RACINE COUNTY — The Obama Administration rocked much of the U.S. business world last week by announcing a new rule affecting some salaried workers when they work more than 40 hours per week.
The Department of Labor altered the Fair Labor Standards Act, effective Dec. 1. Currently only salaried workers making less than $23,660 per year must be paid 1.5 times their regular rate when they work beyond 40 hours. But come Dec. 1, that amount will more than double to $47,476 per year.
And the threshold will continue to climb in future years.
House Speaker Paul Ryan quickly ripped the change.
“This regulation hurts the very people it alleges to help,” he stated. “… By mandating overtime pay at a much higher salary threshold, many small businesses and nonprofits will be unable to afford skilled workers and be forced to eliminate salaried positions, complete with benefits, altogether.
“For the sake of his own political legacy, President Obama is rushing through regulations — like the overtime rule — that will cause people to lose their livelihoods,” Ryan added.
Racine Area Manufacturers and Commerce President Jim Ladwig said it’s wrong for the government to try to artificiallly inflate employees’ pay. “If you (the employer) can’t find good people at $30,000, then you have to increase it … but not by the government telling you,” he said.
“I think it will have some unintended consequences on employees,” Ladwig said.
He also criticized the size of the jump in the overtime pay threshold. “A lot of the time (employers) can deal with small increases,” he said.
Citizen Action of Wisconsin, though, hailed the change.
“When workers have more money in their pockets to spend in local communities, employment increases and prosperity expands,” the group stated. In Racine, Citizen Action calculated the average annual “overtime bonus,” at 47 hours of work per week, at $8,788 per year per worker.
Citizen Action Executive Director Robert Kraig stated, “The new federal overtime rule will mean that more will be rewarded for working longer hours, boosting consumer spending in our local economies as families can afford to go out to dinner, buy necessities, and send their kids to college.”
Although Citizen Action welcomed the rule change, another state group’s spokesman blasted it.
“It’s the most divisive, callous, uninformed, job-killing rule President Obama has delivered in eight years,” said Wisconsin Grocers Association President and CEO Brandon Scholz, who sounded livid.
“The president simply does not understand how business works, nor does anyone at the Department of Labor,” he charged.
Scholz predicted employers will restructure, moving salaried people to hourly wages and then strictly enforcing their hours.
“The other thing is: You (as an employer) will lose your middle management,” Scholz said. As former managers’ responsibilities are spread around, “you have weakened the management of your company.”
And if those things happen, Scholz added, “You have taken away a career path,” for those who would have worked their way through lower-paid salary positions to higher ones.
One local employer not expecting big problems from the new rule was O&H Danish Bakery owner Eric Olesen. O&H’s pay structure keeps him free from concern.
“As much as possible, we like hourly pay,” Olesen said, and stresses a good work-life balance for hourly workers who usually stay close to 40 hours in a week. When they do work more than 40 hours, paying time-and-a-half for overtime hours is the right thing to do, he said.
Also, “What salaried people we have are over that threshold,” Olesen said.
He said raising the overtime threshold was not a new idea. Companies that could have seen this change coming, and didn’t adjust to it ahead of time, “now it’s kind of turning their world upside-down.”
But Olesen sympathized somewhat with small companies. He said, “Small employers will struggle; it will be harder to make those changes.”
The day after the new rule was released, the National Federation of Independent Business’ Wisconsin state director, Bill G. Smith, predicted entry-level management positions will “dry up thanks to this regulation.”
“Obviously (the rule) means higher labor costs for millions of small businesses regardless of whether they’re making more sales, generating more revenue, or dealing with other rising expenses,” Smith stated. “Many are struggling now, and they’ll have to make tough choices that will affect the very same workers whom the Department of Labor thinks they are helping.”
“A natural reaction is, ‘Hooray, the government just gave us a raise,’ but that might not turn out to be true,” wrote Andrew Volin, a partner at the national law firm Sherman & Howard, who advises and defends private-sector employers and their management in disputes involving employment discrimination, wrongful discharge and wage and hour law.
“Only a lucky few (workers) should expect an outright raise,” Volin stated.
“Small companies may not have the flexibility larger ones do,” he said, “and so it might be more efficient to hire two part-time workers, who do not receive benefits, rather than keeping on one salaried worker whose salary just became more expensive.”
The business news you need
With a weekly newsletter looking back at local history.