In 2016, the rules changed for how employers must compensate workers for overtime. The new rule was put out by President Obamaโs Department of Labor and goes into effect on December 1st, 2016. What the new overtime rule means for your construction business is that the salary/income threshold at which yourย employees become eligible for overtime pay has just doubled fromย the 2004 standard of $23,660 to $47,476. That has the potential to significantly raise your costs.
Details of the New Overtime Rule
The details of the new Department of Labor ruleย specify that private-sectorย employees become eligible for overtime pay when they earn $47,476ย in a year. At present income rates, this will effectively qualifyย over 4 million workers to begin receiving time and a half for every hour worked beyond 40 hours in a week.ย This move is directed by the White House and will be put into effect without any congressional vote or approval. For most construction companies, that means their cost for workers will go up significantlyโakin to a tax of sortsโand weโre not sure if the result will be higher costs of goods sold (including housing) or less hours for existingย workers in order to avoid the overtime costs.
Industry heavyweights like theย NAHB and ABC are coming outย against the new overtime rule and issuing statements:
โThe sheer arrogance displayed by the Department of Labor in failing to heed the concerns of the nationโs small business community will result in severe repercussions that will harm workers, small businesses, housing affordability, job growth and the economy.โ
Ed Brady, chairman of the National Association of Home Builders
โDOLโs overtime rule will rob employers of needed flexibility and employees of career advancement avenues, and it will have a disruptive effect on the construction industry as a wholeโ
Kristen Swearingen, vice president of legislative and political affairs for ABC
New Overtime Rule Problems
The problem with the new overtime ruleย in general is that it hasnโt been implemented through legislative channels, but rather by fiat via the will of the Department of Labor and under the guidance of the Obama administration. This sort of โone size fits allโ action blankets the rule across all states and takes all decision-making and options away from the elected officials and the states. With the rule being so broadโa full doubling of the salary or income threshold, the ramifications areโat bestโunknown with respect to small businesses around the country.
To work to rein in theย new rule, ABC is supportingย the โProtecting Workplace Advancement Opportunity Act,โ legislation designed toย โensure the Department of Labor pursues a balanced and responsible approach to updating federal overtime rules.โ Sponsors of the legislationย includeย members of the House Committee on Education and the Workforce and the Senate Committee on Health, Education, Labor, and Pensions,ย includingย Rep. Tim Walberg (R-Mich.) and Rep. John Kline (R-Minn.), and in the Senate by Sen. Tim Scott (S.C.) and Sen. Lamar Alexander (R-Tenn.).
One of the sponsors, Tim Walberg (R-MI), released the following statements upon introducing the law:
โIn the 21st-century workplace, we need to encourage policies that increase flexibility, reduce regulatory burdens, and create more opportunities for workers to pursue their dreams. Our nationโs outdated overtime rules are in need of modernization, but it must be done in a responsible way that doesnโt stifle opportunities for working families to get ahead. Unfortunately, the administrationโs overtime proposal fails this test and should be sent back to the drawing board.โ
New Overtime Ruleย Bullet Points
Here are the key takeaways of the new overtime rule:
- The standard salary level is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census regionย ($913 per weekย orย $47,476 annually for a full-year worker)
- The total annual compensation requirement for highly compensated employees, subject to a minimal duties test, is set to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)
- Salary and compensation levels are automatically raised or updated every three years to maintain the above percentiles
- The salary basis test is amended to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level
The big issue most opponents have with the new Department of Labor rule is that itย burdens employers to an extent that will result in them hiring fewer new employees and curtailing the working hoursย of their existing labor force to avoid the penalties. For the most part, weโd have to agree that the new ruling seems extreme, and it appears to be more of an effort toโineffectively we thinkโforce higher wages without considering the unintended consequences of businesses that have to keep in mind their bottom line. Itโs those unintended consequences that make us think this is better left to the states to decide rather than the federal governmentโlet alone one agency acting independently.
If youโve got thoughts on the new overtime rule, please chime in via the comments below!
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