mr. Eisenbrey, your perspective seems out
of touch with the folks in the Eighth District of Ohio. We
cannot create a bigger middle class simply by decreeing it from
Washington any better than it has been decreed from any throne
anywhere in the world. It is ignorant of history, economics,
and math.
And as an example, California was well below the threshold
at 41. Do you know the median annual income in California?
Mr. EISENBREY. Not offhand, no.
Mr. DAVIDSON. It is $67,458 in 2014. That was number three.
Mr. EISENBREY. That is not true. That could be a family
income. That is not an individual income.
Mr. DAVIDSON. And in the State of Ohio it is $45,000, which
is down at number 35. So the idea that there could be some
national edict, that is going to set a standard, is entirely
market distorting. And when your solution, which is in line
with the Administration's solution, is we will just confiscate
it from the owners, is also ignorant.
Commissioner Tipton, thanks for your testimony. Who are the
owners of your county that this would be confiscated as from?
Ms. TIPTON. Sir, it is my taxpayers whose median annual
income is $38,000, per household.
Mr. DAVIDSON. Thank you.
Ms. TIPTON. Twenty-five percent of my county lives at or
below the poverty level. Twenty-four percent of my county is 65
or older. Those are the constituents that it would impact.
Mr. DAVIDSON. Very similar for some of our counties in the
Eighth District of Ohio. We have some great universities in the
Eighth District of Ohio, and our country is blessed with some
great educational solutions, not just higher education but
skilled trades.
And who are the owners there? The bill payers are students.
Students are the ones that are going to pick up this tab, and,
you know, last I checked, students are really dealing with a
way to pay for that tuition. So your solution is to give these
researchers, who are benefiting from better tuition and
degrees, bigger wages, which are really financed by student
loans. Students, young people, 18 to 25 years old, generally
are going to pay these wages, okay. And they have been decreed
with very little input. So there is not a universal class
warfare confiscation scheme that is going to work.
I think that the other thing that, Mr. Robinson, you
touched on, and from SHRM, we have been members for a long
time, so thanks for your work in the field of HR. One of the
things that really this rule also seems very ignorant of is the
changing culture. So you alluded to it with manufacturing and
kind of the stereotypical things. And Mr. Robinson, you also
alluded to it with the way people work. They are sending
emails. FIB, also very active, small businesses in the State of
Ohio in the west just as in east.
So if you guys could comment on the impact of culture and
just, you know--I don't know how many people came to the room
without some version of a smart phone. How does this rule
affect the ability to do work in today's economy?
Ms. WALTERS. Thank you for the question. One thing I would
share is, back to kind of whether this is the beginning or the
end, the next thing that will be, or we understand will be
happening, the Department of Labor has already published in its
regulatory agenda, that it will be publishing an RFI, a request
for information, seeking feedback from employees and employers
about how they are tracking the time that nonexempt employees
use electronic devices.
So that is on the radar. We add to that population, our
exempt employees today who will be converted to nonexempt so in
the little, small litany of pay practices where we have to be
cognizant of how we pay, when we pay, and for what we pay our
nonexempt employees, we need to be cognizant of that as well.
So there is just a whole lot in the mix, I think.
Mr. DAVIDSON. Thank you for that.
I just have one other thing. You talk about that and just
to where this will lead us, well, just install an app for that.
And that will be yet another encroachment into people's Fourth
Amendment privacy rights. So we have all here sworn to support
and defend the Constitution, and we continue to see people who
have sworn that oath trample it. So thanks for any other
feedback you guys can give.
Chairman CHABOT. Thank you very much. The gentleman's time
has expired.
The gentleman from Mississippi, Mr. Kelly, is recognized
for 5 minutes.
Mr. KELLY. Thank you, Chairman, for holding this hearing
today.
And thank you, witnesses, for being here.
You know, it is so frustrating to me to hear people who
have no idea what is going on. And Mr. Eisenbrey talks about he
is a private employer, and he is a small business owner, but
Mr. Robinson, Mr. Macre, and Mr. Eisenbrey's testimony states
Economic Policy Institute is both a nonprofit and a small
business entity.
For the record, I would like to share just a few facts with
you about the Economic Policy Institute that I learned from its
Website. From 2010 to 2014, EPI received 27 percent of its
funding from unions and 57 percent from foundations. The
chairman of EPI's board is none other than Mr. Trumka, the
chairman of the AFL-CIO. So from my perspective, EPI has
absolutely nothing in common with the other small businesses
that we have here.
Mr. Robinson or Mr. Macre, does 80 percent of your funding
come from unions or foundations, or does it come from you?
Mr. ROBINSON. Our revenue comes from our customers that we
have to deliver a service to that adds value. So no, no, sir.
Mr. KELLY. And I wish that everything was cherry blossoms
and rainbows. I wish everybody could have all the money that
they want regardless of where they are from or what job they
do. I wish we all made equal amounts. I wish I had a lot more
money than I do. However, that is just not going to happen, and
you can't take it from owners who don't have it.
Having owned a small business, a law firm, a private
practice law firm, where I did write the checks, and the money
came from me, not some outside foundation, from the clients
that I represented, I think it is important to understand that
it is not going to create 100,000 jobs. I don't care what the
statistics say. And if it does create jobs, those jobs are
going to be part-time.
I also worked as a city prosecutor in a county government
for a long time. Most of the salaried employees made less than
this amount in Mississippi, which is very, very rural. But that
is a good living there. You understand this, that what happens
is people just go home or you don't--you have a hiring freeze,
you don't rehire because personnel is the largest cost of a
local government.
And you understand that, Commissioner. Can you comment just
a little bit about the difference between a part time and the
benefits they receive versus a full-time employee that they
receive from the county or city?
Ms. TIPTON. Yes, sir. Thank you for the question. In
Mineral County, a part-time employee is 19 hours a week. They
cannot work any more than that. State won't allow that or then
you have to pay retirement on them. They get workman's comp,
that is what they get. A full-time employee, we pay 100 percent
of their benefits. Last year it was probably $500 a week per an
employee.
And my next worry is, it has gone up, of course, because
healthcare has. Mineral County, Nevada, some of my employees,
the day may come, in the not too distant future, where they are
paying taxes on their healthcare. And that is going to be
interesting too.
Yeah, and that is it. From a part-timer they get workman's
comp, that is what they get, and Social Security, period.
Mr. KELLY. And I also take exception to professionals. And
again, I think there is just--you know, even within my
district, it is 22 counties. I have one county that has 167,000
people in it. I have one county that has 8,000 people in it. So
to compare those incomes in those counties is not--so I
understand exactly what you are saying.
And when you throw in Atlanta, Georgia, with Calhoun City,
Mississippi, or Vardaman, Mississippi, those are not equal and
you can't compare statistics about what salaries are based on
those. Would you agree with that?
Ms. TIPTON. Oh, definitely. The community I live closest to
is a population of 200. The next community is 32. The largest
town--no incorporated cities in Mineral County--the largest
town is about 3,000. About 900 of my county residents live on
the Walker River reservation. We--yeah, that is my residence.
Mr. KELLY. Thank you.
And the final point I will say is, I worked for the
government as a district attorney, and so I hired people.
Most of my investigators that worked for me--which are
long-time law enforcement officers who are stepping up in a job
and it paid at or less than what the salaried amount is now,
which is a great limit--I had ADAs, assistant district
attorneys who were coming out of law school, and I could not
pay them $49,000, $50,000 a year because it was not within my
budget.
But the experience and the trial experience and the
mentorships and the things those people got, but what would
have happened if they would have said you have to pay them this
or pay them overtime, I would just not have hired someone. I
would have had less assistant district attorneys and less
opportunities. Can any of you comment on that?
Chairman CHABOT. And the gentleman's time has expired, but
you can comment.
Mr. ROBINSON. Well, sure, in brief, you take our--and not
just us. Every startup who--technology startup creating the
bulk of the high-paying jobs, in this country right now, if you
take the wage base up 20 percent, you are eliminating one job
every five hires. That is the math. It is simple. It is I can
higher one fewer person in five. Now scale that across
thousands of businesses like ours and you have the suppression
on job growth which seems to me antithetical to the whole point
of this exercise.
I mean, just let us--it is a labor market. People can go
where they want. If we treat them poorly, they will leave. We
compete for talent. It is not just the salary. It is equity and
stock options and all the other tools we have to compete as an
employer. This is a giant, blunt instrument that we now have
one tool and it really doesn't help us differentiate and hire
the people we need.
Chairman CHABOT. Anybody else need to comment?
Mr. EISENBREY. Mr. Chairman, could I just comment?
Chairman CHABOT. Go ahead.
Mr. EISENBREY. You know, the beauty of a one-size-fits-all
rule that has been attacked here today is that every business
is subject to the same rule, so that all of your competitors,
will be subject to the same rule. And the notion that raising
labor costs is somehow a bad thing leads us to having no
minimum wage, which, you know, that would not be a good thing
and the American people wouldn't support that.
That the notion that every time you raise labor costs you
are somehow crimping business would--I think it is actually the
biggest cause for the wage stagnation that we have had for the
last 30 or 40 years, that that has been raised--it has sort of
been deified and it leaves employees behind.
Mr. ROBINSON. If our ability to pay was the same as local
corporations----
Mr. EISENBREY. Excuse me, I didn't interrupt anyone else,
and I would like you not to interrupt me. Thank you.
I would just like to say that somehow we managed as a
Nation from 1938 until the late 1970s with rules that set a
higher threshold than we have now. Workers, as the ranking
member said, we had a much higher----
Mr. KELLY. Mr. Chairman, I would like to claim back my
time. He has gone over what the amount is.
Chairman CHABOT. It is the gentleman's time. I did want to
give somebody else a chance to respond here, if that is okay
with the gentleman. Mr. Robinson or----
Mr. ROBINSON. Well, my comment was just, bigger businesses
have a much greater--and excuse me for the interruption--much
greater impact to bear the cost than a small company like ours.
Oracle, you know, in many ways we compete against,
multibillion dollar company, multibillion dollars in profit
publicly traded. I compete for deals with those guys. I can't
just take my cost up. I don't have it. One size does not fit
all. I am this big; they are this big; there is a difference.
That is the problem.
Chairman CHABOT. Okay, the gentleman's time has expired.
We want to thank all the witnesses for being here today and
participating in this hearing.
From my perspective, as Chair, I would indicate, I believe
that the overtime rule is going to do more harm than good and
is likely to pose a considerable challenge for small
businesses, especially those with thin margins, which is most
small businesses, as well as, small nonprofits, and small
governmental jurisdictions, as you, Commissioner Tipton, have
indicated, with very tight budgets.
However, the most damaging repercussions are likely to be,
I believe, the loss of employee morale as workers are shifted
from salaried positions to hourly status. Benefits very well
may be reduced, as the testimony was; flexible work options
will be limited; and opportunities for career advancement may
well be decreased.
My colleagues and I will continue, on both sides of the
aisle, to work on legislative solutions that help America's
small employers and their workers succeed and reverse the
harmful effects caused by this new overtime rule.
I would ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record.
And without objection, so ordered. And if there is no
further business to come before the Committee, we are
adjourned. Thank you very much.
[Whereupon, at 11:37 a.m., the Committee was adjourned.]
A P P E N D I X
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Thank you Chairman Chabot and Ranking Member Velazquez and
Members of the Committee for the opportunity to testify about
the impact of the Department of Labor's new overtime rule. This
rule requires employers to provide overtime pay to employees
whose salary is less than $47,500, which is about double the
existing threshold.
What I want to do in my time today is focus on how this
rule will adversely affect technology startups and high-growth
small business owners like me, and what that means for the
people we employ.
I am the CEO and co-founder of a human resources technology
business called Hireology. We have streamlined and improved the
hiring process to help companies eliminate bad hires and
identify good ones. We have also fielded hundreds of confused
inquiries from our customers about how to comply with this
rule. As a result we have a unique perspective to speak about
its impact.
Like most federal regulations, the overtime rule is a one-
size-fits-all policy that doesn't distinguish among firm size,
sector, location, or compensation structure. This means that
companies that don't fit the Department of Labor's outdated
model will be disproportionately hurt by the rule.
Take the capital-constrained technology startup sector that
I work in, for example. Employees at these companies trade long
hours and lower pay for the opportunity to get amazing
professional experience in their careers, and the potential for
a significant financial windfall later on.
Are we exploiting our employees? Of course not. Those
working at tech startups voluntarily recognize that their
positions are high-risk, high-reward ventures, and that they
may have to go years with below-market pay to get a big payout
in the end. Do we want to regulate these opportunities out of
existence?
Looking back on when I started my company in 2010, I can
tell you with 100% certainty that I would have not been able to
hire my first employee had this rule been in place. My company
now has 100 employees with a median annual compensation that
exceeds $70,000 a year--well above the US average. How many
``Hireology's'' won't get started as a result of this rule
making that 1st employee unaffordable for an entrepreneur? Are
fewer good-paying jobs created and fewer businesses launched
the outcomes that are desired here?
Sales professionals--the lifeblood of almost every
company--also suffer from this rule because their commission-
based compensation structure doesn't align with the Department
of Labor's vision of the workplace. Consider what my company is
facing: Forty of our 100 full-time salaried professionals are
salespeople, whose success--like with most sales positions--
depends on persistence. That means working until the sale is
made, whatever the hours.
We pay new salespeople a base salary of $40,000, and those
who hit their quota can earn $70,000 to $120,000 a year. This
compensation structure is typical in the technology and sales
sectors because it allows employees to directly share in the
profits they produce for the company.
However, the overtime rule forces us to choose between
raising base salaries to the new exempt threshold or converting
everyone on the sales team to an hourly rate, capping hours at
40 per week.
Both alternatives are unattractive. A 20 percent pay
increase for new hires to put them above the threshold would
hamstring our expansion plans. But, capping hours at 40 per
week would mean a loss of earning potential for our
salespeople, and add costly time tracking overhead to our
bottom line. Both paths result in less opportunity and fewer
middle-class jobs.
To the extent that employers like me are forced to
reclassify employees as hourly to avoid unexpected overtime
costs, these high-paying job opportunities will be reduced.
Millions of Americans have entered the middle-class by securing
a salaried job then working their way up by working until the
job gets done.
That means sometimes--during a busy season, a financial
month-end, or when a coworker is out sick--working longer than
eight hours in a day. In return, these employees are rewarded
with the flexibility, benefits, bonuses, status, and promotions
that come with a salaried position. It's not exploitative. It's
a key tenant of American work culture.
Reduced middle-class job opportunities as a result of this
rule will be compounded in parts of the country with lower
standards of living. Companies in Chattanooga will have a much
more difficult time complying with a $47,500 salary threshold
than companies in Chicago. As a result, the rule will be
another hurdle for smaller communities across the country that
are still suffering from high unemployment and a lack of
middle-class job opportunities.
I urge you to pursue legislative solutions to undo the harm
that will be inflicted by this overtime rule. At a time when
the middle-class in this country is already being squeezed, the
tech sector, sales jobs, and middle-management positions are a
few areas that still provide relief. The over-time rule
threatens to close those career pathways that have been paved
by hard work.
Thank you for your time today. I'm happy to take any
questions.
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Chairman Chabot, Ranking Member Velazquez and members of
the Committee, thank you for the opportunity to testify today
on the Impact of the U.S. Department of Labor's (DOL) final
overtime rule on small entities--including small county
governments like mine. As an integral part of our federal-
state-local intergovernmental system, county governments have a
vested interest in labor market policies.
My name is Jerrie Tipton. I am the Chairman of the Mineral
County, Nevada, Board of Commissioners and also serve in
leadership positions with the Nevada Association of Counties
and the National Association of Counties (NACo).
About the National Association of Counties (NACo)
Founded in 1935, NACo is the only national organization
that represents county government in the United States and
brings together county officials to advocate with a collective
voice on national policy, exchange ideas and build new
leadership skills, pursue transformational county solutions,
enrich the public's understanding of county government and
exercise exemplary leadership in public service.
About Mineral County
Counties are highly diverse, not only in my home state of
Nevada but across the nation, and vary immensely in natural
resources, social and political systems, cultural, economic,
public health and environmental responsibilities. Mineral
County is located in western Nevada, approximately 300 miles
north west of Las Vegas.
We have a population of 4,478 and a land area of just over
2.4 million acres--of which the majority is owned by the
federal government. Of those 2.4 million acres, 1.6 million are
managed by the U.S. Department of the Interior's Bureau of Land
Management (BLM) and nearly 400,000 more acres are managed by
the U.S. Forest Service (USFS).
To put that into perspective, the BLM and Forest Service
together manage an area of our county more than two times the
size of Rhode Island. All told, federal lands in Mineral
County, including military reserves and land held in trust for
Native American tribes, are as large as Rhode Island and
Delaware combined.
Mineral County is the very definition of a small
governmental entity and we are very concerned about the
potential impact of the new overtime rule on our ability to
fulfill our fundamental responsibilities--many of which are
mandated by the state and federal government. We employ 102
full time employees to serve our 4,478 residents across this
vast, rugged--and beautiful--landscape.
In addition to the county, there are 60 more establishments
that serve as employers in our area--many of which will also be
impacted by the final rule. The majority of these are small
businesses and are essential to the continued vitality of our
communities.
Mr. Chairman and members of the committee, as you continue
to assess DOL's new overtime rule and the potential impact on
employers--and especially small entities including local
governments--we respectfully submit three observations for your
consideration:
1. The nation's 3,069 counties, most with fewer than
500 employees, provide vital services to more than 300
million residents.
2. The new overtime rule does not adequately address
the wide variations in local labor markets across the
country.
3. The new rule will have broad consequences for
taxpayers and county services.
First, the nation's 3,069 counties, most with fewer than
500 employees, provide vital services to more than 300 million
residents.
County governments are an essential component of the
federal-state-local intergovernmental system, and therefore we
have a vested interest in wage and hour policies that are both
fair and efficient for public employers and employees.
America's 3,069 counties administer public programs and
deliver public services, often on behalf of states and the
federal government. Counties employ over 3.6 million people to
carry out this important work. Because of our role as
employers, we are concerned that the new rule could have the
unintended effect of placing additional strain on already
limited county budgets throughout the country, hindering our
ability to provide crucial services to our local communities.
The majority of counties, almost 70 percent, can be
considered rural and have fewer than 50,000 residents and are
therefore categorized as small governmental jurisdictions under
the Regulatory Flexibility Act (RFA). The RFA defines small
governmental jurisdictions as governments of cities, towns,
townships, villages, school districts, or special districts,
with a population of less than 50,000 (RFA, 5 U.S.C.
Sec. Sec. 601-12).
Small rural counties are also major employers. These
counties across the country employ over 410,000 full-time
employees, who collectively serve almost 40 million Americans.
Like Mineral County, these small counties often deliver
services over expansive areas--some even larger than smaller
states. Small counties in particular have raised concerns that
the new overtime rule could adversely affect their county
finances as well as their county employees' work hours and
benefits.
As mentioned earlier, 70 percent of our nation's counties
have fewer than 50,000 residents. Despite major variations in
size and population, counties across the country must provide
basic public services at the local level. These include
maintaining the justice and public safety system, including
police and fire protection, criminal justice, courts and jails;
transportation and infrastructure, including road and bridge
building and maintenance, airports and transit; health,
including local public health departments, hospitals, clinics,
nursing homes and mental health programs; and in this election
year, counties are responsible for administering federal, state
and local elections. We also serve as conveners for our
communities, bringing local stakeholders together to engage
with state and federal agencies on matters of local concern.
Our ability to perform all these critical--and often mandated--
local functions could be affected as we try to comply with the
new rule.
Of Mineral County's 102 full-time employees, 13 to 17 of
our county employees will eligible for overtime pay under the
new rule. We simply do not have the flexibility within our
local budget to pay the newly eligible employees overtime pay
in compliance with the rule--especially as soon as December.
Two factors limit our capacity to comply. First, we must
maintain spending required under existing federal and state
mandates. Second, we are constrained by limits on our ability
to generate revenue imposed by the state of Nevada and by the
fact that so much of our land is tax-exempt federal land. Like
many other counties, the upcoming December 2016 implementation
date puts our county in an even more difficult bind as we work
to try to find where this extra revenue will come from. We have
been ``doing more with less'' for so long that, absent new
revenue sources, it is hard to see any alternative to cutting
services.
Second, the new rule does not adequately address the wide
variations in local labor markets across the country.
While it is encouraging that the rule attempted to take
into account regional variations, using Census regions to
determine the salary threshold is too broad and does not
provide an accurate picture of the major differences in labor
markets across local communities. The rule pegs the proposed
salary level to the salary level of the 40th percentile of
weekly earnings of full-time salaried workers in the lowest-
wage Census region (now the South). The South Census Region
includes Alabama, Arkansas, Delaware, the District of Columbia,
Georgia, Florida, Kentucky, Louisiana, Maryland, Mississippi,
North Carolina, Oklahoma, South Carolina, Tennessee, Texas,
Virginia and West Virginia.
As is often the case with federal regulations, the new
salary threshold will likely have an even greater impact on
small and rural county governments. A nationwide uniform
federal regulation does not, in this case, adequately take into
account key measurable differences between small and rural
communities and larger population centers. The new salary
threshold is significantly above our Mineral County median
household income of $38,664.
Consider local government average wages by state. Based on
data from the Bureau of Labor Statistics, in 2015, the average
annual wages paid by local governments nationally ranged from
$62,482 in Hawaii to $32,911 in South Dakota. In 34 of the 50
states, local government employees earned less than $46,000--
which is less than the new DOL salary threshold.
The situation is even more uneven at the local level. In 85
percent of counties, local governments do not meet the new
salary threshold of $47,476. For example, in Decatur County,
Kansas the current average wage in local government in $18,465.
In 97 percent of counties in the South Census region, the
region used by the new rule for pegging of the threshold,
average wages in local government are less than the newly
proposed threshold.
Mr. Chairman, in your state of Ohio, local governments pay
on average $44,526 and in 94 percent of the counties in your
state, local governments pay less than the newly proposed
threshold. And Ranking Member Velazquez, in New York, almost
three quarters of the counties (42 of 58) pay less than the
newly proposed threshold. So as you can see, the new overtime
rule will have a significant impact on the nation's counties--
especially those with populations of 50,000 and below.
Because we are often unable to offer wages as high as in
the private sector, local governments will often compete in the
labor market by offering our employees great benefits. For
example, counties provide extensive health coverage to their
employees, dependents and retirees. An estimated 2.5 million
county employees--out of 3.5 million full-time and part-time
county workers--and nearly 2.4 million of their dependents were
enrolled in health plans offered by county governments in 2014.
Full-time employees are eligible for county health benefits in
almost all counties and 80 percent of counties offer health
coverage for all employee dependents.\1\
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\1\ Istrate, Emilia. County Health Benefits 2014, Washington, D.C.:
National Association of Counties. Available at http://www.naco.org/
sites/default/files/documents/
County%20Health%20Benefits%20FINAL--06.30.2014.pdf
Finally, the new rule will have broad consequences for
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taxpayers and county services.
Many counties are still struggling to recover from the
recession and may not have the resources to absorb sudden
spikes in pay increases
First and most obvious, doubling the current salary
threshold amount all at once will have harmful consequences on
county budgets--and ultimately on county employees--
particularly as we struggle to recover from the recession.
According to NACo's County Economies 2015 report, only 214
county economies have fully recovered by 2015 (based on four
indicators--jobs, unemployment rates, economic output (GDP) and
median home prices) to their pre-recession levels.\2\
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\2\ Istrate, Emilia, Brian Knudsen. County Economies 2015:
Opportunities and Challenges, Washington, D.C.: National Association of
Counties. Available at http://www.naco.org/sites/default/files/
documents/2016%20CET-report--01.08.pdf
Some counties have calculated the impact of the overtime
pay change on their payroll costs and are expecting dramatic
increases to payroll in the first year of implementation and
beyond. For example, according to Berks County, Penn., 97 of
the 419 county employees who are currently ineligible for
overtime pay because of their salary levels would be newly
eligible under the final rule. Berks County has estimated that
the resulting additional financial burden could cost the county
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as much as $1.5 million in the first year alone.
In Mineral County, of our 102 employees, approximately 13-
17 would now be newly eligible for overtime pay under the new
law--and potentially cost an additional $25,000 to $45,000.
This might not seem like a lot, but for our county, this poses
quite a financial challenge.
Many counties do not have the financial flexibility or
resources to absorb sudden spikes in pay increases without
reducing current service levels, decreasing employee benefits
and/or reducing our county employee work hours or staff.
In the final rule, DOL does not seem to have adequately
analyzed the economic impact on small governmental
jurisdictions as required by the RFA. In the section of the
final rule titled ``Projected Impacts to Affected Small
Entities,'' DOL provides an analysis of the projected economic
impact on small entities, including small local governments
(pgs. 32, 536-32,541). In Table 42 (pg. 32,540) it estimates
the total costs--directs costs and payroll increases--per
establishment. For state and local government establishments,
DOL estimates the total cost would be $9,264.\3\ However, as I
noted above, my county is projecting a total cost of $25,000 to
$45,000, which is significantly higher than DOL's estimate.
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\3\ DOL Overtime Pay Rule; 81 Fed. Reg. 32540 (May 23, 2016) (to be
codified at 29 C.F.R. Part 541)
Most counties' ability to raise new revenue is limited by
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states
Increasing taxes to pay for overtime increases is not often
an option for counties, beyond the political difficulty of
instituting additional taxes. In fact, 43 states impose some
type of limitation on counties' ability to increase property
taxes, including 38 states with statutory limitations on
property tax rates, property tax assessments or both. There are
not many other revenue solutions at counties' discretion. For
example, only 12 states authorize counties to collect their own
local gas taxes, which are limited to a maximum rate in most
cases and often involve additional approvals for
implementation.
Given these fiscal limitations, many counties may have to
reduce the service levels for critical programs (public
transportation and infrastructure, justice and public safety,
public health, search and emergency rescue and 911 operations)
and cut any non-mandated services such as critical support for
economic development--to comply with the new rule.
Counties with federal land in their jurisdictions are even
more limited in their ability to raise additional revenue to
pay for the new overtime rule
Our ability to raise additional revenue to pay for the
salary increases is not just impacted by the states--there is
another complicating factor for many counties. Sixty-two
percent of counties nationwide have federal land within their
boundaries and in each case, those county governments provide
important local services to federal public lands visitors and
federal employees every day. However, once the federal
government acquires land, it is removed from county tax rolls
and no longer subject to local property taxes. The loss of
revenue greatly impacts local schools, roads, hospitals, fire
and public safety services. In Mineral County, just 3.4 percent
of our county is privately held and over half of the private
land has no taxable infrastructure associated with it.
Although the federal government has traditionally provided
some relief for this lost revenue through the Payments in Lieu
of Taxes (PILT) program, PILT often reimburses at a rate well
below the land's taxable value per acre. For example, Mineral
County receives $0.36 cents per acre from the PILT program, far
less than the $3.84 per acre we receive in local property taxes
for similar land. In addition, in recent years the fate of the
PILT program has been uncertain. The lack of long-term,
predictable and full funding for the program has a significant
impact on the budgets of public lands counties acres the
nation.
The budget process and timing for counties further
complicates our ability to comply with the new rule
Many counties have a budget deadlines of July 1, if not
sooner. Because the final rule was announced on May 18,
counties--including mine--hae very little time to conduct
analysis and calculate the additional costs of the increased
salary threshold and where these resources would come from. Our
budget cycle is from July 1 to June 30 and for this year, we
had to submit our budget, without accounting for the overtime
rule, to the state by April 15.
In addition, some counties operate on a bi-annual budget,
meaning some counties already have their finances accounted for
in the coming fiscal year excluding the additional costs for
the new rule. Furthermore, many counties, like Mineral County,
must have their budgets approved or certified by the state.
Once these budgets are approved, it is very difficult to change
if the needs of the county shift.
It can be more challenging for small and rural counties to
ensure that we are in compliance with federal regulations,
because we have limited human resources personnel, legal
counsel and financial advisory staff
DOL estimated that on average, an affected small
``establishment'' is expected to incur $100 to $600 in direct
management costs, a one-hour burden for regulatory
familiarization (reading and implementing the rule), a one-hour
burden per each affected worker in adjustment costs, and a
five-minutes burden per week scheduling and monitoring each
affected worker.
However, we are concerned that these estimates may not
reflect the actual experiences of small entities--as we
typically spend a disproportionately higher amount of time and
money on compliance because we have less capacity and staff
expertise to work through the required changes under the new
rule. Unfortunately, we may be forced to adjust by hiring
outside consultants to help us comply with these new
regulations, which can cost thousands of dollars. In Mineral
County, we do not have the extra funding to hire an outside
consultant.
The comp time option for compliance is not a complete
solution
The final rule offered alternatives to state and local
governments to help us comply with the new rule. One
alternative that DOL offered was to allow public sector
employers, including local governments, to satisfy their
overtime obligation by providing comp time rather than cash
overtime premiums. State and local government employers may
continue to use comp time to satisfy their overtime obligations
to employees who have not accrued the maximum number of comp
time hours. However, in Mineral County, we have so few full-
time employees, comp time is not a real option. In most of our
county departments, for example, we have one employee
fulfilling certain job duties and responsibilities. If that
employee has to use comp time, we may not be able to carry out
the public services that are need in order to have a
functioning county government.
Additionally, comp time is not budget neutral and offering
it to newly overtime eligible employees will have costs
associated with it. In fact, for accounting purposes, overtime
paid as comp time must be regarded the same as cash. While we
appreciate DOL attempting to offer options for state and local
governments, ultimately, the comp time option does not seem to
provide enough flexibility to be very helpful for small
counties confronting significant compliance challenges.
Conclusion
Chairman Chabot, Ranking Member Velazquez and members of
the Committee, as we have explained, DOL's new overtime rule
will impose considerable burdens on counties, especially small
counties. We thank you once again for holding this important
hearing and respectfully ask that you continue to consider the
interests of America's 3,069 counties in this matter--not only
as employers, but as your intergovernmental partners, providing
vital services to more than 300 million residents.
Unfortunately, the new overtime rule does not adequately
address the wide variations in local labor markets in counties
across the country. And ultimately, please remember that the
new rule will have broad consequences for taxpayers--and county
services.
NACo and our member counties stand ready to work with you
to craft balanced policies that are fair to workers and
workable for county governments and their residents.
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Good morning, Chairman Chabot, Ranking Member Velazquez,
and members of the Committee. My name is Albert F. Macre. I am
a Certified Public Accountant and the owner of several small
businesses located in eastern Ohio, one of which--Payroll +
Services--is affected by the new Department of Labor (DOL)
overtime rule for salary exempt personnel. I am pleased to be
here on behalf of the National Federation of Independent
Business (NFIB) to discuss these rules at today's hearing.
NFIB is the nation's leading small business advocacy
organization. Founded in 1943 as a nonprofit, nonpartisan
organization, our mission is to promote and protect the right
of its members to own, operate, and grow their businesses. NFIB
represents about 325,000 independent business workers located
throughout the United States, 25,000 of which are located in my
home state of Ohio.
As a small business owner with several salaried employees
positioned between the current exempt overtime earnings
threshold and that created by the Department of Labor's new
rule, I now find myself standing with countless other small
business owners forced to swallow more government
``medication'' prescribed before an accurate attempt at
diagnosis has been completed.
NFIB believes that the rule will have a substantial
negative impact on small businesses and their employees.
Frankly, the 100% increase in the salary exempt threshold to
$47,476 is too much, too fast. To put the significance of this
increase in perspective, from the time that the last salary
threshold was increased in 2004, the Consumer Price Index has
risen by only 28%. To make matters worse, the threshold will be
automatically updated every three years. And while the rule
allows use nondiscretionary bonuses and incentive payments to
satisfy up to 10 percent of the standard salary level, the
reality is that few administrative and lower level supervisory
personnel are the recipients of such compensation.
NFIB estimates that the new rule will impact approximately
40% of small businesses while the DOL has said the rule could
affect over 4 million employees. Instead of increasing wages
for certain employees, as the DOL might project, the rule will
force small business owners to take more control of employee
hours and benefits to keep costs in check. These controls could
ultimately result in employees taking home less money annually.
And don't underestimate the impact on employee morale as
affected employees are told they must now punch a time clock
for the first time in their careers.
In addition to these negative impacts, the implementation
window is very short. This rule will become effective on
December 1, 2016, just over five months from now. Given that
many small businesses are still struggling with the
implementation of the Affordable Care Act five years after the
enactment, this window of compliance seems barely cracked open.
From a personal perspective, this rule is likely to have
negative consequences--not only to my company, but to my
employees as well.
Payroll+ opened in 1995 in response to my clients' desire
to farm out payroll processing services to a local, low cost
provider. We currently have three salaried employees earning
above the current threshold and below the proposed amount. We
operate on a 30 to 35 hour workweek for 8 months of the year,
but do incur substantial overtime during the four payroll tax
months. Our employees appreciate the certainty of their salary-
based take-home pay each period. They also appreciate the fact
that they don't have to punch a time clock every day. I
estimate that the roughly 600 hours of overtime our employees
work each year are offset by the less than forty hour weeks
they work during the slow months. Unfortunately law doesn't
allow me to ``bank'' the short weeks to offset the long weeks.
In addition, we have paid 100% of our employees' health
insurance since the day we opened our doors.
Without getting into the analytical weeds, in order to keep
employee take-home pays consistent, we are contemplating a
system of salary advances to be recovered during those overtime
months. In order to keep our company cash flow level, we are
contemplating--for the first time in over twenty years--
requiring employees to bear a share of the cost of their health
insurance benefits.
DOL's new overtime rule will have a significant, and in my
belief, negative impact on employers and employees alike. In
order for small businesses to avoid costly overtime pay,
managers moved from their salaried positions to hourly jobs
will need to keep time cards and be prohibited from working
overtime, including answering email from home. This will be a
burden not only financially, but in terms of productivity, as
managers and supervisors will only be allowed to work when
permitted. From an employee perspective, the flexibility that
so many had will become a thing of the past.
NFIB anticipates the changes will hit hardest those low-to-
mid-level managers. These managers may currently make less than
the proposed threshold, but value work week flexibility and
benefits such health insurance and employer-provided pension
benefits. Also, fewer salaried, managerial positions would
signal to employees that there is little opportunity for growth
at the company. These consequences will severely hamper
opportunities for growth and development, not just of small
businesses, but their employees as well. Unfortunately, neither
can afford it.
Thank you again for allowing me to share my thoughts today.
I will do my best to answer any questions you might have.
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