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Thursday, December 1, 2016

Obama’s Nightmare Overtime Rules Would Have Started Today

Thanks to a Federal Judge, we've dodged an enormous bullet.

Today, the Obama Department of Labor’s new overtime regulation was scheduled to go into effect. The rule abruptly increased the number of salaried employees eligible for overtime pay by raising the overtime threshold dramatically, from the current $23,660 to $47,476. Thousands of businesses, universities, nonprofits, and local and state governments were facing wrenching decisions over cutting back hours, demoting some salaried staff to hourly, or foregoing new hires, just to comply with this government decree.

Fortunately, just in the nick of time, a federal judge appointed by President Obama intervened on November 22, imposing an emergency, nationwide injunction on the rule in response to a lawsuit brought by 21 state attorneys general. In his 20-page order, the judge explained how regulators lacked authority from Congress to change the overtime threshold and pointed to the imminent harm the new rule was poised to inflict starting December 1.

“We don’t have $7 million a year laying around to do that with… We are under a lot of understandable pressure to keep tuition down.”

Soon, the judge will issue a final ruling in the lawsuit. That could put an end to this harmful rule. Or, perhaps the Obama Labor Department will appeal the injunction to the U.S. Court of Appeals for the Fifth Circuit – but time is ticking. The incoming administration of Donald J. Trump may decide to drop any appeal that the Obama Administration pursues. “Rolling back the overtime regulation is just one example of the many regulations that need to be addressed,” candidate Trump told the website Circa back in August 2016. “We would love to see a delay or a carve-out of sorts for our small business owners.”

That would be good news for all the state and local governments, non-profits, and universities that operate on very small margins with little ability to pass costs onto consumers. The costs these entities are set to incur are massive. The overtime rule would harm government’s ability to offer public services efficiently, compromise the ability of non-profits to carry out their altruistic missions, and make it difficult for universities to keep tuition rates down.

Local Government and Universities

State and local governments have been worried.

Iowa, for example, estimates the overtime rule will increase costs on the state government and public universities by approximately $19.1 million in just the first year.

According to the Arkansas Administrative Statewide Information System, about 3,995 employees will no longer be overtime exempt. If the state maintains its present level of overtime usage, the cost of overtime would exceed $1,000,000. And Arkansas will incur overtime costs. Many of the state employees are nurses and law enforcement. As stated by the attorneys’ general lawsuit against the rule, which included Arkansas, those positions “are inherently restricted in the ability to shift or limit workloads, and will therefore necessarily suffer increased overtime payouts that could cripple budgets.”

Universities also employ many staff members that will newly become overtime eligible. With tuition costs continuously on the rise for decades, the additional labor costs imposed on universities by the overtime rule would not slow that trend.

Barbara Carroll, Vanderbilt University’s chief human resources officer, said it would cost $7 million to increase the impacted employees’ salaries above the new threshold and points out that “We don’t have $7 million a year laying around to do that with… We are under a lot of understandable pressure to keep tuition down, to not raise the cost of higher ed. It’s a real challenge when the government says on the one hand, Don’t raise the cost of higher ed,’ and then on the other hand forces us to raise our costs.”

Other universities are in a similar boat. It would cost Florida International University over $62 million to raise the salaries of around 6,500 employees who are impacted by the rule over the new overtime salary threshold.

Non-Profits Cut Services

Non-profits have faced similar complications, with slim margins and an inability to raise prices on consumers.

The Labor Department clearly stated the top two policy objectives of the rule – and neither was to actually raise wages.

At a Senate Committee hearing to discuss the potential impact of the overtime rule on non-profits, Operation Smile Vice President of Human Resources Nancy Duncan testified that the rule “will increase our payroll cost by nearly $1 million annually affecting over 50 percent of our workforce.” In real terms, that means Operation Smile, an international charity that provides medical surgeries for children with cleft lips, cleft palates, and other facial deformities, would provide “nearly 4,200 fewer surgeries…globally each year,” she said.

Another non-profit that sounded the alarm is Easter Seals New Hampshire, a non-profit organization that serves adults and children with disabilities. Tina Sharby, chief human resources officer at Easter Seals New Hampshire, notes they rely on grant-funds that do not rise when regulations like the overtime rule increase the cost of labor.

But the real kicker for the Obama overtime rule has been the false premise of raising wages. The Labor Department clearly stated the top two policy objectives of the rule – and neither was to actually raise wages. Rather, the goal was to “spread employment…by incentivizing employers to hire more employees rather than requiring existing employees to work longer hours” and “reduce overwork and its detrimental effect on the health and well-being of workers.”

Let’s hope the court’s forthcoming, final ruling will be the reprieve we need, just in time for the holidays, to put a stop once and for all to this harmful overtime rule.

Republished from CEI.

  • Trey Kovacs is a policy analyst at the Competitive Enterprise Institute, where he focuses on the economic impacts of labor policy.