[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE ADMINISTRATION'S OVERTIME
RULE AND ITS CONSEQUENCES FOR
WORKERS, STUDENTS, NONPROFITS,
AND SMALL BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, JUNE 9, 2016
__________
Serial No. 114-51
__________
Printed for the use of the Committee on Education and the Workforce
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______
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on June 9, 2016..................................... 1
Statement of Members:
Kline, Hon. John, Chairman, Committee on Education and the
Workforce.................................................. 1
Prepared statement of.................................... 2
Scott, Hon. Robert C. ``Bobby'', Ranking Member, Committee on
Education and the Workforce................................ 5
Prepared statement of.................................... 6
Walberg, Hon. Tim, a Representative in Congress from the
state of Michigan.......................................... 3
Prepared statement of.................................... 4
Wilson, Hon. Frederica S., a Representative in Congress from
the state of Florida....................................... 7
Prepared statement of.................................... 8
Statement of Witnesses:
Bernstein, Dr. Jared, Senior Fellow, Center on Budget and
Budget Policy Priorities................................... 20
Prepared statement of.................................... 22
Passantino, Mr. Alexander J., Esq., Partner, Seyfarth Shaw
LLP, Washington, D.C....................................... 38
Prepared statement of.................................... 41
Rounds, General Michael, Associate Vice Provost of Human
Resource Management, University of Kansas, Lawrence, KS.... 30
Prepared statement of.................................... 32
Sharby, Ms. Tina, Chief Human Resources Officer, Easter Seals
New Hampshire, Manchester, NH.............................. 9
Prepared statement of.................................... 12
Additional Submissions:
Guthrie, Hon. Brett, a Representative in Congress from the
State of Kentucky:
Prepared statement of Dr. William Luckey................. 65
Hinojosa, Hon. Ruben, a Representative in Congress from the
State of Texas:
Letter from Professors at Colleges and Universities...... 94
Mr. Kline:
Prepared statement of the Society for Human Resource
Management............................................. 114
Letter from America Association of Colleges of Pharmacy
(AACP)................................................. 116
Letter from Consumer Technology Association.............. 118
Letter from Credit Union National Association (CUNA)..... 120
Letter dated June 9, 2016, from College and University
Professional Association for Human Resources (cupa-hr). 123
Prepared statement of Independent Electrical Contractors. 125
Prepared statement of Independent Insurance Agent........ 128
Prepared statement of National Association of Federal
Credit Unions (NAFCU).................................. 131
Prepared statement of National Association of Home
Builders (NAHB)........................................ 133
Prepared statement of National Federation of Independent
Business (NFIB)........................................ 134
Letter dated June 6, 2016, from National Multifamily
Housing Council (NMHC) and the National Apartment
Association (NAA)...................................... 136
Letter dated June 17, 2016, from National Retail
Federation (NRF)....................................... 137
Letter dated June 9, 2016, from Partnership To Protect
Workplace Opportunity.................................. 139
Letter dated June 9, 2016, from WorldatWork.............. 169
Mr. Scott:
Economic Policy Institute: Facts on the updated overtime
rule................................................... 172
Takano, Hon. Mark, a Representative in Congress from the
State of California:
Economic Policy Institute: Nonprofit organizations in
support of the Department of Labor's new overtime
regulations............................................ 175
Questions submitted for the record by Stefanik, Hon. Elise, a
Representative in Congress from the State of New York to
General Rounds 183
General Rounds response to questions submitted for the record 185
THE ADMINISTRATION'S OVERTIME
RULE AND ITS CONSEQUENCES FOR
WORKERS, STUDENTS, NONPROFITS,
AND SMALL BUSINESSES
----------
Thursday, June 9, 2016
U.S. House of Representatives
Committee on Education and the Workforce
Washington, D.C.
----------
The Committee met, pursuant to call, at 10:00 a.m., in Room
2175, Rayburn House Office Building, Hon. John Kline [Chairman
of the Committee] presiding.
Present: Representatives Kline, Wilson of South Carolina,
Foxx, Roe, Thompson, Walberg, Salmon, Guthrie, Rokita, Heck,
Messer, Carter, Bishop, Grothman, Curbelo, Stefanik, Allen,
Scott, Hinojosa, Davis, Courtney, Fudge, Polis, Wilson of
Florida, Bonamici, Pocan, Takano, Jeffries, Clark, Adams, and
DeSaulnier.
Staff Present: Bethany Aronhalt, Press Secretary; Andrew
Banducci, Workforce Policy Counsel; Janelle Gardner, Coalitions
and Members Services Coordinator; Ed Gilroy, Director of
Workforce Policy; Jessica Goodman, Legislative Assistant;
Callie Harman, Legislative Assistant; Nancy Locke, Chief Clerk;
John Martin, Professional Staff Member; Dominique McKay, Deputy
Press Secretary; Brian Newell, Communications Director; Krisann
Pearce, General Counsel; Molly McLaughlin Salmi, Deputy
Director of Workforce Policy; Alissa Strawcutter, Deputy Clerk;
Juliane Sullivan, Staff Director; Olivia Voslow, Staff
Assistant; Joseph Wheeler, Professional Staff Member; Tylease
Alli, Minority Clerk/Intern and Fellow Coordinator; Austin
Barbera, Minority Press Assistant; Pierce Blue, Minority Labor
Detailee; Denise Forte, Minority Staff Director; Christine
Godinez, Minority Staff Assistant; Brian Kennedy, Minority
General Counsel; Kevin McDermott, Minority Senior Labor Policy
Advisor; Kiara Pesante, Minority Communications Director; Arika
Trim, Minority Press Secretary; Marni von Wilpert, Minority
Labor Detailee; and Elizabeth Watson, Minority Director of
Labor Policy.
Chairman Kline. A quorum being present, the Committee on
Education and the Workforce will come to order. I will
recognize myself for a brief opening comment.
In July of 2011, Chairman Walberg held a subcommittee
hearing to examine whether the Fair Labor Standards Act was
meeting the needs of the twenty-first century workplace. And
the answer, of course, was a resounding no. We learned the
rules implementing the law are too complex, bureaucratic, and
outdated. Trial lawyers profit while workers are denied their
fair share under a broken regulatory system. That is precisely
why this Committee, more specifically Republicans on this
Committee, have repeatedly called for responsible effort to
streamline and modernize Federal overtime rules.
Workplaces are more dynamic and innovative than they have
ever been, and the needs of today's workers are much different
than for those who worked when the law was written more than 75
years ago. Workers and employers have a better shot to succeed
when Federal policies reflect the changing realities of our
economy.
The Department of Labor had an opportunity to build
consensus around a set of responsible reforms that would have
garnered broad bipartisan support. Yet the Department chose,
once again, to take an extreme partisan approach that will hurt
the very people they claim they want to help. This rule will
disrupt the lives of countless individuals and do nothing to
remove the regulatory landmines that are harmful to workers and
employers. That is what small business owners, college and
university administrators, State and local officials, and heads
of nonprofit organizations have warned about. But these
warnings were ignored.
The Department ignored the voices of those who must
implement this rule in the workplaces, on their campuses, as
they serve the needs of people in their communities. Instead,
the Department listened to the same progressive voices who have
been wrong for so long about how to address the challenges
facing working families, the same voices who claimed a
trillion-dollar stimulus bill would create jobs and deliver a
strong economy. It didn't. The same voices who claimed the
government takeover of health care would lower costs and
protect the health care people liked. It hasn't. The same
voices now claim this overtime rule will provide a pay raise
for millions of Americans. It won't.
The regulatory onslaught under this administration is
unprecedented. The President and his liberal allies have
advanced new rules governing retirement advice, health and
safety, energy, union organizing, Federal contracting,
financial markets, health care, and wages. Still, there are
those who can't understand why the economy is anemic or why job
growth is sluggish or why wages are largely stagnant.
Now we have an overtime rule that will do more harm than
good, particularly for lower-income workers and younger
Americans. Chairman Walberg has led our efforts in this area
for years, and I--where is Chairman Walberg? Ah, there he is,
and I will now yield to him the remainder of my time to explain
in more detail the costs and consequences of this rule.
[The statement of Chairman Kline follows:]
Prepared Statement of Hon. John Kline, Chairman
Committee on Education and the Workforce
In July 2011, Chairman Walberg held a subcommittee hearing to
examine whether the Fair Labor Standards Act was meeting the needs of
the twenty-first century workplace. The answer was a resounding `no.'
We learned the rules implementing the law are too complex,
bureaucratic, and outdated. Trial lawyers profit while workers are
denied their fair share under a broken regulatory system.
That is precisely why this committee--more specifically,
Republicans on this committee-- have repeatedly called for a
responsible effort to streamline and modernize federal overtime rules.
Workplaces are more dynamic and innovative than they have ever been,
and the needs of today's workers are much different than for those who
worked when the law was written more than 75 years ago. Workers and
employers have a better shot to succeed when federal policies reflect
the changing realities of our economy.
The Department of Labor had an opportunity to build consensus
around a set of responsible reforms that would have garnered broad,
bipartisan support. Yet the department chose once again to take an
extreme, partisan approach that will hurt the very people they claim
they want to help. This rule will disrupt the lives of countless
individuals and do nothing to remove the regulatory landmines that are
harmful to workers and employers.
That's what small business owners, college and university
administrators, state and local officials, and heads of nonprofit
organizations have warned about. But these warnings were ignored.
That's right--the department ignored the voices of those who must
implement this rule in their workplaces, on their campuses, and as they
serve the needs of people in their communities.
Instead, the department listened to the same progressive voices who
have been wrong for so long about how to address the challenges facing
working families. The same voices who claimed a trillion dollar
``stimulus'' bill would create jobs and deliver a strong economy. It
didn't. The same voices who claimed a government takeover of health
care would lower costs and protect the health care people liked. It
hasn't. Those same voices now claim this overtime rule will provide a
pay raise for millions of Americans. It won't.
The regulatory onslaught under this administration is
unprecedented. The president and his liberal allies have advanced new
rules governing retirement advice, health and safety, energy, union
organizing, federal contracting, financial markets, health care, and
wages. Still there are those who can't understand why the economy is
anemic, or why job growth is sluggish, or why wages are largely
stagnant.
Now we have an overtime rule that will do more harm than good,
particularly for lower-income workers and younger Americans. Chairman
Walberg has led our efforts in this area for years, and I would like to
yield to him to explain in more detail the costly consequences of this
final rule.
______
Mr. Walberg. I thank you, Mr. Chairman, for recognizing me
on this. This is an important issue, and we have spent
significant time on it with the hopes, that someone out there
dealing with this would listen, and listen to reality. I mean,
today, I received a copy of a letter sent out by professors and
nonprofits, none of which who have anything to do, as far as I
can tell, with establishing a budget and dealing with paying
people, and making sure institutions continue. And in fact,
what I see here, professors of theater and others, no wonder we
have got the problem with misunderstanding what realities are
and making sure that people have opportunities for expansion,
opportunities for experience, opportunities for resume
building, opportunities to do things that happen in America.
Whew, now that I got all that out of my system, let me go on
with a statement here.
Because of this rule, many Americans will soon realize that
they have fewer job prospects, less flexibility in the
workplace, and fewer opportunities to climb the economic
ladder. Thousands of salaried workers will be demoted to hourly
status. These workers will feel as though they have taken a
step back in their careers when they are forced to clock their
hours and they no longer have flexible schedules to balance
work and family. With this shift, workers will have fewer
opportunities for on-the-job training and career advancement.
Last year we heard from Eric Williams, who started his
career working on the line at a fast food restaurant and then
climbed the ranks to become an industry executive. He testified
how the Department's actions will limit the ability of
hardworking men and women to achieve the same success, and that
is reality. He also owns businesses now, but it started with
the opportunity, the opportunity to expand his capabilities.
Younger Americans in particular will be hurt.
At a time when rising college costs and student debt are a
national concern, the administration is pushing a rule that
will make matters even worse. Colleges and universities
nationwide, including the University of Michigan in my home
state, who testified in front of our subcommittee and said,
``Absolutely. Tuition costs will raise as a result of it.'' Not
what these professors have stated, who have no responsibility
for that, but people who have the concerns have indicated
across the board that tuition will have to increase. They have
warned this rule forced them to raise tuition and reduce
services.
This rule will make it harder for young people to pursue
their education, and adding insult to injury, it will be even
harder for them to begin their careers. Nonprofit organizations
with tight budgets faced similar challenges. Every day in each
of our districts, these organizations are making a difference
in the countless lives, whether helping underprivileged youth,
building good homes for low-income families, or serving the
needs of individuals with disabilities. We should do everything
we can to support and encourage these crucial services. But as
one of our witnesses will testify today, this rule will do the
exact opposite.
Finally, Mr. Chairman, as is often the case with the
administration, this rule creates new hurdles for startups and
small businesses. Many won't be able to afford this mandate
even if they wanted to. Some will have no choice but to hold
back on hiring, lay off workers, or cut back hours. To make
matters worse, they will continue to confront a confusing
regulatory maze that encourages costly litigation.
The bottom line is that this rule hurts the very
individuals the administration claims it will help. That is why
I introduced legislation earlier this year along with Senator
Tim Scott to protect workers, students, nonprofits, and small
businesses from the rule's harmful consequences. Today's
hearing is the next step in our efforts. I look forward to our
discussion and yield back to the Chairman.
[The statement of Chairman Walberg follows:]
Prepared Statement of Hon. Tim Walberg, a Representative in Congress
from the state of Michigan
Thank you, Chairman Kline.
Because of this rule, many Americans will soon realize they have
fewer jobs prospects, less flexibility in the workplace, and fewer
opportunities to climb the economic ladder.
Thousands of salaried workers will be demoted to hourly status.
These workers will feel as though they've taken a step back in their
careers when they're forced to clock their hours, and they'll no longer
have flexible schedules to balance work and family.
With this shift, workers will have fewer opportunities for on-the-
job-training and career advancement. Last year, we heard from Eric
Williams, who started his career working on the line at a fast-food
restaurant and then climbed the ranks to become an industry executive.
He testified how the department's action will limit the ability of
hardworking men and women to achieve the same success.
Younger Americans in particular will be hurt. At a time when rising
college costs and student debt are a national concern, the
administration is pushing a rule that will make matters even worse.
Colleges and universities nationwide--including the University of
Michigan in my home state--have warned this rule will force them to
raise tuition or reduce services. This rule will make it harder for
young people to pursue their education, and adding insult to injury, it
will be even harder for them to begin their careers.
Nonprofit organizations with tight budgets face similar challenges.
Every day, in each of our districts, these organizations are making a
difference in countless lives, whether helping underprivileged youth,
building good homes for low-income families, or serving the needs of
individuals with disabilities. We should do everything we can to
support and encourage these crucial services, but as one of our
witnesses will testify today, this rule will do the exact opposite.
Finally, as is often the case with the administration, this rule
creates new hurdles for startups and small businesses. Many won't be
able to afford this mandate, even if they wanted to. Some will have no
choice but to hold back on hiring, lay off workers, or cut back hours.
To make matters worse, they'll continue to confront a confusing
regulatory maze that encourages costly litigation.
The bottom line is that this rule hurts the very individuals the
administration claims it will help. That's why I introduced legislation
earlier this year, along with Senator Tim Scott, to protect workers,
students, nonprofits, and small businesses from the rule's harmful
consequences. Today's hearing is the next step in our efforts. I look
forward to our discussion and yield back to the chairman.
______
Chairman Kline. The gentleman yields back. I am going to be
recognizing the Ranking Member Scott for his opening comments,
and by agreement he will yield part of his time to the Ranking
Member on the subcommittee, Ms. Wilson. I recognize Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, last
month the Department of Labor took a long overdue step towards
addressing income inequality by restoring and strengthening
overtime protections for millions of Americans. Before too
long, we have let the bedrock worker protections wither,
leaving millions of Americans working harder than ever with
very low pay.
Some of those changes over the years include, in 1965, CEOs
earned 20 times the pay of the typical worker. Now they earn
over 300 times. In 1970s, the Federal minimum wage was equal to
50 percent of the average hourly worker's pay. Today, minimum
wage is only about 35 percent of the average hourly worker's
pay. In 1975, the overtime threshold below which most salaried
workers are automatically eligible for overtime pay recovers 60
percent of them were covered. Today, it is only 7 percent.
Overtime protections in the Fair Labor Standards Act of
1938 were intended to curve overwork and help create jobs by
encouraging employers to hire more workers rather than
overworking the few. But the overtime salary threshold has been
allowed to erode so badly that today a worker earning less than
the poverty threshold for a family of four still makes too much
to be automatically eligible for overtime pay. Congress
intended that the Fair Labor Standards Act would protect and
expand the middle class. For too long, the overtime regulations
were consistent. And for a long time, the overtime regulations
were consistent with that goal. Between 1938 and 1975, the
salary threshold was updated seven times, and it was set at a
meaningful level, initially, and kept pace with changing
economies. But over the past 40 years, the threshold has only
been updated once, in 2004, and that increase was far below the
historical average.
The Department of Labor's job is to implement laws passed
by Congress. With this rule, the Department has done its job
making the Fair Labor Standards Act's overtime protections
meaningful again. The rule restores the 40 hour work week,
raising the salary threshold to $913 a week, approximately a
little over $47,000 a year. This update will make 4.2 million
workers newly eligible for overtime and strengthen overtime
protections for 8.9 million more workers. Today, too many
workers are deemed ``salaried'' and then work 50, 60, or even
70 hours a week, working their last 10, 20, or 30 hours for no
pay at all. Yeah, that's right. After they have worked the
first 40 hours, the additional 10, 20, or 30 hours, as it has
been said, they have the freedom to work those 10, 20, or 30
hours. Well, I agree.
Unfortunately, the interpretation is different because the
10, 20, or 30 hours extra are worked for free, and I am not
sure that is the freedom that most workers want. Some of these
workers wind up earning below the minimum wage when all of
their work hours are taken into account, and that's wrong. When
you work extra, you should be paid extra. Instead of forcing
workers to put in extra hours with no pay, the rule will result
in some employees getting back some precious time with their
families, which we know is critical to parents' ability to help
children thrive. It will also create jobs by putting incentives
in place for employers to spread work hours to new employees,
and it will result in part-time employees having the
opportunity to work additional hours that many want and need.
Critically, the rule ensures that we will not see
eligibility for overtime erode so badly again by requiring
automatic updates for the salary threshold every three years.
Polls show that 79 percent of Americans agree that it is time
for our Nation's overtime rules to be updated, and Committee
Democrats stand with our fellow Americans in welcoming that
increase.
I look forward to hearing from the witnesses about this
role so we can reduce income inequality and strengthen the
middle class, and I commend the Department of Labor for its
excellent work on this issue. And I now yield to the ranking
member of the subcommittee, Ms. Wilson.
[The statement of Ranking Member Scott follows:]
Prepared Statement of Hon. Robert C. ``Bobby'' Scott, Ranking Member,
Committee on Education and the Workforce
Thank you, Mr. Chairman.
Last month the Department of Labor took a long overdue step toward
addressing the income inequality crisis facing our nation by restoring
and strengthening overtime protections for millions of Americans.
For far too long, we have let the bedrock worker protections
wither-- leaving millions of Americans working harder than ever for
very low pay.
In 1965, CEOs earned 20 times the pay of the typical worker. Today
they earn over 300 times more.
In the 1970s, the federal minimum wage was equal to 50 percent of
the average hourly worker's pay. Today the minimum wage is equal to
only 35 percent of the average hourly worker's pay.
And in 1975, the overtime threshold below which most salaried
workers are automatically eligible for overtime pay covered over 60
percent of salaried workers. Today it covers only 7 percent.
The overtime protections in the Fair Labor Standards Act of 1938
were intended to curb overwork and help create jobs by encouraging
employers to hire more workers, rather than overworking a few. But the
overtime salary threshold has been allowed to erode so badly that today
a worker earning less than the poverty threshold for a family of four
still makes too much to automatically qualify for overtime pay.
Congress intended the FLSA to protect and expand the middle class.
And for a long time, the overtime regulations were consistent with that
goal. Between 1938 and 1975, the salary threshold was updated seven
times--it was set at a meaningful level initially and kept pace
with a changing economy. But in the past 40 years, the threshold has
only been updated once (in 2004) --and that increase was far below the
historical average.
The Department of Labor's job is to implement the laws passed by
Congress. With this rule, the Department has done its job - making the
Fair Labor Standards Act's overtime protections meaningful again.
The rule restores the 40-hour workweek by raising the salary
threshold to $913 per week, or roughly $47,476 per year. This update
will make 4.2 million workers newly eligible for overtime and
strengthen overtime protections for 8.9 million more workers.
Today too many workers are deemed `salaried' and then work 50, 60,
or even 70 plus hours a week--working the last 10, 20 or 30 hours for
no pay at all. That's right after they've worked the first 40 hours,
the additional 10, 20 or 30 hours, as it's been said, they have the
`freedom' to work those 10, 20 or 30 hours. Well I agree. Unfortunately
the interpretation is different, because 10, 20 or 30 hours extra hour
are worked for free. I'm not sure that's the freedom that workers want.
Some of these workers wind up earning below the minimum wage when
all of their work hours are taken into account. That is wrong. When you
work extra, you should get paid extra.
Instead of forcing workers to put in extra hours for no pay, the
rule will result in some employees getting back precious time with
their families, which we know is so critical to parents' ability to
help children thrive. It will also create jobs by putting incentives in
place for employers to spread work hours to new employees, and it will
result in part-time employees having the opportunity to work additional
hours that many want and need. Critically, the rule ensures that we
will not see eligibility for overtime erode so badly again by requiring
automatic updates to the salary threshold every three years.
Seventy-nine percent of Americans agree that it is time for our
nation's overtime rules to be updated and Committee Democrats stand
with our fellow Americans in welcoming this increase.
I look forward to hearing from our witnesses about how this rule
can reduce income inequality and strengthen the middle class. And I
commend the Department of Labor for its excellent work on this
important issue.
I now yield to the Ranking Member of the Subcommittee, Mrs. Wilson.
______
Ms. Wilson. Thank you, Ranking Member Scott. The Department
of Labor's final overtime rule will extend overtime protections
to 4.2 million Americans, including 330,870 workers in my home
state of Florida and 101,463 workers in my colleague's state of
Florida. In addition to extending overtime eligibility to
millions, this update strengthens overtime protections for 8.9
million workers who are already eligible for, but are unfairly
denied, overtime pay.
Salaried workers are entitled to premium overtime unless
they both earn above the salary threshold and meet a duties
test. Unfortunately, too many employers fail to perform a
duties test, focusing only on the salary threshold which since
2004 is near poverty wages.
This focus on salary level alone has left far too many
employees misclassified as exempt, depriving them of the
overtime pay they deserve. Since its inception, the salary
level test was designed to prevent this missed classification
by screening out workers who were obviously not exempt because
they failed the job's duties test. But as the salary threshold
becomes outdated, misclassification becomes more abundant as
more workers are subject to the duties test. The previous
salary level only screened out 15 percent of workers who failed
the duties test. The new rule restores the advocacy of the
salary threshold, simplifies application, and prevents
misclassification by making clear that 8.9 million Americans
who were previously subject to, but failed, the duties test are
still eligible for overtime pay simply by virtue of their
salaries.
I urge my colleagues in the majority to rethink their
stance on this sensible effort to prevent misclassification. I
urge them, also, to cosponsor my bill, the Payroll Fraud
Prevention Act, which would prevent another form of
misclassification: the misclassification of employees as
independent contractors, which deprives them of vital wage and
hour protections. I urge the majority to reconsider its
position on both of these policies designed to protect workers
from the misclassification that can deny them their hard-earned
pay. I yield back.
[The statement of Ranking Member Wilson follows:]
Prepared Statement of Hon. Frederica S. Wilson, a Representative in
Congress from the state of Florida
Thank you, Mr. Chair.
The Department of Labor's final overtime rule will extend overtime
protections to 4.2 million Americans, including 330,870 workers in my
home state of Florida and 101,463 workers in my colleague's state of
Michigan.
In addition to extending overtime eligibility to millions, this
update strengthens overtime protections for 8.9 million workers who are
already eligible for, but are unfairly denied, overtime pay.
Salaried workers are entitled to premium overtime unless they both
earn above the salary threshold and meet a duties test. Unfortunately,
too many employers fail to perform a duties test, focusing only on the
salary threshold, which, since 2004, has hovered near poverty wages.
This focus on salary level alone has left far too many employees
misclassified as exempt, depriving them of the overtime pay they
deserve.
Since its inception, the salary level test was designed to prevent
this misclassification by screening out workers who were obviously non-
exempt because they failed the job duties test. But as the salary
threshold becomes outdated, misclassification becomes more abundant as
more workers are subject to the duties test. The previous salary level
only screened out 15 percent of workers who failed the duties test.
The new rule restores the efficacy of the salary threshold,
simplifies application, and prevents misclassification by making clear
the 8.9 million Americans who were previously subject to, but failed,
the duties test are eligible for overtime pay simply by virtue of their
salaries.
I urge my colleagues in the majority to rethink their stance on
this sensible effort to prevent misclassification. I urge them to also
cosponsor my bill, the Payroll Fraud Prevention Act, which would
prevent another form of misclassification - the misclassification of
employees as independent contractors, which deprives them of vital wage
and hour protections. I urge the majority to reconsider its position on
both of these policies designed to protect workers from the
misclassification that can deny them of their hard-earned pay.
I yield back.
______
Chairman Kline. The gentlelady yields back. Pursuant to
Committee Rule 7(c), all members will be permitted to submit
written statements to be included in the permanent hearing
record, and, without objection, the hearing record will remain
open for 14 days to allow such statements and other extraneous
material referenced during the hearing to be submitted for the
official hearing record. We will now turn to the introductions
of our distinguished witnesses.
Miss Tina Sharby is the chief human resources officer with
Easter Seals New Hampshire, Inc., in Manchester, New Hampshire.
Additionally, she is currently president of the Manchester Area
Human Resources Association Board of Directors and a board
member of the New Hampshire Human Resources State Council.
Dr. Jared Bernstein is a senior fellow with the Center on
Budget and Policy Priorities here in Washington, D.C. Dr.
Bernstein previously served as chief economist and economic
advisor to Vice President Biden, and was a member of President
Obama's economic team. Between 1995 and 1996, Dr. Bernstein
held the post of deputy chief economist at the U.S. Department
of Labor.
General Michael Rounds is the associate vice provost of
human resource management at the University of Kansas, in
Lawrence, Kansas, where he oversees human resource services for
more than 10,000 faculty, staff, and student employees on the
K.U. Lawrence and Edwards campuses. Before joining the
University of Kansas, General Rounds served as deputy
superintendent in the Office of District Support for the
Louisiana Department of Education. He retired from the Army in
2009 at the rank of brigadier general.
Mr. Alexander Passantino is a partner with Seyfarth Shaw
LLP here in Washington, D.C., and leads the D.C. office's Wage
and Hour Litigation Practice Group, focusing in part on FLSA
compliance issues. Prior to joining Seyfarth Shaw, Mr.
Passantino started as deputy and acting administrator of the
U.S. Department of Labor's Wage and Hour Division from 2006 to
2009. I would like to ask our witnesses to please raise your
right hand.
[Witnesses sworn.]
Chairman Kline. Let the record reflect the witnesses
answered in the affirmative. Before I recognize each of you to
provide your testimony, just a brief reminder of our lighting
system. We allow five minutes for each witness to provide
testimony. When you begin, the light will turn green. When one
minute is left, the light will turn yellow. At the five minute
mark, the light will turn red, and I would ask you to try to
wrap up your testimony quickly.
I am very loathe to gavel down a witness in their
testimony, but we have got a lot of members here who want to be
engaged in the discussion. And when we get to members, I will
remind my colleagues that you will have five minutes. That is
for the question and answer, folks. And I am not loathe to
gavel down my colleagues.
We are ready to start, and I would recognize Miss Sharby
for five minutes.
TESTIMONY OF TINA SHARBY, CHIEF HUMAN RESOURCES OFFICER, EASTER
SEALS NEW HAMPSHIRE, MANCHESTER, NH, TESTIFYING ON BEHALF OF
THE SOCIETY FOR HUMAN RESOURCE MANAGEMENT
Ms. Sharby. Good morning, Chairman Kline and Ranking Member
Scott. I am Tina Sharby, the chief human resources officer for
Easter Seals New Hampshire, and I am appearing before you today
on behalf of the Society for Human Resource Management. I
appreciate the opportunity to share a little bit about what
this new overtime rule means for not-for-profits like mine, as
well as SHRM's reaction to the final regulation.
In short, Mr. Chairman, while SHRM supports an update to
the salary threshold, the final overtime rule is too much, too
fast. The rule will have a far-reaching negative impact on
Easter Seals New Hampshire, on our dedicated employees, and
most importantly on some of the most vulnerable members of our
community. Despite overwhelming input from members of the
regulated community through the rulemaking process, the
administration unfortunately missed a real opportunity to put
forth a rule that works for employers and employees. Not-for-
profit organizations in particular will be disproportionately
impacted by the rule's dramatic 100 percent increase to the
salary threshold, and this threshold only escalates since the
final rule indicates an automatic increase every three years.
Let me briefly explain my organization.
Easter Seals New Hampshire is the parent organization to
Easter Seals Rhode Island, Easter Seals Maine, and Vermont. In
2015 alone, we assisted over 16,000 individuals and provided
over $6 million in free and subsidized services. As a not-for-
profit with limited flexibility in the budget, I have serious
concerns on how I will be able to cover potential overtime
expenses.
Most of Easter Seals New Hampshire's funding comes through
Medicare, Medicaid, and other State and Federal funding
sources, and funding to these programs is not expected to
receive any increases anytime soon. We are unable to raise
prices on products or services to clients to cover these added
overtime costs. Faced with a doubling of the salary threshold,
we will have no other option but to drastically reduce the
services in order to continue to operate.
A program at significant risk is the Military and Veterans
Service Care Coordination Program, which provides services 24/7
for our veterans in emergency situations. Since the program's
inception, we have responded to over 100 incidents,
significantly reducing the risk of suicide. Because of the
potential cost for overtime under the final rules, Easter Seals
New Hampshire will be forced to limit our ability to provide
this around-the-clock care and lessen these life-saving support
services.
Mr. Chairman, we estimate that the final overtime rule will
cost Easter Seals $427,000 in the first year alone, but the
consequences of the rule are not just financial. They also
impact our employees negatively.
Consider our care coordinators who are salaried
professional employees. They respond to care needs whenever a
service member or veteran needs help. These employees make an
average of $43,000 a year. This is below the rule's new salary
threshold, but clearly they conduct exempt tasks such as
supervising services and overseeing the planning of client
care. If these care coordinators are reclassified as nonexempt,
not only will they no longer be able to provide these
critically needed services around the clock, we will view their
reclassification as a demotion. In fact, we have calculated
that a total of 280 employees will need to be reclassified from
salary to nonexempt status.
Additionally, during times of crisis, these coordinators
often work well over 40 hours a week to provide emergency
client care. When the schedule returns to normal, they will
take time off to attend other life events. Now, with these
employees being reclassified, they will be forced to closely
track every minute in a work week, and less likely will they be
going to a doctor's appointment and child's soccer games.
Mr. Chairman, the final rule was clearly a missed
opportunity to update overtime regulations in a way that works
for both employers and employees. Throughout the rulemaking
process, SHRM has supported a measured increase in the salary
threshold. However, doubling the salary threshold in the 40th
percentile of weekly earnings presents significant challenges
for employers like mine.
Tying the increase to the 40th percentile sharply contrasts
with historical updates through the salary threshold that
represented a more reasonable increase and acknowledged
differences across sectors and in certain areas with lower cost
of living. SHRM and its members are equally concerned about the
automatic threshold to increase.
In closing, Easter Seals, other not-for-profits, SHRM, and
employers across the country have serious concerns with the
final overtime rule. That is why SHRM strongly supports the
Protecting Workplace Advancement and Opportunity Act. The bill
would nullify the final overtime rule in order to have the
Department of Labor do a better economic impact analysis before
issuing new changes to the overtime regulations. SHRM and its
members look forward to working with the Congress to improve
the overtime rule in a way that works for both employers and
employees. Thank you and I welcome your comments.
[The statement of Ms. Sharby follows:]
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Chairman Kline. Dr. Bernstein, you are recognized for five
minutes.
TESTIMONY OF JARED BERNSTEIN, SENIOR FELLOW, CENTER ON BUDGET
AND POLICY PRIORITIES, WASHINGTON, D.C.
Mr. Bernstein. Chairman Kline, Ranking Member Scott, thank
you for the opportunity to testify in this extremely welcome
update to an essential labor standard. My first point is that
in our age of high levels of income and wealth and equality, it
is essential that labor standards first established 75 years
ago in the Fair Labor Standards Act are updated. By adjusting
the overtime salary threshold, this new rule does exactly that.
Second, the blue line in the figure you see there shows
that this adjustment, while welcome and significant, is but a
partial adjustment, one that reflects the Department of Labor's
responsiveness to thousands of comments from stakeholders. Were
we to fully adjust the threshold for the value it has lost
since 1975, it would be set at well over a thousand dollars per
week instead of about $900 per week, which is the 40th
percentile of the lowest wage region, the South. The new
threshold will also cover 35 percent of full-time salaried
workers, a large increase from the 7 percent covered today, but
a far cry from the 60 percent covered in 1975, as Ranking
Member Scott pointed out. In other words, this new threshold is
a reasonable but conservative choice. The U.S. economy is twice
as productive as it was 40 years ago, and the workforce is much
more highly educated. I know of no plausible economic reason
why our labor market cannot maintain a standard that approaches
what we had back then.
Third, opposition to the new rule is misguided. Given the
DOL's thoughtful compromises in only partially updating this
labor standard, and the new rule's negligible impact on the
national wage bill, many of the attacks on it amount to nothing
more than knee-jerk responses from business lobbyists doing
what they are paid to do: fight the rule regardless of the
substantive arguments that support it. And while concerns about
compliance cost, and cost to nonprofits and higher educational
institutions deserve a response, they too miss the mark.
On compliance cost, the DOL, at the behest of employers,
did not change the duties test, which is the most complex part
of the overtime determination. Since firms should already be in
compliance with this part of the law, no new compliance costs
are invoked in this area. In fact, at a recent congressional
hearing, the witness representing the National Restaurant
Association conceded this point, admitting that compliance with
the new rule ``would be an easy transition to make from a
management and bookkeeping standpoint.''
The higher threshold actually simplifies firms' compliance
burden as more workers will be automatically covered, the need
for the duties test on millions of salary workers is now
obviated. The DOL also worked hard to accommodate the concerns
of nonprofit and higher educational institutions. For certain
Medicaid-funded providers of services for individuals with
intellectual or developmental disabilities, for example, the
new rule does not take effect for three years, providing time
for outreach, technical assistance, and budget adjustment. As
another example, DOL ensured that future National Research
Service Award Grants from the NIH will be above the new salary
threshold.
It is also important to note that the FLSA contains some
exemptions for teachers, including professors, adjunct
instructors, certain coaches, and academic administrative
personnel, as well as many graduate and undergraduate students.
The DOL's new guidance even highlights that the Department
generally ``views graduate and undergraduate students who are
engaged in research under a faculty member supervision as being
in an educational relationship and not an employment
relationship with the school, and thus, not entitled to
overtime.''
On the whole, the rule is predicted to increase the total
payroll of nonprofits and higher education institutions by far
less than one-tenth of 1 percent. I hope members keep that in
mind when we listen to some of the heated rhetoric we are
hearing. Most importantly, these organizations should remember
that the pay and work-family balance of their workers is no
less important than the pay and work-family balance of workers
at for-profit institutions. The whole point of this labor
standard is to guarantee employees fair workplace conditions, a
point recently amplified by a group of nonprofits in favor of
the proposed rule, who wrote, ``Our own workers and the
families they support also deserve fair compensation and
greater economic security.'' As these nonprofits argued,
teaching or working for the public good should not require
working long, unpaid hours.
While my fellow witness may argue otherwise, I urge you on
the Committee to remember that we could just as easily have
found representatives from the education and nonprofit sectors
who strongly support the new rule, recognizing its role in
valuing and respecting their workforces. Those of us who
purport to care about the public good have the responsibility
to practice the values we preach. This rule gives an excellent
opportunity to do just that. Thank you. And I yield back my
time.
[The statement of Mr. Bernstein follows:]
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Chairman Kline. The gentleman yields back and I thank him
for it. General Rounds, you are recognized.
TESTIMONY OF GENERAL MICHAEL ROUNDS, ASSOCIATE VICE PROVOST OF
HUMAN RESOURCE MANAGEMENT, UNIVERSITY OF KANSAS, LAWRENCE, KS
Mr. Rounds. Good morning, Chairman Kline, Ranking Member
Scott, and members of the Committee. Thank you for providing me
the opportunity to testify on the administration's overtime
rule that will impact our students, families, and hundreds of
employees at the University of Kansas.
When fully implemented, the recent changes to the Fair
Labor Standards Act will have a significant impact on the
university. K.U. is a major public research university, and it
is the flagship institution in the State of Kansas. Like many
public universities across the country, the percentage of
university resources that come from public funding sources has
decreased significantly over the past decade. While university
leaders agree that an increase to the minimum salary threshold
is due, an increase of 100 percent at one time in 2016 is
difficult to absorb without significantly impacting university
services.
Many employees on college campuses, including K.U., are
currently exempt from the overtime pay requirements. To comply
with the pending increase in the exempt threshold from $23,660
to $47,476, colleges and universities may increase the salaries
for a few individuals whose current pay is closest to the new
threshold, but will need to reclassify the majority of impacted
employees to hourly status. While in some cases these changes
are appropriate and would keep with the spirit of the
legislation, in many instances K.U. is being forced to
reclassify employees who work in jobs that have always been
exempt and are well suited to exempt status. It is K.U.'s
position that this widespread reclassification is to the
detriment of both our employees and students.
As a nonprofit and public entity, K.U. is reflective of the
higher education industry in our inability to absorb the
increased costs that come with higher salaries for exempt
employees, expanded overtime payments, and other labor and
administrative costs associated with transitioning
traditionally exempt employees into nonexempt status. In the
face of these costs and challenges, K.U. will ultimately be
forced to adjust or reduce services, eliminate or consolidate
positions, or at some point raise tuition, all to the detriment
of our students. The changes will also increase the costs of,
and thus inhibit, important research done by the university.
Unfortunately, due to recent cuts in public funding, the
university does not have the central funding flexibility to
apply against the financial impacts of the adjusted overtime
rule as we enter a new State fiscal year on 1 July. With no
central fiscal flexibility, K.U. is compelled to pass any
financial responsibilities for addressing the legislation along
to our school's department and research centers. Working on
relatively fixed budgets, each unit has limited options
available to address the mandated changes. In the short-term,
the primary impact will be felt in the reduction of services or
the elimination of positions. Ultimately, our most important
stakeholder, students, will bear the burden of these
adjustments.
As of June 6, 2016, the university has 354 currently exempt
employees impacted by the revised overtime rule. The projected
cost to raise these employees to the new annual salary
threshold is around $3 million. The alternative, if chosen, is
to switch these employees to a nonexempt status and pay them
overtime. The projected overtime cost to sustain our current
level of services is roughly equivalent to the cost to raise
each employee to the new exempt threshold. Since neither of
these options are currently financially feasible for any of
K.U.'s units, it is inevitable that there will be a reduction
in the services currently being provided by K.U. units, the
students, as we transition employees from their current exempt
to nonexempt status without the flexibility of working more
than 40 hours per work regardless of mission demands.
The one relatively flexible financial lever that the
university has to increase revenue is to raise tuition. Tuition
increases need to be approved by the Kansas Board of Regents
and are justifiably closely scrutinized. For the upcoming
fiscal year beginning in July, the window to use a tuition
increase to help mitigate the impact of the new overtime rule
in 2016 and 2017 has closed. It is probable, however, that
tuition will ultimately be pushed higher in future years in
order to address the enduring impacts of the new overtime rule.
Due to both the near- and long-term fiscal impacts of the
new overtime rule, K.U. believes that the Protecting Workplace
Advancement and Opportunity Act is important legislation
because it would require a more detailed economic analysis,
including understanding and mitigating the impacts on higher
education before these dramatic changes to Federal overtime pay
requirements are fully implemented at K.U. We appreciate the
administration's ambitious agenda to promote affordable, high-
quality educational opportunities, expanding access to college,
and providing the support necessary to drive students to on-
time completion and long-term success. However, the new changes
to the overtime rule represents a major expense for a public
university and puts our campus in further financial strain as
we continue to deal with decreased State funding. There is
simply no way for universities like K.U. to absorb costs of
this magnitude without an impact on our academic research and
outreach missions that will be felt by the public and students
we serve. Thank you.
[The statement of Mr. Rounds follows:]
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Chairman Kline. Thank you. Mr. Passantino, you are
recognized.
TESTIMONY OF ALEXANDER PASSANTINO, PARTNER, SEYFARTH SHAW LLP,
WASHINGTON, D.C.
Mr. Passantino. Thank you. Chairman Kline, Ranking Member
Scott, members of the Committee, thank you for the opportunity
to speak with you today regarding the Department of Labor's
revisions to the white collar overtime regs. As a partner in
the Washington, D.C. office of Seyfarth Shaw my practice focus
is on helping employers comply with FLSA. I spend my days
providing advice and counsel to employers on things like
independent contractor status, overtime exemptions, and other
pay practices. Since the Department announced its revised
regulations three weeks ago, I have been discussing this issue
pretty much nonstop with employers, with trade associations,
with colleagues, and I am pretty sure that my family's been
subjected to it as well.
Today, I want to focus and spend the time flagging some of
the compliance challenges that employers will face in the
coming months as they decide how to proceed with the revised
regulations.
Certainly, a few employers, particularly in some industries
and in some higher-wage regions of the country, may find that
all they need to do is decide and flip some switch. For the
vast majority of employers, however, the revisions require a
thorough analysis of the costs and benefits associated with
each of the several options for currently exempt employees
earning an annual salary between $23,000 and $47,000.
On the one side, you have the increased costs of the
increased salaries, not just for the affected employees, but
for supervisors or for more experienced employees to avoid
salary compression. On the other hand, we have the impacts of
converting employees to nonexempt status and is explained in
more detail in my written testimony.
Those impacts include: harming the ability of employers to
provide and employees to take advantage of flexible scheduling
options, including part-time employment; treating employees in
the same job classification for the same employer differently
based on regional cost of living differences; limiting career
advancement opportunities; decreasing morale for those
employees who are demoted to nonexempt status, particularly
where peers in other locations remain exempt; reducing employee
access to a variety of additional benefits, including incentive
pay; deterring employers from providing newly reclassified
employees with mobile devices and remote electronic access,
further limiting employee flexibility; increasing FLSA
litigation based on off-the-clock and regular rate of pay
claims; and introducing a host of legal and operational issues,
such as increased costs for administration.
It is important to remember that converting an employee to
nonexempt status means that the employer must treat the
employee as nonexempt for all purposes. This means accurately
tracking time; ensuring compliance with the minimum wage and
overtime provisions; and, properly computing the regular rate
of pay for overtime. With respect to tracking time, converting
employees to nonexempt status means throwing them into a
regulatory scheme developed for the workplace of a different
century. It would take them from the 2004 white collar
exemption regulations and place them under regulations where
the case is cited or from the 1940s and the 1950s.
Although in fairness, there is at least one case from 1960s
cited in those regulations. It uses as examples people who are
working crossword puzzles and playing checkers while they are
waiting around on the job; telephone operators who have
switchboards in their homes. In the modern workplace, the old
understandings of waiting time, travel time, work time, and
even workplace are pushed beyond the point of breaking. When
you are talking about email, working on a laptop from a coffee
shop, taking a call in the school pickup line, and all the time
in between whether it is travel or waiting, the current rules
do not work.
How does an employer determine what time is paid and what
time is not? Where do the principles of continuous workday
begin and end? The answers are not clear. The regulations,
guidance, and cases provide arguments on virtually every side
of the issue. And every day employers are sued over the
seemingly minor bits of time that have not been included in
employees' hours of work. Yet it is the employer's obligation
to keep adequate records of the employees' time, not just an
eight written at the end of the day, every day, but the actual
hours worked. And failure to do so results in severe
consequences to employers in litigation.
Under the existing rules, payments, like bonus payments,
incentive payments, have to be included in the nonexempt
employees' regular rate of pay. Sometimes that has to go back
over the course of a year. Faced with that difficult
calculation, employers often forego those types of incentive
payments to nonexempt employees. The issues that I am raising
now do not include issues related to morale, the get-it-done
mentality, part-time employment, and even how employers are
going to pay.
So, once the employers decide they are going to convert
someone to nonexempt status, they need to determine how they
are going to pay, the rate they are going to pay, whether it is
going to be a salary plus overtime, whether it is going to be
straight hourly. Once those decisions are made, employers have
to communicate. They have to craft communications to explain
this to employees and they need to do it in such a way that has
the employee understanding that they are still a valued member
of the team and that they are not diminished in any way because
they are losing their exempt status. And employers also need to
craft these communications because the plaintiffs' lawyers have
already announced that they are on the lookout for new cases
based on the reclassification.
On top of that, this process will repeat itself every three
years as the Department increases the salary automatically
every three years. In exchange for this, the Department's
revisions do little to promote the President's directive to
modernize the regulations. Rather, they are going to place
large numbers of employees under a regulatory scheme that was
last updated in the 1960s and is fraught with uncertainty.
The Department itself is going to issue a Request for
Information on some of these issues related to how the
regulatory framework applies to the modern workplace.
Unfortunately, employers do not have the luxury of waiting for
the Department to modernize the regulatory scheme. They need to
be in compliance by December 1 and the clock is ticking.
Thank you for the opportunity to appear before the
Committee and I look forward to your questions.
[The statement of Mr. Passantino follows:]
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Chairman Kline. Thank you. I thank all the witnesses. Let
me start questioning with you, Mr. Passantino, because you are
kind of on a roll here. You know from your time at Wage and
Hour that it is time-consuming to create regulations in
accordance with the Administrative Procedure Act and governing
law. But the reason Congress established this process is
because it is so important to offer the public, including
affected stakeholders, the opportunity to provide commentary
informing the rulemaking process. Your testimony correctly
notes that the Department's regulations sets a process
automatically increasing the salary threshold every three years
without fulfilling all of the procedural requirements designed
to produce good rules. Can you take a couple of minutes here
and explain how dangerous that is and possibly illegal that is
to establish this process?
Mr. Passantino. Sure. You know, by eliminating the notice
and comment rulemaking process for all future salary increase,
the Department has apparently decided that it doesn't need the
input of the regulated community. So, historically, it has been
notice and comment, the Department proposes a salary level. The
regulated community weighs in, says we think it is too high, we
think it is too low. And they take those comments under
consideration and then the final rule comes out with a new
salary level. In 2004, the salary level proposed was lower than
the salary level in the final rule. In 2016, the salary level
proposed was higher than what happened in the final rule. So,
it can fluctuate in both directions depending on what the
comments say.
What the Department has done is said, we do not need to
hear from the regulated community. We do not need to understand
what the economic conditions are and how this is going to
impact anyone who is directly affected by this rule. We are
just going to update this every three years based on a standard
that we have identified now in 2016, and we are going to do
this for eternity.
I do not believe that complies with the Administrative
Procedure Act. I think it is sort of a super proposal for
eternity. It is just we are going to propose this standard for
all time. Congress has never authorized automatic increases and
I think it is highly problematic that the Department is doing
that.
Chairman Kline. Thank you, sir. I yield back. We will
recognize Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman. Ms. Sharby, did you
indicate the $265,000 will be the cost to raise all the
salaries up to the exempt level?
Ms. Sharby. Yes, that is correct.
Mr. Scott. So that anybody making from about $23,000 could
get a raise to over $23,000, everybody between 23 and 47 could
get to 47 and it would cost you $265,000?
Ms. Sharby. Correct.
Mr. Scott. And you would be right back to where you are
today in terms of dealing with the overtime rule. What is your
total budget?
Ms. Sharby. We are very close to a hundred million.
Mr. Scott. One percent of a hundred million is 1 million
and you are talking about $265,000?
Ms. Sharby. That is just in the cost to raise the employees
to the new salary threshold. That does not take into
consideration--
Mr. Scott. Which would put you right back where you are
today.
Ms. Sharby. Does not take into consideration the overtime
costs that will definitely dramatically increase.
Mr. Scott. No, there would be no overtime because they
would be exempt. Those employees would be in the same situation
that they are today in terms of overtime.
Ms. Sharby. Excuse me. When I gave that number, that is not
to bring all of our employees up to the new exemption. Those
are the employees that we feel that we have to bring to the new
exemption given their level of responsibility. Very many of our
employees would not be going up to the new salary threshold.
Mr. Scott. What kind of hours are these employees working
today?
Ms. Sharby. It depends on the position.
Mr. Scott. After they work 40 hours and they are not
considered exempt over $23,000, what is their hourly rate of
pay after the 40 hours today?
Ms. Sharby. I could not answer that.
Mr. Scott. Zero. Is that right, Dr. Bernstein?
Mr. Bernstein. Yeah, that is right. I mean, these workers
are not being paid overtime, so any hour worked after 40 hours
under current conditions before the new rule goes into effect
is paid zero.
Mr. Scott. Not time and a half. Not straight time.
Mr. Bernstein. No, these workers are paid for 40 hours. Any
overtime they are working is not covered. These are workers who
are deemed exempt by dent of their salaries or their duties
and, therefore, they are not paid for overtime. So, any hour of
overtime work is paid zero.
Mr. Scott. And so if you have a full-time employee who has
already worked 40 hours and a part-time hourly worker who has
worked 20 hours and you got to get 10 more hours of work done,
if you lay it on the 40-hour full-time worker, how much does it
cost you?
Mr. Bernstein. Well, it costs you--
Mr. Scott. If they are exempt for this.
Mr. Bernstein. It costs you, under the new rule, it will
cost you time and a half and I think the--
Mr. Scott. And under the present law, what would it cost?
Mr. Bernstein. It would cost you zero under the present
law.
Mr. Scott. And if you did it to the part-time worker, you
would actually have to pay for the 10 hours.
Mr. Bernstein. Well, that is right, but I think one of the
points, if I may, Ranking Member Scott, one of the points you
are getting at here is something that I think is very important
for my colleagues on the witness stand to consider because I
don't think they have by dint of their testimony, which is that
there are various other ways that the increased threshold can
be absorbed other than taking people up to the top salary cap.
My colleague from the University of Kansas suggested that
everyone will have to be taken up to the salary cap, but, of
course, as you just pointed out, you can take workers who are
working part-time, increase their hours as long as they remain
below 40, there is no change to payroll. There is no change to
payroll based on the overtime change. In other words, they are
under 40, so they are not getting time and a half. They would
be working more hours and they would have to be paid more
straight time.
There are various other absorption mechanisms. You can
create more jobs at straight time. That is another way to avoid
the overtime threshold and I actually think that is a very
positive development. Various analyses, including, by the way,
the National Retail Federation, which testified here, suggested
that the new role would create over a hundred thousand jobs
through this mechanism. Employers avoid paying the overtime by
creating straight-time employment.
Mr. Scott. And Mr. Rounds, did you say in your testimony
that you could raise everybody from under 47 that's making more
than 23 up to 47 to get them back to exempt for about $3
million?
Mr. Rounds. Ranking Member Scott, we have 354 members as of
today who are under the new threshold.
Mr. Scott. And you can get to the 47--
Mr. Rounds. And that cost us about $3 million.
Mr. Scott. About 3 million. What's your total budget?
Mr. Rounds. I don't have the university--
Mr. Scott. Over a billion?
Mr. Rounds. It's over a billion dollars.
Mr. Scott. One percent of a billion is about 10 million?
Mr. Rounds. Yes.
Mr. Scott. What does your basketball coach make?
Mr. Rounds. The basketball coach, which is Mr. Bill South,
is not a State employer and, therefore, I don't have his
salary.
Chairman Kline. And the gentleman's time has expired. Mr.
Wilson?
Mr. Wilson. Thank you, Mr. Chairman, and thank each of you
for being here today. Ms. Sharby, I really appreciate your
service. Easter Seals makes a difference around our country for
so many people, so thank you for what you do. I'm also very
grateful that I have four sons that have participated in the
Boy Scouts of America and with the extraordinary encouragement
of my wife, all four of them are Eagle Scouts.
During a recent discussion with the Indian Wars Council
Scout Executives, I was informed by the negative impact that
the regulation will have on the Boy Scouts in South Carolina,
which makes such an important difference of the lives of the
young people of our State. Can you expand on the impact this
regulation will have on the quality and quantity of services
that nonprofit organizations will be able to provide families?
Ms. Sharby. Yes, I can. Currently, Easter Seals relies on
level funding at best. Usually we are forcing cuts in our
budget and we are going to have to consider how we are going to
be able to continue these services. As I mentioned earlier, we
provide free and subsidized services. So that is going to be an
area where we are going to have to pay particular attention due
to the lack of funding.
In addition, it takes a long time to develop a relationship
between the staff member and the person who is receiving
services. It is not as simple as saying, okay, we will hire a
new staff member to come in and pick up the responsibilities.
In the state of New Hampshire with the 2.6 percent unemployment
rate, bring them on. I have 150 staff vacancies. If you have
people that you can send to me that are qualified to work for
Easter Seals, I would be happy to interview them, but that is
just simply not the case.
So, our employees come to work for us because they believe
in the mission. They do not necessarily come for the salary.
They want to be paid a fair salary. I totally support that, but
they come for the mission to make a difference in the lives of
the individuals that they serve. And now, we are creating a
situation where they are not going to have the flexibility to
do the things that they feel are necessary in order to provide
this quality.
Mr. Wilson. And indeed, you and your staff are making a
difference.
General Rounds, over the past several months, I've had the
opportunity to speak with many colleges and universities
throughout the state of South Carolina regarding the impact of
the Department of Labor's overtime rule. At South Carolina's
flagship university, the University of South Carolina, this
rule will affect nearly a thousand employees, cost the
university over a million dollars a year to comply, which I
believe could lead to destroying jobs. In a time when
universities are facing a decrease in State funding and
students are facing rising tuition costs, can you speak on the
ultimate impact this burdensome and expensive overtime
regulation will have on faculty students and programs?
Mr. Rounds. Thank you, Congressman Wilson. As you
mentioned, it does have an impact on our ability to provide the
same type of response for many of the employees who are
impacted. As you know, universities are not 9:00 to 5:00
organizations. Their cultures are responsive to our primary
stakeholders who are students and many of the employees who are
affected by this are employees who are directly engaged with
students on a regular basis and if we try and force them into a
9:00 to 5:00 box, it will make it very difficult for them to
provide the same services and maintain the same culture we
currently have at K.U.
Mr. Wilson. And I have seen it personally. I have a dear
neighbor who is a tennis coach and she sees this as
catastrophic to her ability to work with the students at the
college that she teaches.
Mr. Passantino, there was recently an article in the Los
Angeles Times where the millennial generation is most likely
the generation that would like to change careers, give up
promotion opportunities, move their family to another place for
flexibility. What kind of impact will this have on businesses
that do provide flexible alternatives for persons who use
laptops and smartphones?
Mr. Passantino. I think the most significant piece for
those employees who are reclassified as nonexempt, so who are
below the threshold and the employer decides not to bring them
up to the new threshold. It is going to be difficult for the
employers to continue to provide them with those opportunities.
Whether a particular time is compensable, paid under the act,
depends on a lot of facts and circumstances, but there are
principles that have been in place for a very long time that
simply do not apply when you have someone starts in the office,
goes to a coffee shop, heads off to a softball game, works at
home. They do not apply in the same way as they do in the more
traditional workplace.
Chairman Kline. Thank you very much. Speaking of
basketball, Mr. Courtney, you are recognized.
Mr. Courtney. Thank you, Mr. Chairman, and thank you to the
witnesses for being here today. Again, I think I want to follow
up on a point Mr. Scott was making in terms of trying to, you
know, step back and look at this from sort of a total global
standpoint in terms of the impact of this rule.
Dr. Bernstein, on page five of your testimony, you
mentioned what the actual impact on the Nation's Wage Bill is
going to be and, again, I don't know if you have it at your
fingertips, but I'll let you, again, underscore that point.
Mr. Bernstein. Thank you because I think it is really
critically important to scale some of the numbers we are
hearing by, just as Representative Scott was suggesting, by the
budgets of the organizations. And when you do so, you find that
nationally, the costs of the new rule will amount to less than
one-tenth of 1 percent of the national payroll. Now, national
payroll is in the trillions.
So, we are talking about a relatively small group of
workers who are newly covered and among that group of workers
that are newly covered, those who are more likely to work
overtime.
Now, in the higher educational sector, that payroll share
also amounts to well under one-tenth of 1 percent and in the
nonprofit sector, again, less than one-tenth of 1 percent. And
in fact, if you look at the affected workers who usually work
overtime in both the higher ed sector and the nonprofit sector,
it's less than 1 percent of their workforce.
Now, I still think this is an important rule and not all
the benefits are monetized. Some of the benefits come from
being able to balance work and family. Tremendously important,
but it does not show up in the national accounts as extra
dollars. But when you go in the monetary side, you see the
fractions involved here. I would say very much belie the level
of some of the rhetoric we are hearing.
Mr. Courtney. Thank you. And again, also, I think that the
narrative that somehow the Department of Labor stonewalled, you
know, any input that came in during the rulemaking process,
again, I also served with Mr. Walberg in the Workforce
Protection Subcommittee when fair labor standards was
discussed. And, indeed, I would agree with the Chairman's
comments that, you know, it was in need of an update and a
modernization. Again, I kind of came to a different ending
point in terms of what needs to be updated and that your graph
certainly showed that, how this rule had just deteriorated to
the point that it was less than 10 percent of the American
workforce that was getting any benefit from it.
And again, during the rulemaking process, nonprofits were
listened to. Again, as you pointed out, the Medicaid waiver
programs for people with intellectual disabilities, again, they
operate under a one revenue system of operation and it is very
rigid because these Medicaid waivers are under caps. And again,
the Department gave a three year non-enforcement accommodation
to those programs. In terms of universities and research, as
your testimony points out, the National Institute of Health, in
terms of future research grants is going to, again, align these
grants to comply with the rules, is that correct?
Mr. Bernstein. Yes, by aligning the grants to comply with
the rules what you're saying is that the grants will equal the
upper bound of the salary threshold and thus not invoke higher
overtime costs. And I think it is really germane and I have a
great deal of respect for my colleagues on the panel who are
providing important services, as was recently mentioned. I
think it is germane that both of them, and I very much
underscore their point, have pointed out their problem is less
with this overtime role and more with their funding streams.
And I think in the case of Kansas, that is particularly
striking because in Kansas, we know there has been this
experiment with tax cuts and these cuts taking effect in 2013
have blown a $400 million hole in the State budget. State
spending on higher education for a student in Kansas is down 22
percent since 2008 and my colleague, Mr. Rounds, made those
points very clearly.
But what you can't do in my mind in terms of the labor
standards is cut taxes on wealthy people so that you cannot pay
middle class a fair wage for a fair day's work.
Mr. Courtney. And having talked to Secretary Perez, I
think, you know, this question of the Medicaid waiver programs,
I mean, frankly, the Department of Health and Human Services
has to be brought into this discussion in terms of how they set
these waivers. Again, it will align with these new fair labor
standards.
So, again, I think you are right. This is going to create a
healthy sort of discussion, both at the State level and the
Federal level, about trying to get, whether it is research
grants, UConn or K.U., or whether it affects nonprofit programs
that provide critical services for vulnerable populations that
they get the adequate resources to create a living wage. I
yield back, Mr. Chairman.
Chairman Kline. The gentleman yields back. Dr. Roe.
Mr. Roe. Thank you, Mr. Chairman. General Rounds, thank you
for your service to our great country and all the panelists for
being here. I was asked to speak about two weeks ago at the
Tennessee Valley Carter Meeting on entrepreneurship and job
creation. And I wondered why when you hear the administration
say that we have 14-1/2 million new jobs, unemployment rate has
gone down from 9 percent to 5 percent, all are true. Why is it
when you poll the American people that 70 percent and the
majority of Democrats are saying the country is headed in the
wrong direction? It does not make sense. I mean, those two
things together do not make sense.
I began to look at in detail and what has happened is
between 1990 or 1992 and '96 during that recession, 420,000 new
businesses were formed in this country. Between 2002 and 2006,
400,000 new businesses were formed. Between 2010 and 2014,
166,000 businesses were form. And what happened was 20 counties
in this country made up half the new businesses formed in
America and 60 percent of the counties actually had a net loss.
That is why we, as the American people, feel like we are going
in the wrong direction.
And in my opinion, the way the other side, Dr. Bernstein,
you are an advisor to the President, believe that raising the
minimum wage and doing this salary is actually helping the
economy. It is not.
If complying with government regulations were a country, it
would be the fourth largest country in the world, just
compliance costs, and this is going to add another compliance
cost of what we are doing. I am a Boy Scout, an Eagle Scout. I
worked Scout Camp every summer. There is no way on this Earth
that not-for-profit--as a matter of fact, I have to write them
a check when I get home--there is no way in the world that they
can comply with this. If you are a Scout leader and you go by
on a Friday morning to set up a jamboree for the weekend for
Boy Scouts, by Sunday morning you got to leave them because you
have done your 40 hours and you have not worked all week.
I worked there 24 hours a day, seven days a week when I was
a camp counselor. As you were saying, when do we start camp?
You talk about 10ths of a percent at the University of
Tennessee. It is going to add $9 million--$9 million--to the
University of Tennessee which is a 2 percent increase in
tuition for every student in the system. I talked to one of the
land grant colleges two weeks ago when I was at the Valley
Quarter Meeting and it is going to add $2 million costs to that
one college.
Tuition costs have skyrocketed. That is the last we need to
do and at the University of Kansas. That cost has got to be
passed on.
And Dr. Bernstein, I will point out in our great State of
Tennessee, we had cut taxes. We have the lowest per capita debt
in the nation. We provide free community college for people, so
it can be done by lowering bureaucratic hurdles and this is
just one of them.
General Rounds, this to me is a very personal. I was on the
foundation board of my college and providing a quality
education for someone like me who is a first generation
student, it is another barrier that is out there. And I do not
know how not-for-profits, like Ms. Sharby, you are talking
about, are ever going to comply with this. So, General Rounds,
if you would like to comment on the costs and then, Ms. Sharby,
if you would.
Mr. Rounds. Thanks, Congressman Roe, as I pointed out in my
testimony, if you look at the fact that we are relatively flat
or decreasing in our budget, it makes the absorption of any
additional costs very difficult without taking dramatic steps.
And in this case, the ability to absorb these costs because
they are not available means that if for the majority of the
individuals impacted, is they will become nonexempt as opposed
to exempt and they will not be able to provide the same
services that they currently do because they have very good
flexibility in how they execute their job responsibilities.
They will lose that flexibility.
Mr. Roe. My good friend, the Ranking Member, brought up the
basketball coach at the University of Kansas. Well, that is
fine, but what about these State schools where I went where a
coach may make $35,000 or $40,000 a year and they are out
recruiting athletes? How in the world are you ever--they are
driving eight hours to a game. How in the world are you going
to comply with that? I have no earthly idea. Not everybody is
at the University of Kansas, at a major university. Trust me,
when you are a coach at Austin P. State University where I
went, you are making small, little teeny bucks, not the mega
bucks that a great coach like that is making.
So, my time is about expired. I do want to, Mr. Chairman, I
want to submit this new map of economic growth and recovery as
a matter of the record.
Chairman Kline. Without objection.
Mr. Roe. I yield back.
Chairman Kline. The gentleman's time expired. Ms. Fudge,
you are recognized.
Ms. Fudge. Thank you very much, Mr. Chairman, and thank you
all for your testimony today. Mr. Bernstein, in your testimony,
you note that the FLSA overtime exemptions were designed and
intended to cover a particular class of worker. These
exemptions have now been construed to cover assistant managers
or supervisors that don't necessarily meet the duties test. How
has the manipulation of this exemption, which, in fact, it has
been manipulated, negatively and unfairly affected low-level
management workers, causing them to lose out on overtime that
they should receive?
Mr. Bernstein. By misclassifying them as exempt, thus
prohibiting them from getting time-and-a-half when they work
beyond 40 hours a week. If you actually look at the intention
of the FLSA and the duties of the types of workers you are
mentioning, these are workers who very much should be covered
by overtime protections, but are not. Therefore, and it is much
like the conversation I was having with representative Scott a
minute ago, when they work an hour, two, five, 10 hours of
overtime, every one of those hours costs $0 to their employer.
There is a--
Ms. Fudge. Excuse me, sir. The time is not accurate. Please
proceed, sir.
Mr. Bernstein. Okay. Every one of those hours is unpaid.
One of the most important aspects of the new rule is that it
does away with this confusion around the duties test by
updating the salary threshold and setting it at $913 per week,
these workers will now be automatically covered.
Ms. Fudge. So, in effect, for many, many years, they have
actually benefitted by the misclassification and have gained
significant dollars that they really should have been paying
people for a very long time.
Mr. Bernstein. That's correct, and in fact, we were talking
a little bit, a second ago, about the underlying economy and
some of the dynamics there in. And one of the problems we have
had is this increase in economic inequality, whether it is wage
or wealth or income inequality, it is doubled in terms of share
of income to the top 1 percent over the past 35 years. One of
the things you see is that the profit share of national income
recently reached historic highs. It is coming down a bit as the
job market has tightened, and that is one of the dynamics that
we are describing here. Workers are not being fairly
compensated, and that has helped to boost profit margins. That
is not a bad thing. Profit margins are good, but profit margins
should afford you to be able to pay a middle-class wage to
workers who are working over 40 hours a week.
Ms. Fudge. And employers have unfairly benefitted from it.
Mr. Bernstein. Correct.
Ms. Fudge. Mr. Bernstein, we have repeatedly heard the
argument that raising wages in any way would stifle job
creation and economic growth, and today is no different. We
hear the same thing. Our failure to act has seen the demise of
the 40-hour work week, and that is what we have seen today,
really, the demise of the 40-hour work week. Could you
elaborate on how this salary increase will actually help
economic growth and not hurt it?
Mr. Bernstein. Well, a number of ways. One of the things I
mentioned earlier, I think, is quite important. There are many
labor economists who believe that one impact of the new rule
will be the creation of new straight-time jobs, that is,
employers who don't want to pay overtime to newly covered
workers can avoid that by hiring other workers and paying them
straight time. Also, it can increase the hours of their part-
time workers, yet still keep them below 40.
Now, Goldman Sachs argues that would create about 100,000
jobs. National Retail Federation argues more. To the extent
that workers working more than 40 hours newly covered are now
making time-and-a-half, these are workers who earn middle-class
incomes, middle-class salaries. The top threshold in an annual
sense is about $47,000 per year. That is actually below the--
that is about around the median household income. These workers
tend to spend their paycheck, so that feeds back into the
economy. We have a 70 percent consumption economy. That's pro-
growth. And, in fact, you talk about a sloggy macro economy,
one reason for that has to do with this inequality problem, and
the fact that when the benefits of growth flow to the top of
the scale, consumption tends to be less robust.
Ms. Fudge. I have no further questions, but if there is
something you want to address in my last two minutes that you
have heard--
Mr. Bernstein. Well, thank you.
Ms. Fudge.--please feel free.
Mr. Bernstein. You know, I think there is a real lack of
care, and I am glad Mr. Passantino is here because I sense he
really understands these rules. I think there is a lack of care
and consideration by many folks who oppose these rules in terms
of what is actually in there.
One, we just a heard a member complaining about coaches and
the need to pay overtime to coaches. Well, athletic coaches,
assistant coaches who fall under the exemption when their
primary duty is teaching are exempt. And so, there are a
variety of exemptions: teachers, academic administration
personnel, graduate and undergraduate students. I urge my
colleagues on the witness stand and their institutions to look
much more carefully at that aspect of the rule.
I will state, and since we are talking about coaches, I
will note, that at least it is my understanding that the
basketball coach at K.U.--and I'm a huge Jayhawks fan, just to
get that on the record--is paid something in the range of $5-
to $6 million a year. Now, if Mr. Rounds' numbers are correct,
that means that you could fully compensate for the overtime
cost that he designated and still pay their basketball coach
about $3 million a year, which sounds pretty good deal to me.
Chairman Kline. So, we agree that the coach is exempt. The
gentlelady's time has expired. Mr. Walberg.
Mr. Walberg. Thank you, Mr. Chairman. I guess I have gained
more understanding of why our economic growth at an anemic 2
percent or less is what it is with economic advice that is
coming, like what we are hearing today. It is frustrating to
think that we have an administration that thinks you can name
it and claim it, and that businesses, universities, and others
can simply pick the dollars out of the air to pay, and that
doesn't happen. And when we get into social welfare agencies,
and we get into charitable causes, and entities that provide
real basic help to people, this is not reality. And that is
what is frustrating and maybe that is why we are that level of
growth.
It is interesting, also, that with the Puerto Rican bill
that is being considered right now, the administration is
willing to forego overtime regs and a minimum wage for 25 and
under, indicating that will help grow the economy in Puerto
Rico. Just want to bring that up, hypocrisy that we hear.
Mr. Passantino, Department of Labor's final overtime rule
is going to result in the demotion of salaried exempt employees
in every corner of the country. By DOL's own estimates, very
few of the Department's estimated 4.2 million impacted
employees will actually see any potential benefit from this
rule because they do not currently work more than 40 hours per
week.
However, these employees will be negatively impacted when
they lose workplace flexibility, opportunities to attend
training and networking events, and certain performance-based
bonuses as a result of being reclassified. Do you anticipate,
Mr. Passantino, significant morale issues amongst employees as
a result of these changes?
Mr. Passantino. I think, in talking to clients since the
rule's been out, that is a very likely probability. As is in my
testimony and as I said earlier, one of the issues is with
respect to mobile devices and remote access. As annoying as
they may be from time to time to be tethered to your job all
the time, it also allows you to be away from your job for parts
of the day and to be away from your workplace and to get things
done when you are not sitting at your desk.
Mr. Walberg. Workplace of the 21st century, right?
Mr. Passantino. That is right.
Mr. Walberg. Flexibility, opportunity.
Mr. Passantino. Right.
Mr. Walberg. Choice.
Mr. Passantino. We have also talked to employers about the
bonus issue and the fact that--
Mr. Walberg. Yeah, talk about that. Talk about the bonus
issue and the impact of this rule.
Mr. Passantino. So, for nonexempt employees, when there are
nondiscretionary bonuses, and nondiscretionary bonuses are
basically all of your incentive types of payments, those get
included in the regular rate of pay for overtime purposes. So,
if you have someone who is making $10 an hour, their overtime
rate would be $15 an hour, but if they got a bonus on top of
that, you would have to go back and recalculate their rate in
order to determine what their new overtime rate is.
Mr. Walberg. Hurting many of the people that appreciate the
compensation that comes from bonus and opportunity and expanded
opportunities.
Mr. Passantino. Well, frankly, when we talk to employers,
when we explain everything that is necessary to recalculate
that rate of pay, they just decide to forego the bonus.
Mr. Walberg. No bonuses.
Mr. Passantino. Right.
Mr. Walberg. Yeah. Mr. Passantino, contrary to the
Department's assertion, changes to expand overtime eligibility
will not necessarily result in a windfall of overtime income
for newly classified, nonexempt employees. Will you describe
some of the adjustments employers will consider making in order
to keep labor costs under control?
Mr. Passantino. I mean, one is that they can limit the
amount of hours that someone works. Another is you can reduce
the base rate of pay so that if you expect someone to work 45
hours per week, their previous salary becomes--you divide it by
45 or your divide it by 45 plus something else. And then their
hourly rate will get them to what they made anyway. So, they
make the same, except now they are keeping track of their hours
and they are getting paid for overtime up to that 45 and then
they would be paid time-and-a-half over that. You can pay them
on a salary that reflects their current pay and then they would
get a little bit extra for the amounts they work over 40. So,
there are a variety of different ways that it can be
accommodated.
I think the other part of the equation, it may change the
way that employers hire in new individuals to those positions.
They maybe come in at lower rates to account for that overtime
premium.
Mr. Walberg. Generally, going back to the 20th century when
we are in the 21st and moving rapidly in this 21st century to
something expanding in the workplace. Thank you, I yield back.
Chairman Kline. The gentleman yields back. Mr. Polis,
you're recognized.
Mr. Polis. Thank you, Mr. Chairman. You know, for stepping
back for too long, workers across our country have simply been
putting in more and more hours without receiving the
compensation they deserve. You know, we have talked about many
examples, but a manager at a fast food restaurant in my
district might earn a salary of $26,000 a year, but work 50,
60, 70 hours. At that salary, a family of four is well below
the poverty line. But under the new overtime rules, they will
finally be compensated for their work and receive the pay they
deserve.
In fact, my district or my state has 248,000 workers that
will benefit from the overtime rule. I would also like to note
that this update would directly benefit 275,000 workers in my
colleague's, Mr. Walberg's state, who we just heard from. And I
think that is something that is long overdue and that workers
deserve.
There has been some discussion of higher ed workers and I
wanted to go to Mr. Bernstein on that. I represent a district
with two institutions of higher education: Colorado State
University and University of Colorado, Boulder. There has been
a lot of discussion about the rules affecting higher education.
And to be clear, I wanted you to talk about what actual impact
might this have on higher education and what percent of the
higher education workforce would even be affected by these
rules.
Mr. Bernstein. Thank you. According to numbers from the
Labor Department, 3.4 percent of workers at colleges and
universities would be affected by the rule change in the sense
that their salaries are between the current and the new
threshold. However, it then becomes most workers in that bound,
between the old and the new threshold, most workers don't work
overtime. So, the next thing you have to do is ask how many of
the workers in the affected range work overtime, and that gets
you to .5 percent in the higher ed sector and, by the way, .8
percent in the non-profit sector. So, less than 1 percent of
workers affected in that regard and as a share of their
payroll, as I have been stressing throughout the discussion,
under one-tenth of 1 percent in both cases, whether we're
talking national, higher ed, or non-prof.
Mr. Polis. And in addition, with the particular carve out
around instructors that under the guidance from the Department
of Labor generally covers assistant athletic instructors and
others, so some of those, even some of .5 percent out of the
3.4 percent that make in that range that might work more than
40 hours a week, are some of them not even in the teacher
exemption categories, some of those workers?
Mr. Bernstein. Right, so this is again, it is critical to
go back and understand the nature of the exemptions. Bona fide
teachers, coaches, graduate and undergraduate students,
academic administrative personnel are often exempt, meaning
that the new rule will not affect their pay. In postdoctoral
cases, which is an important area for my friend here from
higher ed, again, I want to underscore that the Department of
Labor's working closely with the NIH and the National Science
Foundation to ensure that grants are now at the level of the
upper bound of the salary threshold.
Mr. Polis. And if there are workers that are affected, then
I think you are down to whatever, .1 percent or .4 percent, let
us say it is janitorial manager or something like that. You
know what? The universities need to maintain a competitive pay
scale in the private section anyway. I mean, if the private
sector is paying overtime and somehow the university were
exempt from it, would they even be able to engage or hire
somebody for these positions?
Mr. Bernstein. Well, if the job market is soft enough, they
might, but in a tighter job market, they would not. But I think
the key point here is that it is really hard to understand why
someone who chooses to work in the public sector should be
treated differently than someone who works in the for-profit
sector when it comes to fair pay for overtime work. I think, as
my colleague Ms. Sharby said, that these workers want to be
paid a fair salary. And I think that is a great point. There is
no reason, especially when we are talking about an impact that
is less than one- tenth of 1 percent on payroll, that workers
in one sector should be treated so unfairly relative to workers
in a different sector.
Mr. Polis. Well, even this again, economically, if we want
the nonprofit or public sector to attract talented workers,
they have to have overall compensation packages. They are
competitive. Obviously, overtime is part of that; vacations are
part of that; pay is part of that; benefits are part of that.
But overall, you need to be competitive or you are going to
wind up with the least talented people in these positions
simply because the more talented ones are taken up by the
private sector. So, we have to be competitive across all
sectors. I think consistency of rules is very important to do
that and I yield back.
Chairman Kline. The gentleman yields back. Mr. Guthrie.
Mr. Guthrie. Thank you very much. And I want to continue
talking to Mr. Rounds on this idea of colleges, and I
understand you worked at the University of Kentucky; K.U. are
large, large enterprises. Well, Kentucky has a lot of small
colleges, a lot of small colleges that were brought into being
100, 150 years ago from mission-oriented--and I have a written
statement addressed to the Committee from Dr. William Luckey.
He's the president of Lindsay Wilson College in Columbia, in
Derek County, Kentucky. And his statement raises very serious
concerns with the overtime rule and I will ask it to be entered
into the record.
Chairman Kline. Without objection.
Mr. Guthrie. Lindsay Wilson College is a small, private,
nonprofit college serving one of the poor areas in Kentucky and
actually one of the poorer areas in our country. Sixty-two
percent of the college undergraduates are Pell eligible. Fifty
percent of the Pell eligible have an expected family
contribution of zero. Lindsay Wilson students receive more in
state-based grants than any other private college in Kentucky
and I would like to read from Dr. Luckey's statement
summarizing Lindsay Wilson' College's concerns with the
overtime rule.
It says, ``The DOL website states, the ruling will transfer
income from employers to employees. I can tell you that in our
case and in the case of hundreds of private colleges that
submit a comment to OMB with this rule was under review, just
the opposite is going to happen. Employees will lose their jobs
and many other salaried professionals will be relegated to a
lower profile, nonexempt status because for nonprofits, like
Lindsay Wilson, there is no extra employer money to transfer.
But our students that are among the Nation's most needy will
suffer most. When the changes from Federal overtime rule take
place at the current amount and in the current timeframe of
implementation, it would be devastating to Lindsay Wilson
College and I dare say it will hurt, not help, small colleges
all across America.''
So, Mr. Rounds, that is the end of the quote from that. Mr.
Rounds, many small, private colleges face strict budget
constraints. Ninety-five percent of Lindsay Wilson's revenues
come from student enrollment. When costs go up, tuition must
rise or services must be cut. In this regard, is Lindsay
Wilson's predicament similar to K.U.'s as it faces the overtime
rule?
Mr. Rounds. Thank you for the question. It is similar to
K.U.'s. And what I would like to point out is with the 354
individuals who are currently considered exempt, 92 of those
are postdocs. And I had put into my testimony that we plan on
bringing them up to the new threshold because to not do so
would make us noncompetitive. Obviously, it has a huge impact
on us because there is a fixed budget. Granted, NIH is going to
raise grant levels. We are working under current grant levels
and so, under fixed budget, you--
Mr. Guthrie. But Lindsay Wilson is not a grant-based--you
know, it does not do a lot of its--it is 95 percent student
tuition, not NIH research. But, so, I know it is a separate--
maybe it is a little different from the University of Colorado,
but please continue.
Mr. Rounds. Yes, sir, but the remainder of the individuals
are not in that position where they are tied to grants and we
can do the adjustment in order to bring their salary levels up.
So, in those cases, we are going to have to make them nonexempt
employees and as we make them nonexempt employees, it has been
pointed out on several occasions is that they will lose their
workplace flexibility. I think the portrayal that we are not
concerned about the making them competitive with the rest of
the workforce--our employees competitive with the rest of the
workforce is not accurate, at least at K.U.
Over the last two years, we went through an extensive
market study and within that market study, the intent was to
ensure that we are paying our employees comparable to the
industry and comparable to the region and as we finish that, we
brought 33 percent of our workforce wages up in order to make
sure that we were balanced. Naturally, difficult to do in a
tight fiscal environment, but the right thing to do. As part of
that process, I would point out that even employees that we
raise their salary as we did a review, if they went from an
exempt to a nonexempt status, that was more important to them
losing their exempt status then the fact that they had their
salary raised. And so, as Mr. Passantino has pointed out, we
have found as we look at this particular issue that there are
morale issues associated with it. The scope of those morale
issues were not even sure of at this point.
One last thing, and I appreciate the opportunity, is we
have talked a lot about our basketball coach and his salary.
Mr. Self is not paid with State funds and, therefore, I think a
lot of the comparisons of what reducing his salary would do for
us is not necessarily germane. So--
Mr. Guthrie. University of Kentucky chose this year to take
athletic funds and build an academic building with it as well,
so.
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Chairman Kline. The gentleman's time has expired. Mr.
Hinojosa.
Mr. Hinojosa. Thank you, Chairman Kline and Ranking Member
Scott. Today's hearing on the updated overtime rule by the
Department of Labor is long overdue. According to the Economic
Policy Institute, an estimated four million workers would
benefit from the proposed overtime rule. And it would help more
than 1.5 million working people in my own home State of Texas.
Critics of this much-needed final rule also argue that
colleges and universities cannot afford the increased costs.
These educational institutions, like all other entities, will
have a number of ways to come into compliance with the rule,
including raising employee pay, limiting employees to 40 hours
per week, paying overtime on top of an employee's salary as
needed, or any combination of the above. Additionally, many
employees at these colleges are exempted from coverage under
the FLSA.
It seems to me that we must be realistic about the number
of people affected here. I think back to 20 years ago when I
was elected to come to Congress, I was looking back on the
computer, and saw that 1996, when I was elected, the minimum
wage was $4.75 an hour. Under Bill Clinton, his second term,
ending his second term, we were able to pass an increase of the
minimum wage and it went in several steps. It reached $7.25 in
2009. That is nine years ago--no, seven years ago. But it was
interesting to me that the same arguments that I hear my
friends on the other side of the aisle that businesses will
close and things will go to hell just didn't pan out. That is
not what happened.
What happened is in the second term of Bill Clinton, we had
a surplus of $600 billion. We balanced our budget. It was a
period of prosperity because we raised the interest--I am
sorry, the minimum wage, plus many other things that occurred
under Clinton's second term. So, what we are being told now,
same excuses for not changing the minimum wage in about 12
years to me is hollow. It is not true. It seems to me that we
have got to be realistic and that we have got to do something.
I request unanimous consent, Mr. Chairman, to submit a
letter from over 250 professors at colleges and universities
across the United States and they strongly support the
Department of Labor's new rule governing overtime.
Chairman Kline. Without objection.
Mr. Hinojosa. Thank you, Mr. Chairman. Mr. Rounds, I have a
couple of minutes and I want to ask you, according to your cost
estimates, assuming they are correct, your costs of this
proposed rule will represent seven-tenths of 1 percent of
payroll costs in 2015. It would represent three-tenths of a
percent of total operating expenses and about 50 percent of
what USA Today reports is the annual pay of Kansas University's
head basketball coach. Why do you think these small percentages
will require such a drastic reductions in student services?
Mr. Rounds. Thank you. I appreciate the question. I am
answering the question as what I am looking at is the
individuals' who are primarily affected. And as you look across
the individuals who are impacted, a large percentage are
individuals who work directly with our students and as you look
at the different numbers, what I am aware of is the fact that
we are on a very fixed and tight budget. And it would be
difficult or impossible in order to--those individuals that are
directly associated with providing services to our students in
order to be able to adjust their salaries to make them--
Mr. Hinojosa. Thank you, Mr. Rounds, my time is almost up
and I want to say that I respectfully disagree with you.
Goldman Sachs says this morning, ``New Obama rule on overtime
likely to add 100,000 jobs to the economy.'' I think that is
more likely to happen--
Chairman Kline. And the gentleman's time has expired. Dr.
Foxx.
Dr. Foxx. Thank you, Mr. Chairman. I want to thank our
panel, all of them, for being here today. I do want to say that
I think some of the information being presented here comes from
folks that live in an alternate universe where they have never
worked in the private sector, recommendations coming in from
folks who never worked in the private sector and have no idea
what it cost in addition to direct costs to comply with such
government rules and regulations.
And I want to say that--and Dr. Bernstein said everybody
should be paid fairly, and I agree with that. But there are
many people in this country, Dr. Bernstein, who work in
nonprofits that do not do it for the money. As Ms. Sharby has
said, they do it out of a sense of mission, and they make that
choice when they go there. Just like we do not pay our teachers
enough in this country, in my opinion, but they know when they
go to those jobs what the pay is going to be. And they do it
out of a sense of mission.
And I think that is perfectly fine. We need to continue our
civil society, organizations outside the control of government
that have that sense of mission. It's part of what makes us
such a great country.
Mr. Passantino, I think that General Rounds was getting to
this point, but I would like to ask you if you would talk a
little bit about the areas where the Department of Labor may
have underestimated the costs of compliance with this because
we know historically, these government agencies, again, live in
an alternate universe and have no idea what it costs to
implement the rules and regulations. Would you say a little
more about the costs of compliance for these rules?
Mr. Passantino. Sure and I think a lot of the costs of
compliance is not simply complying with this rule. It is what
this rule forces employers to do in the context of other
regulations. So, it is not simply do we look at the increased
salary and what that increased salary level does to a
particular employee and whether that's an added cost and
whether, as a result of that employee getting a raise, that
employee's supervisor then has to get a raise and that's an
additional cost.
You also have to look at the overtime payments that are
going to be made to the employees that are reclassified as
nonexempt. You need to look at the cost of implementing
timekeeping systems. You need to look at the costs of
additional, frankly, legal advice and H.R. work to determine
what is compensable; what is paid time for employees who are
not used to keeping track of time, who are not used to punching
a clock, who have the freedom to use their computers at home
and mobile devices. And now, for the first time, these
employers are going to have to make decisions on whether that
is paid time and where the particular time begins and ends.
Dr. Foxx. Right, and I want to follow up a little bit on
the adequacy of keeping records. The Labor Department's
guidance accompanying the final rule says, ``There's no
requirement that employees punch in and punch out.'' You talked
about the challenges of sitting in the school pickup line, for
example, and sending out emails or answering a telephone call
before work, after work, miscellaneous things that all of us
do. But to that point, the guidance specifies for an employee
who works a fixed schedule, an employer need not track the
employee's exact hours worked each day. But considering the
ever-increasing threat of litigation on the wage and hour
front, is it ever advisable for employers to forego tracking
hours for overtime-eligible employees?
Mr. Passantino. I mean, it is a huge mistake to say we are
not going to track those hours. Sure, if somebody is always
going to work 9:00 to 5:00 every day, the rule says you can
keep track of time that way and they can mark a box that says,
yes, that is what I worked today. Given the nature of the
employees that are going to fall in this reclassification,
given the nature of the workplace and the reliance on
electronic devices, given the fact that there are lawsuits
filed each and every day over six minutes here and six minutes
there, it is a mistake not to keep track of those hours
religiously for employers to make sure that they are capturing,
you know, whether somebody works eight hours or whether they
work eight hours and six minutes.
Dr. Foxx. Thank you very much. And in my last 13 seconds, I
want to say to Ms. Sharby's comments, she points in here,
``Easter Seals cannot afford to pay overtime and the children
with disabilities that we serve are the ones that will suffer
the most.'' And I think it is really important that we
understand the most vulnerable in our country are going to be
punished by these rules. Thank you, Mr. Chairman.
Chairman Kline. The gentlelady yields back. Ms. Bonamici.
Ms. Bonamici. Thanks so much Mr. Chairman. I see the
Department of Labor's overtime rule as a long overdue update
and I think, Dr. Bernstein, you made clear in your testimony
with your chart that it is long overdue. According to your
testimony, back in 1975, more than 60 percent full-time
salaried employees earned salary levels that qualified them for
overtime pay. Today, it is only 7 percent, and with this
increase it will only go up to 35 percent.
According to the Economic Policy Institute, in my home
State of Oregon, about 124,000 people will benefit. Talking
about this rule, Nicolai from Oregon said, ``I have worked an
average of 55 hours each week for the past year, but since I
have been salaried during that time, I have not been eligible
for overtime pay. This new regulation would mean a raise of
about $10,000 a year for me, which would allow me to invest in
education and build my life and my family.'' You know, across
my state of Oregon, there are many businesses that are
recognizing that they can offer workplace fairness and balance
for their employees and still continue to prosper.
In fact, I just attended a few days ago an event called
When Work Works that was sponsored by Family Forward Oregon and
the Center for Parental Leave Leadership. And at that event,
they recognized many of our forward-thinking employers that
have really been leading the way and providing their employees
with a fair pay, flexible and positive workplace policies, and
they reported that these policies have helped them
tremendously, not only with their bottom line, but with
recruitment and retention.
Now, some have said that complying with this overtime rule
is going to reduce flexibility for employees. I am going to ask
you about that, Dr. Bernstein, but I do not find that argument
persuasive. The Economic Policy Institute report noted that
both the hourly workers now and salary workers making less than
the new threshold say they have little control of their
schedules now anyway. In fact, you know, working people, they
can't have their kids or their parents schedule their illness
around their employer's convenience. It does not work that way
and these are people who cannot afford to forfeit their hard-
earned pay.
So, under the Fair Labor Standards Act, employers can allow
workers to alter their start and end times. They can give
advance notice of schedules to take time off. And the overtime
rule does not change that. And, in fact, to provide
flexibility, we should be working on in this Committee the
Schedules That Work Act, for example, and the Family and
Medical Insurance Leave Act. These would truly provide workers
with the flexible and predictable schedules, as well as joining
the rest of the world in offering paid time off.
So, Dr. Bernstein, I mentioned the flexibility argument
that we have heard here today. Can employers still offer as
much flexibility and predictability under the new rule as they
could under the old rule and can you describe what this
flexibility would look like from the perspective of both the
employer and the employees?
Mr. Bernstein. Yes, I can and I appreciate the question
because I think that, once again, there has been a great deal
of misleading comments made today suggesting that some of the
nuances in the rule are not well understood. One of my
colleagues mentioned that the rule forced employers to move
workers, I quote, ``from salary to nonexempt status.'' That's
simply not the case. Workers can absolutely remain salaried
workers under the rule. I'm sure Mr. Passantino will back me up
on that.
It does mean, of course, that those workers will have to be
paid overtime per hour if they are within the threshold, but
there is nothing that says a worker has to be moved from his or
her salary status.
There has also been a tremendous amount of assertion here
about morale and flexibility. I think we would be well advised
to stick to the research on that and maybe tone down some of
the assertions. I am not sure how it helps morale to pay people
zero per hour for overtime, especially when we are talking
about considerable numbers of hours as we have heard from some
of the members today.
But if we look at the research by Dr. Lonnie Golden, an
economist that looked at this question, he found that contrary
to a common assumption, salary workers, the affected pay levels
appear to have no more ability to take time off for personal or
family matters and that hourly workers at that same annual
earnings level, salaried workers at the affected pay levels, so
at the levels affected by the new rule, either report greater
work family conflict and work stress or report greater
incidence of the conditions associated with conflict and stress
as do hourly workers. Unfortunately, when it comes to
flexibility and morale, there is not a lot of difference
between somebody who is hourly or salaried if you are barely
getting by.
If you are a middle-class family earning the current
threshold, $24- or $25,000 a year, as has been said, you are
near poverty. If you are at the new threshold, you are below
the median earning. So, whether you are salaried or hourly,
morale and stress is a huge issue for you that is resolved when
you no longer get paid zero per hour for working overtime.
Ms. Bonamici. Thank you, Dr. Bernstein. My time is expired.
I yield back. Thank you, Mr. Chairman.
Chairman Kline. The gentlelady yields back. Mr. Carter, you
are recognized.
Mr. Carter. Thank you, Mr. Chairman, and thank all of you
for being here today. I am going to start with General Rounds.
General, first of all, thank you for your service to our
country. I had the privilege of serving as chair of Higher
Education, Senator to Georgia when I was in the State
legislature. So, higher education is very important to me. And
I want to know the impact that this if going to have on higher
education. In fact, I think it is only appropriate that this
Committee know the impact. After all, we are Education and the
Workforce.
And after all, we have dealt and continue to deal with
increased student debt. We have continued to deal with all of
the things to do with student loans and those are things that
are very important to us. I want to know because the American
Council on Education released a statement on May 17 talking
about the effects that this could have on higher education, and
I quote, ``It could have a combination of tuition increases,
service reductions, and possibly layoffs.'' Do you find that to
be true, General Rounds?
Mr. Rounds. I do find all of those assertions to be
possible. And one of the things that I would like to read that
I have available is a statement from our vice provost, who is
responsible for providing student services. And I think this is
very compelling, what he says is, ``What the new rule really
does is impede our ability to customize and personalize the
educational process beginning from the time a student initiates
an inquiry to the time they depart or graduate. The level of
personalization or customization has been a source of
sustainable, competitive advantage for us in a highly
competitive environment as we have emphasized and benefitted
from focusing on the relational versus the transaction aspects
of the work. This rule directly impedes our ability to build
these relationships.''
``In addition, I think it is a direct contradiction to the
national completion agenda as a student's access to and
availability of academic support personnel and services will be
reduced. K.U. needs to highlight decreasing services is more
than reducing operating hours. It will have a profound impact
and an ability to attract, retain, and graduate students.''
Mr. Carter. Right.
Mr. Rounds. And that is tied to the individuals who work
with students on a recurring basis. Many of them were impacted
by this legislation.
Mr. Carter. Absolutely, and we understand that and that is
one of the things we are most concerned with.
Ms. Sharby, I want to ask you, you are an H.R. specialist.
You are an expert at this, years of experience and much
expertise. How is this going to impact you as an H.R. person?
Now, I want to know, you have only until December 1 to comply
with this. I mean, obviously, it is going to have a big impact.
Ms. Sharby. Well, the biggest impact that we have right now
is trying to develop a communication to our employees that we
are going to have to change from exempt to nonexempt status and
how to do that in a way that they don't feel diminished.
They have already spoken to me saying, ``What does this
mean to me? How am I going to do what I want to do in order to
meet the needs of the clients that we serve.'' So, that is one
of our big struggles.
The other thing that we have to do is we are going to look
at alternative ways to pay our employees. Offering overtime
simply is not an option.
Mr. Carter. Okay, very quickly, I have a minute and a half
left. There is one thing that we are missing on this panel
today is small business. I am a small businessman. November 21,
1988, I opened my first retail pharmacy. Dream come true for
me. Went to three banks, not to compare interest rates, but
instead, the first two turned me down. The third one finally
went along with it and loaned me the money. And I want to ask
you, Dr. Bernstein, how many businesses have you run in your
career?
Mr. Bernstein. Actually, I am running one now. I have a--
Mr. Carter. Are you?
Mr. Bernstein. Yeah, yeah.
Mr. Carter. Is it a small business? Is this going to impact
you?
Mr. Bernstein. I have a self-employed business and I
believe--
Mr. Carter. Self-employed business?
Mr. Bernstein. Correct. I have a self-employed business--
Mr. Carter. So, do you have any employees?
Mr. Bernstein.--along--let me finish, please. Along with--
Mr. Carter. I will reclaim my time. Are you the only
employee?
Mr. Bernstein. I'm trying to answer your question, sir.
Yes, I have my--
Mr. Carter. You are the only employee?
Mr. Bernstein. I work for a private employer in the
nonprofit sector. I also have a self-employed business where I
am the only employee and believe me, I hear a lot of the kinds
of--
Mr. Carter. So, you are not going to have to comply with
the overtime rule. You do not have employees.
Mr. Bernstein. I would be exempt from the overtime rule.
Mr. Carter. You would be exempt. As I was--
Mr. Bernstein. I have been--
Mr. Carter. Sir--
Mr. Bernstein.--part of small businesses where I did work
was an exempt employee.
Mr. Carter.--as I was exempt from the overtime rule when I
opened my business and when I was working, not 40 hours a week,
not 60 hours a week. I was working 80 hours a week. I did that
for at least five or six years. The first year, I made nothing.
The second, the third, the fourth year, I made half of what I
had been making before. Now, where were those overtime rules
then? There were no overtime rules then. Mr. Bernstein--Dr.
Bernstein--
Mr. Bernstein. I suspect you were exempt.
Mr. Carter.--have you ever signed the front of a paycheck?
You sign the back of a paycheck. You don't sign the front of a
paycheck.
Mr. Bernstein. No, that is not true.
Mr. Carter. There is a big difference.
Mr. Bernstein. That is not true. I have--
Mr. Carter. That is true, sir.
Mr. Bernstein.--various business endeavors where I--
Mr. Carter. And I doubt that anyone who has had an impact
on these rules--
Mr. Bernstein.--have had to sign the front of the
paychecks.
Mr. Carter.--signs the front of the paycheck. They sign the
back of--
Chairman Kline. The gentleman's time has expired. Mr.
Pocan.
Mr. Pocan. Thank you, Mr. Chairman. Well, I guess I am a
little surprised that we are having this hearing with the name
it has rather than something like Overtime Rule Long Overdue.
Instead, we are having one to question exactly what it is
about. And I do have to agree with Mr. Carter on one thing. You
know, there are about 187,000 people in my district who will
get a raise out of this. I think your state, you are going to
get about 493,000, but when you said it would be good to have a
small person up here, I say that all the time. So often we get
attorneys and this time we do not have all attorneys, but
often, we do not get people actually impacted.
And I think that is one of the questions I lead off with
right away with Mr. Bernstein. If I understood you correctly,
of the rule, are you saying in answer to Mr. Polis' question
that it is about one-half of a percent of people affected are
in the university arena and under 1 percent in nonprofit and
the rest are small businesses?
Mr. Bernstein. Well, what I said was--
Mr. Pocan. Well, not small business, but other traditional
business models.
Mr. Bernstein. I was not saying anything about the size of
business. I was saying that the affected workers within those
industries amount to less than 1 percent.
Mr. Pocan. So, do you know if the nonprofit and the
university sector of employees versus other private sectors, do
you know what percent of that is affected by this?
Mr. Bernstein. So, in the total economy, including all
sectors, less than 1 percent of the workforce is affected in
that, they are between the new and old threshold and they tend
to work--they are current exempt and they tend to work
overtime. That is less than 1 percent.
Mr. Pocan. Sure, the question, though, is how many of that
are in businesses--
Mr. Bernstein. In small businesses?
Mr. Pocan.--other than the U.W.--other than universities
and nonprofits?
Mr. Bernstein. Oh, the vast majority.
Mr. Pocan. See, that was the question because I think that
is the problem is by not having small businesses here, it is
almost like a Trojan horse, right? We are bringing in some more
sympathetic industries, you know, nonprofit universities with a
part of the rule, but we are not talking about the people that
think it is okay to offer someone with a family of four a sub-
poverty wage to work overtime. And that is exactly what that
current level is set at. It is a sub-poverty wage for a family
of four. So, four million people immediately and millions of
others will benefit by this rule and yet the folks we brought
in, quite honestly, there are other issues around.
I heard you, Ms. Sharby, and I heard you loud and clear.
You said Medicare and Medicaid funding, there is no increase
expected in the near future. Would you like to have an increase
in those funds that come to your organization? It is a simple
yes or no.
Ms. Sharby. Yes, I think it would be helpful.
Mr. Pocan. Thank you. And I think the other thing we heard
was from Mr. Rounds, you were talking specifically about it was
going to cost $3 million to do it, but I understood right from
some other previous comments since 2008, there has been, is
that correct, a 22 percent cut to K.U. from your State budget?
Mr. Rounds. That is correct. I do not remember the exact
percentage, but that is about right.
Mr. Pocan. So, you know, Mr. Chairman, I guess what I am
getting at is when we look at the macro level of, you know, at
first, I think it was 354 people then you just told us 92 were
going to get the increase anyway because they are postdocs,
they will be getting it through NIH, et cetera. So, we are
talking about 262 people left, but you got a 22 percent cut to
your budget from your State. I have a state that is doing the
same thing. They just cut $250 million from the university.
Let's look at the big picture here. And the big picture is
we should have a hearing, quite honestly, on all these state
institutions that have not lived up to their obligation to
their students in publicly funded universities. I have seen
articles on this. That is a much bigger dynamic than the 262
people that are going to be affected there.
And, Ms. Sharby, just a quick question on the one-quarter
of 1 percent of your budget that you are going to need to
comply with this. Does that affect people in all four states or
just New Hampshire?
Ms. Sharby. All four states.
Mr. Pocan. So, at four states we have the opportunity to
give people a wage increase who work for your organization for
a really small amount of money. So, I think the whole
contention around who we have here before us does not really
address the fact that there are a lot of small businesses out
there and not even small, it is big businesses, who-- fast
food, et cetera, who are paying people again at sub-poverty
wages that would have to work and not get paid for overtime for
a family of four. That is a real issue and having this
increase, Mr. Bernstein, if I remember right, for decades,
wasn't it adjusted for inflation, wasn't the rate about a
thousand a week that was previously offered?
Mr. Bernstein. Yeah, if you go back to 1975 and you put it
into today's dollar, the threshold was $1,100 per week, about
$57-, $58,000 per year.
And if I may make one quick other comment, I think it would
be a mistake to assume that the general perspective of
nonprofits and higher ed is represented on this panel today.
There are two statements out today, one from a representative
of higher ed, one representative of nonprofits, very much in
support of this rule. So, our draw today was very much tilted
to our tired and nonprofits that are against the rule, but do
not be misled because there are many of those institutions that
are very supportive.
Mr. Pocan. And thank you for saying that because there is a
list of, I think, a few hundred folks, organizations that are
supporting the rule as well. I yield back my time.
Chairman Kline. The gentleman yields back. Mr. Allen.
Mr. Allen. Yes, thank you, Mr. Chairman, and, of course, I
come from the small business world as well and what my
understanding was as far as salaried employees was that was
something that you did to reward them for their achievement. In
other words, you guaranteed them basically 40 hours a week of
work and they could count on that salary. And then, of course,
we also had incentive pay if they performed beyond their
expectations. They received compensation as well and many
times, in our business the compensation exceed the actual
salary. And, of course, there was no--they didn't punch a
clock. I mean, you know, their time was their time. And so now
I am assuming that what we are going to do is we are going to
have this compliance issue as far as these people are
concerned.
My biggest concern is the growth of this economy and, you
know, the economy, it's not growing. As part of Economy Study
Incorporated, this rule has discovered that many employees will
potentially decrease and employers will potentially decrease
employees eligible for overtime protections, base salary and
decrease overtime hours work to compensate. In a time of slow
economic growth, when the government should be promoting policy
that creates jobs and grows the economy, why is DOL encouraging
further regulation that will decrease economic output and
overall GDP growth?
Mr. Passantino, you want to answer that question?
Mr. Passantino. The question as to why DOL is doing this?
Mr. Allen. I mean, at a time when our economy is basically
stagnant. We are growing less than 2 percent sometimes we have
quarters with 1 percent, some quarters less than 1 percent. I
mean, how do we get this economy to a 4 to 5 percent growth? I
mean, I don't see how this rule is going to help.
Mr. Passantino. I am not an economist and on a
macroeconomic level, I do not have any real insight into that.
What I can say is that employers who I have had discussions
with recently, really are struggling with how they are going to
implement this and the decisions that they are going to have to
make, whether they are going to be able to afford to raise
someone's pay; whether they are going to have to reduce salary
on the front end so that they can accomplish the goal of
getting to the same total compensation at the end of someone's
work week.
I would also like to say that the concept that a salaried
exempt employee earns $0 after 40 hours in a week is a fallacy.
And the simple fact of the matter is that employee earns the
salary when they work hour one. So, by that logic, they also
get paid $0 for hour two and hour three and hour four, all the
way up to however many hours they work in that work week. That
is the point of the salary. It covers work from when you start
to when you end in any particular work week.
Mr. Allen. Mr. Rounds, as far as your university, I mean,
again, you know, you are trying to educate people to go get a
good job. How is this going to affect your ability to do that?
I mean, are you going to have to cut back on the number of
students, or are you--what are you going to do to deal with
this?
Mr. Rounds. Sir, as I mentioned, we will likely change the
status of many of the employees that are impacted by the law.
Mr. Allen. Many of those hourly, to an hourly rate?
Mr. Rounds. Move them to a nonexempt status, so they
would--for anything over 40 hours that we have to pay them
overtime. As Dr. Bernstein has pointed out, there are multiple
options that we have, but the bottom line is anything over 40
hours we have to pay them. And if that is true, many of these
employees right now have very flexible approaches to doing
their jobs. And those flexible approaches are tied to meeting
the needs of students and our concern is that they will lose
that flexibility and, therefore, they will not meet the needs
of the students in the same way, which obviously reduce the
services and impacts the quality of the education that we can
provide.
Mr. Allen. Well, I am just about out of time. Ms. Sharby, I
want to tell you how much I appreciate what the Easter Seals
does. I am a former president of the Augusta Easter Seals Board
and great work. We are actually making folks who basically
cannot do a job. We are teaching them how to do jobs and
putting them to work. And I think that is what America is all
about and I appreciate your service. I yield back.
Chairman Kline. The gentleman yields back. Mr. Takano.
Mr. Takano. Thank you, Mr. Chairman. The Department of
Labor's update to the overtime rule is long overdue and,
according to the Economic Policy Institute, would benefit
1,076,000 working people in my home state of California. I
would like to point out that this update will directly benefit
my colleague, Mr. Allen's state, by 493,000. Nearly half a
million people of Mr. Allen's state would benefit from this
rule.
The overtime rule is one of the most significant actions
the administration has taken to support working families and
fight income inequality. While we can get bogged down in
details, it is important not to lose sight of the millions of
workers and their families the rule will help, workers such as
Soledad, a member of Mom's Rising and a mother of four from
California. Soledad wrote in support of the rule saying, ``I
work as a salaried employee and always work more than my
regular 40 hours a week. My usual weekly hours can amount to 50
or 60 hours a week and I do not get paid for the extra time.
Sometimes I work 12 hour days without compensation due to being
salaried. This has got to stop for people that work more than
40 hours a week. Overtime takes away the quality of life with
our families. We are too tired to do anything with our families
and are still not being compensated.''
According to the Economic Policy Institute, 12.5 million
salaried workers such as Soledad will directly benefit from the
rule. It helped 6.2 million women, 4.2 million parents, and 5.5
million workers between the ages of 35 and 54.
Well, changing gears, as we have heard this morning, the
FLSA does not contain a specific exemption for nonprofit
organizations, but that does not mean that there is no nuance
in how the rule will apply to nonprofits. Dr. Bernstein, can
you provide some examples of nonprofit institutions? Are all
nonprofits small entities that are engaged in charitable work?
Mr. Bernstein. Some nonprofits, and this is something I
speak to in my testimony, including social welfare and some
educational institutions are exempt based on characteristics of
the institutions themselves and the workers within them.
Although typically, somebody in there is probably going to be
nonexempt. The DOL has worked hard, however, to both provide
guidance and accommodate some of these concerns, as is
mentioned for the Medicaid funded providers is a service for
intellectual development disabilities, the new rule does not
take effect for three years and, in addition, higher education
institutions worry about the effect of their postdocs are
comforted by this national research award point I have been
making where NIH will raise the grant level to the new higher
cap.
Mr. Takano. Okay, as a follow-up, can you talk about
enterprise coverage and the types of nonprofits that are exempt
under the provision?
Mr. Bernstein. Sure. Based on the nature of their
activities and whether they involve revenue-generating sales of
above half a million dollars. Some nonprofits or individual
workers at those nonprofits may be exempt from the new rule.
This has a lot to do with the extent to which you are operating
something that looks a lot like a business within a nonprofit.
So, to the extent that you are generating revenues by making
sales that go over a half a million dollars, you would be
covered, but if you are doing volunteer activities, you are not
engaged in the type of work that looks like a business that
would be covered, then your institution, your establishment may
be exempt.
Mr. Takano. So, plenty of nonprofits are exempt and it is
just that, that $500,000 level. Thank you. It is important that
we look at the numbers here. According to the Department of
Labor analysis, only 1 percent of employees at nonprofits who
will be affected by the rule regularly work overtime. Is that
correct, Dr. Bernstein?
Mr. Bernstein. That is right.
Mr. Takano. Well, it is an adjustment, but it is not a
burden nonprofits cannot handle. In fact, I would like to ask
unanimous consent to insert in the record a letter from nearly
140 nonprofits that write in support of the final rule and who
are committed to complying with the new regulations.
Chairman Kline. Without objection.
Mr. Takano. Thank you. Dr. Bernstein, would you like to add
a little more to just the idea of the number of nonprofits that
can comply?
Mr. Bernstein. Well, I think that the points that we have
heard from both Ms. Sharby and Mr. Rounds are very important in
the following sense. Their problem is not with the rule, it is
with the fact that their funding has often been cut. So, if you
are talking about an education system that is taking a 20
percent cut in its support, they are going to have all kinds of
problems of which this rule is the least of them. What we are
trying to do here is establish fair pay for fair work and that
is a separate problem from the fact that, in many ways,
Congress and State legislatures, especially in Kansas where
they have aggressively cut taxes, are underfunding their
university system.
Chairman Kline. And the gentleman's time has expired. Mr.
Thompson.
Mr. Thompson. Mr. Chairman, thank you so much for this
hearing. You know, to me, I have heard the word ``poverty''
mentioned a lot and I would be hard pressed--I do not think
there is anyone on either side of the aisle is not concerned
about that issue, is not concerned about providing
opportunities for--a greater opportunity for success, for
realizing the American dream, which really is greater
opportunity. But the pathway to greater opportunity and out of
poverty is not an arbitrary executive branch dictate. I am
sorry. It just does not work. Those cookie cutters rarely work.
They usually wind up with unintended consequences and make
matters worse for people and that is what we are trying to
defend and push back on here.
To me, rather it is really looking at a pathway out of
those situations, a pathway for Soledad, a mother of four that
I just heard about, and I have met lots of those folks just
like that. You know, around my congressional district, they
need a pathway. They need something like, quite frankly, I
shamelessly plug it, a career in technical education training.
And with the Chairman's support, I think everybody on this
Committee is going to have an opportunity to talk more about
that in the days to come here, hopefully, before we leave, you
know, before that third week in July.
And so, you know, my first question is for Ms. Sharby.
Tina, I have just this past weekend, I had the privilege of
speaking at the closing ceremony at the Pennsylvania Special
Olympics Games, 2016 Games, which I love organizations like
yours, like Special Olympics. I am a long-time Scouter, so I
look at the hours, the evening hours, the weekends I have been
involved doing my part as a volunteer. I know how important it
is to fund the mission, you know. And I look at the good that
it has done, which is amazing with those resources, and I
looked at the quality of individuals.
Last week, I was at a Goodwill facility up in Erie County
and I look at the job training that goes on there. So, my
question for you is, first of all, thank you for your
tremendous work you do as a part of the nonprofit community.
And organizations like yours, I have mentioned some of those,
Easter Seals, Special Olympics, Goodwill, the Boy Scouts of
America, the Girl Scouts, they help boost the quality of life
for so many people and families every year. And as legislators,
we should be working tirelessly to support your mission, not
making it harder for you to succeed.
Given the widespread presence of Easter Seals across the
United States, and as a former rehab professional, I work very
closely with the Easter Seals, when I had a real job is the way
I like to describe it. How will the final overtime rule affect
the ability of individuals to access crucial services,
specifically in rural and underserved areas?
Ms. Sharby. Thank you for the question. It is a really good
question. I can give you the example of our care coordinators
and our military and veteran services programs. The individuals
that we serve work very closely with the care coordinators and
they develop a relationship where trust does not come very
easily amongst that population that we serve. So, we are
looking at potentially having to develop an on-call system
where only one of eight of our coordinators would be on call
for the week because we cannot afford to pay the overtime. It
is a non-funded program that we run.
The concern that we have about that is now the person that
needs the emergency help maybe in the middle of the night,
losing their home or thinking about suicide, they are going to
that on-call person who might not be their care coordinator,
they are not going to want to talk to them. They want to talk
to their care coordinator. That is where we think that the
services are really going to impact the individuals that we
serve.
Mr. Thompson. How important is that at a time of crisis,
because that is what you have described? And you cross that
over to agencies, nonprofits are facing manning suicide
hotlines and services, children in youth, how important is it
to have the right person available at time of crisis when
people actually reach out?
Ms. Sharby. It is literally the difference between life and
death.
Mr. Thompson. I do not think an arbitrary executive--it
would be a shame to see the loss of lives as the result of some
executive branch action.
Mr. Passantino, the Department of Labor's final overtime
rule includes an extremely narrow, non-enforcement provision
for entities which provide Medicaid services for disabled
individuals and facilities of 15 or fewer beds. Given your
expertise, can you speculate on how many employers or employees
this provision would actually help? And additionally, would
these employers be protected from legal action during this non-
enforcement period?
Mr. Passantino. I am not sure to your first part of the
question about how many will be impacted, but I suspect it is
very small. The more consequential pieces, a non-enforcement
policy does not mean the regulation is not in effect. It means
that the Department of Labor is not going to take any
enforcement action against someone based on those regulations.
The private rights of action continue to exist and that non-
enforcement policy does nothing to the private right of action.
Mr. Thompson. So, the bull's eye would be put on the backs
of those agencies for frivolous litigation. Thank you.
Chairman Kline. And the gentleman's time has expired. Ms.
Clark.
Ms. Clark. Thank you, Mr. Chairman, and thank you to all
the panelists for joining us today. I have to say, I want to go
back to the comments of my colleague, Mr. Pocan, and say I feel
like we are missing in this discussion some of the macro
issues.
Of course, it is critically important that our veterans,
that the clients you serve, Ms. Sharby, are able to talk to
their case manager when they are in crisis and that the
students--and that we are lucky enough just yesterday to join
K.U. in a discussion of the critical importance of funding
scientific research at our incredible universities across the
country, including Kansas. But it is not the overtime
regulations that are going to cause a loss of life, as my
colleague just stated. It is so many other economic pressures.
And if we want to create a robust economy one of the best ways
to do it is to help address income disparity, to help address
stagnant wages, the overwhelming cost for many families of
child care and of housing and transportation.
These are the big macro factors that are coming to play,
and really causing a hard time for many nonprofits to deliver
their critical services, of which Easter Seals, certainly in
New Hampshire and around the country, delivers critical
services as do our institutions of higher education, and those
issues are the ones that we need to offer this critical relief.
In Massachusetts, with the overtime, new regulations are
going to mean for working people in my State are 262,000 people
are going to get a raise. That is a real benefit. That is a
real help to all of you at the table. In Mr. Thompson's state
of Pennsylvania, 459,000 people will be able to have a raise
due to these regulations.
So, I think that we have to remember to look at the overall
economic picture and what are those levers that we need to move
to bring that relief. Because I don't believe that it is the
overtime rules that are going to cause your ultimate staffing
and your ultimate woes at K.U.
Dr. Bernstein, I wanted to start large and then go to
detail. But I do believe that this is a critical piece of
addressing income inequality as you mentioned in your
testimony. What are some other factors and policies that we
should be looking at to address that?
Mr. Bernstein. The minimum wage has been stuck at $7.25,
this was mentioned earlier, at a Federal level since 2009.
Raising that would certainly help lift the fortunes of low-
income workers. There is some bipartisan support for another
idea that would help low-income workers, which is expanding
their earned income tax credit to reach childless adults who
now get very little from that.
In terms of tightening up the job market, we really could
use a deep dive into infrastructure investment. The erosion of
unions has really hurt the bargaining power of lots of middle
class workers. But I very much take your point about the
connection to the overtime rule as well. You remember the chart
from my testimony shows that when inequality was a lot lower
than it was today the threshold was a lot higher, and vice
versa.
Ms. Clark. And specifically, I also think that one of the
pieces that we are going to help address is the pay equity gap
for women. What do you see the role of these new rules in
helping with that as well?
Mr. Bernstein. Well, a slight majority of those affected by
the new rule are women. By the way, a much more significant
majority affected by a higher minimum wage are women, because
women are disproportionally low wage workers as well. So I do
think that this is a help in terms of gender pay equity.
I would also note, not on the gender side, but Mr. Rounds
might appreciate this, according to DOL numbers, 80 percent of
the workers, of the affected workers, helped by this increase
have at least some college education. So it is actually a real
boon to the people that K.U. and other institutes are training
and sending out into the workforce, where they will be
compensated for their overtime by dint of the new rule.
Ms. Clark. And I have certainly heard--I appreciate you
mentioning the minimum wage. It is something I certainly
support, but we also have to look beyond that and look at our
higher and mid-income earners.
Mr. Bernstein. Absolutely.
Ms. Clark. And I think this gets to that point.
Thank you very much and I yield back.
Chairman Kline. The gentlelady yields back. Mr. Grothman,
you are recognized.
Mr. Grothman. Okay, I am sorry. I am updating my notes
here. I am just finishing up on the questions of Congressman
Takano. I got to talk to him later about how many men are going
to be helped by this new rule. Maybe I missed it.
Okay, questions. I am trying to think how this rule would
impact--I look at past jobs I have had. I have heard from the
golfing industry, but there could be a variety of jobs that you
have it is a lot busier one time of year than another time of
year. Maybe it gets busy at the end of the year. Maybe it gets
busy during tax season, whatever.
And, you know, when you go into the job there is sometimes
you are going working 50 hours a week and other times you might
just be hanging around the office and not getting a lot done.
Well, that is because of the expert on the bill.
Dr. Bernstein, how do you think this affects how those sort
of jobs work if I hire somebody knowing that some days are
going to be super busy, other days not so busy? I think it is
kind of going to mess up those businesses and hurt those
employees. What do you think about that there?
Mr. Bernstein. Well, I disagree. I mean, I think you have
to look at the record. Certainly, the last time we increased
the threshold, the slight increase in 2004, you can see that on
my chart, we didn't see those kinds of impacts. I do think that
when it comes to people with variable schedules, as you
suggested before, remember the rule does not get invoked until
they cross 40 hours. So there are ways to work around that for
employers.
Mr. Grothman. Right, well, not to cut you off, I think
there are jobs in which you are expected sometimes to work 55
hours a week and other times you can take off and work 28 hours
a week. And that is the nature of the real world. You know,
there are times that are busy, times not so busy. You know
getting involved, you are a salaried employee. There are
sometimes you are going to work and get it done and sometimes
they don't. It seems it is going to make it very difficult for
those sort of workers.
Mr. Bernstein. Again, I mean, I think you make great points
and I agree with your points--
Mr. Grothman. I think so, too.
Mr. Bernstein.--and I agree with the way you characterize
this, but if you go back to the 1960s, 1970s, remember the
threshold was $1,100 in today's dollars and the unemployment
rate was lower than it was today. Productivity growth was
faster. So there is no evidence of the kinds of disruptions
that you are suggesting.
Mr. Grothman. Okay, I will give you another thing that
concerns me when I think of people in these jobs. What it is
going to do is it is going to put pressure on to get out the
door at 4:30 or 5:00, or whatever. There are times when you are
working on a project where you might say, jeez, in another
half-hour, hour I might get this right. I just want to make
sure I get it done right.
Instead, you are going to get pressure from your employer
to get out the door. Are you afraid it is going to result in a
worse work product because this is what is going to happen?
Mr. Bernstein. Well, again, if we are talking about--the
kind of workers you are talking about sound a lot to me like
people like myself and maybe yourself as well. You know, we are
exempt, so that is not really relevant.
Mr. Grothman. No, no, no. All sorts of people under $52-,
whatever it is, $51,000 want to get their job done right.
Mr. Bernstein. Forty-seven.
Mr. Grothman. Want to get their job done right. Okay, if I
am making 46 grand a year and I am hired to do something and I
feel things are not getting done right and I want to hang
around another hour to make sure that report is right--
Mr. Bernstein. So I guess I don't see anything inconsistent
with what you are saying. And again, I think you are raising
great points. And the idea that worker has to be paid time and
a half for that extra hour because there is something called
the 40-hour work week that was enshrined in the Fair Labor
Standards Act of 1938, and is more relevant today than it was
then in my view, given the issues around bargaining power and
the extent to which middle-wage workers have been hurt.
Mr. Grothman. Look, if I have a job I want to make sure I
get those things done right, Okay?
Mr. Bernstein. Mm-hmm.
Mr. Grothman. In part because of the customers, in part
because of my boss. Okay, what you are doing here, or the
people who put together this rule, are you creating an
environment in which the boss feels you better get out the door
at 4:30 p.m.
So, put your employee in a position in which either I
submit the report on a so-so, not sure it is right basis or get
my boss mad by hanging around until 5:30 p.m. to go over it
again to get it right? I mean, there are certain jobs that are
salaried by nature, in which you work until you get it done.
Are you not afraid you are putting those employees in a bad
situation?
If I am an employee like that, I want to hang around that
business as long as I can, I want to grow with the business. I
don't want to be in a position in which I have to choose
between turning in a lousy report at 4:30 or getting my boss
mad at me because I had to hang around until 5:00.
Mr. Bernstein. Well, with respect, I think we have to
distinguish between the kind of compelling story you are
telling me and the actual numbers about who is going to be
affected here. We are talking about 3/100 of a percent of the
national payroll.
Now, you may just believe that we should not have a 40-hour
work rule for covered workers under the FLSA and that is just a
fundamental disagreement between us, but in fact the economy
has performed perfectly well with thresholds far above today's
levels.
Mr. Grothman. I will give you another question. It occurs
to me that what is going to happen here is you are going to
make the workplace less friendly. Okay. Right now, I think
sometimes people may hang around past 4:30, maybe it is a more
easy going workplace. Maybe at the end of the day employees are
talking with each other about who knows and they know they can
hang around until 5:30 p.m. and 6:00 p.m. and get the job done,
if they have to work to 5:15 they can talk about, I don't know
where you are from here, the Redskins or whatever.
Instead it is going to be, we have to get out the door by
4:30 pm. Do you not think it is going to make for a less
friendly, more intense work environment?
Chairman Kline. All right, the gentlemen's time has
expired. Ms. Davis.
Ms. Davis. Thank you, Mr. Chairman, and sticking with some
of the flexibility issues there, because I think that we have
the notion that somehow because we are in the 21st century and
that we do use electronics and we do provide different ways of
flexibility that this would all stop. And, you know, Dr.
Bernstein, you were starting to comment on that.
Mr. Bernstein. Yeah.
Ms. Davis. Can you tell us why is that not going to be the
case?
Mr. Bernstein. Well, I mean, I guess I would say first of
all, following up on the discussion we were just having, it
does not really create a flexible or high morale or welcoming
workplace when somebody is misclassified as an exempt worker
because they are called an assistant manager and they work 5,
10, 20 hours for zero extra pay when they should be getting
time and a half overtime. In fact, as I discussed earlier in my
testimony, instead of assertions about these flexibility
issues, research done by Professor Lonnie Golden has found that
if you actually look from survey research at the kinds of
flexibility, the sort of work-family balance flexibility that
hourly and salaried workers have at around the cap, around
$50,000, it is about the same. So there is no evidence that
moving someone from nonexempt to exempt coverage would reduce
their flexibility. What it would increase is their pay when
they work overtime and that is critically important.
Ms. Davis. Yeah, I think one of the points made also with
the NIH is that many of our young scientists are going to be
affected in a more positive way with this new rule rather than
negatively.
Mr. Bernstein. Well, that is a good point. I have talked to
at least one postdoc who said he likes the rule a lot, in no
small part because the NSF, as I have mentioned, is raising the
grant level to meet the higher cap.
Ms. Davis. Right. One of the articles--The New York Times
had an article, just the other day. You all may be familiar
with it without talking about the Prada Economy or the Prada
Industry, and the fact that we do have a lot of low-wage but
high-potential jobs that young 20-somethings, for example,
might be willing to take. They are obviously engaging with
people in a way that pushes them.
They want to show their aggression. They want to show that
they are ambitious and they are going to stay on the job just
as long as they can in the hopes of looking good, quite
frankly. That is what people do, and that is perfectly
acceptable. But we also have to know that those kinds of jobs
may possibly affect demographics differently by those who can
afford to do that more than those who cannot. Maybe young
people can do it more, especially if they have a lot of support
at home, versus people who have a family at home and trying to
work in that fashion does not suit them. Do you think that, in
fact, as we are looking at these issues that some of these new
overtime rules could possibly change the socioeconomic
diversity of the workforce in this so-called Prada Industry?
Mr. Bernstein. Well, I certainly think it is possible. I
think it is important. I don't know that we have quite gotten
to this in the hearing so far, to note the rule will
disproportionally help some of the types of workers you are
talking about; black and Hispanic workers are disproportionally
affected. They are 21 percent of the salaried workers, but 28
percent of those who would directly benefit from the new
threshold, and millennials between the ages of 16 and 34 will
also disproportionally benefit. They are 36 percent of the
affected group and 28 percent of the workforce. More than a
third of all workers with less than a college degree will be
directly affected and that will also help over seven million
children. And as I mentioned there is a slight majority of
workers who are helped who are women.
Ms. Davis. Right. What is the benefit of that? Of
diversifying?
Mr. Bernstein. Well, I think there is a tremendous benefit
to that diversity. If I may wax philosophical for a slight
second here, I am struck by the fact that we are now in a
country that has twice elected an African-American President
and now has nominated to a major party for the first time a
woman. I think this type of diversity is extremely healthy and
I also think the extent to which minority workers have been
hurt through the erosion of labor standards, whether it is
minimum wages or the overtime threshold, cannot be over-
exaggerated either. And this rule is an important correction to
that.
Ms. Davis. Thank you. I appreciate that and I know others
have talked a little bit about the work-life balance and
whether there is something to be said for having people be more
productive when that work-life balance does come into
consideration. Would you all agree that there is something to
be said for that?
Mr. Bernstein. I would.
Ms. Davis. I see some nods, but, okay, all right, thank
you. We do need to, I think, realize that in some ways this
really is forcing people to manage the productivity in
businesses and I think that is very positive for all of us.
Chairman Kline. The gentlelady's time has expired.
Ms. Davis. Thank you, Mr. Chairman.
Chairman Kline. Mr. Rokita.
Mr. Rokita. I thank the Chairman. Mr. Passantino, what do
you think the best way is to manage productivity in a business?
Mr. Passantino. To let people work.
Mr. Rokita. Manage to a profit motive perhaps?
Mr. Passantino. Sure. I mean they want to be profitable.
That is the point of the business.
Mr. Rokita. Efficiency, manage to effectiveness, those
kinds of things.
Mr. Passantino. Sure.
Mr. Rokita. Those principles apply to urban areas as well
as rural areas, I grasp, correct?
Mr. Passantino. True.
Mr. Rokita. I represent a lot of rural areas, a lot of
suburban areas, a lot of small towns I am very proud of and
they are great places. What is the effect of this rule on
places like that?
Mr. Passantino. I think it disproportionally affects those
rural, nonurban areas. We have already seen clients who have--
it is the same position, people are performing the same work.
So, there is no question the duties qualify for the exemption.
Right? So the duties tests have not changed. They are exempt
now; they will be exempt under the revised salary test.
But some of their workers work in urban areas and earn an
excess of $47,000, and some work less--I am sorry, earn less
because they live in rural areas. So what you have is the same
exact position and people earn above and below the new
threshold, which fundamentally indicates that not everybody
earning under $47,000 is not performing exempt work. There are
plenty of people under 47,000 who are performing exempt work,
which is sort of the point of the salary test.
The salary test is supposed to screen out all of the
clearly nonexempt people and then you go to the duties test to
see whether they meet the rest of it.
So, what you have is a situation where you are including
people who clearly meet the duties test and now employers have
to decide what is, frankly, not a great decision. They have to
raise everybody up to that $47,000, which means that they are
going to have to raise the people over $47,000 as well. They
can convert the entire workforce to nonexempt in that position,
which is not the best solution for them, or they can have a
split position and they can have some people being nonexempt
and some being exempt and that is a recipe for disaster.
Mr. Rokita. Yeah, because in your experience inside that
workforce, folks that you represent, what would that do?
Mr. Passantino. Well, you are going to run into situations
where the exempt person can stay until 5:30 or 6:00 p.m. and
get the job done. The nonexempt person is going to be limited
in their overtime hours.
Mr. Rokita. To Mr. Grothman's earlier point, that cannot be
good for morale. I mean, that cannot be good for running a
business or working at one like that.
Ms. Sharby you are nodding your head. I will indicate that
for the record. Do you want to add something?
Ms. Sharby. Well, I struggle because I am honestly not sure
how Easter Sales is going to be able to absorb these changes.
We run with maybe a 1 percent budget margin. The difference
between in the black and being in the red, so--
Mr. Rokita. And just to be clear in my opening comments you
are a nonprofit.
Ms. Sharby. Nonprofit.
Mr. Rokita. So the ``profit motive'' is the ability to stay
in business, right?
Ms. Sharby. Correct.
Mr. Rokita. If you are not making positive revenue--if you
are nonprofit you cannot be there. Correct?
Ms. Sharby. Correct. And currently in the State of New
Hampshire we have a 2.6 percent unemployment rate. So it is not
a matter of saying that I will bring in more employees and not
pay the overtime. I just do not have employees to bring in,
into the State. So the moral issue with our staff is
significant. We have people who feel that, just yesterday,
said, what does that mean to me? I am used to going and helping
out at certain events. I like to go to some of the kids'
birthday parties or graduations.
Mr. Rokita. Nope. Nope, cannot do that.
Ms. Sharby. I cannot pay you to do that now. And that is
really very tough to be--and it impacts the quality of the
services we are able to provide.
Mr. Rokita. And so my question about the rule nature of my
district, I think, correct me if I am wrong, either the two of
you that spoke already, applies regionally?
Ms. Sharby. Right.
Mr. Rokita. I mean, there are differences in regions of
this country that rule or not that would--what you are
testifying to would have the same effect. Is that correct, Ms.
Sharby?
Ms. Sharby. That is correct. So if an average salary in New
Hampshire is $35,000 and we used to have business in New York
that same salary would equate out to a little over $50,000 in
New York. But yet, New Hampshire is forced to comply with the
higher salary.
Mr. Rokita. Unbelievable. Mr. Passantino, last word.
Mr. Passantino. I think that is exactly right. You are
going to see differences in how people are treated based on
where they are or employers are going to have to make some very
difficult decisions.
Mr. Rokita. Central planning at its worst. I yield, Mr.
Chairman.
Chairman Kline. The gentleman yields back, Ms. Adams.
Ms. Adams. Thank you, Mr. Chairman, and thank you for your
testimony. The Department of Labor's update to the overtime
rule is long overdue. And according to the Economic Policy
Institute, it would benefit 425,000 working people in my home
State of North Carolina. I want to begin by asking Mr.
Passantino, you served in the Labor Department under President
Bush. How much time were employers given to comply with the
2004 change to the rule?
Mr. Passantino. I believe the effective day on the 2004
rule was 120 days. But that rule was really catching up, fixing
some issues that had existed in the salary test. There were two
tests at that time. One of them was basically nonfunctioning.
No one used it. So it really was a catch-up whereas this is
clearly jumping over a large number of people who perform
exempt duties. And so it is going to be far more difficult
under the current rule for employers to come into compliance.
Ms. Adams. But the current rule, though, does provide an
additional two months to come up with compliance, which was
beyond what the Bush Administration provided for, is that not
correct?
Mr. Passantino. The current rule provides approximately six
months, I believe, for employers to get into compliance.
Ms. Adams. Okay, so that is more. Mr. Bernstein, we talk
about a better outcome for employees. You have made some
comments about that. Can we, with the better outcomes for
employees, can we expect that this will lead to better outcomes
for employers?
Mr. Bernstein. Well, certainly in the past, as I have
mentioned, in fact, I would take issue with one of the things
my co-witness Mr. Passantino just said. The new rule simply
partially replaces the extent to which inflation has eroded its
value since the mid-1970s. If you look at the value in today's
dollars of the overtime threshold, the level, it would have
been about $1,100, $57-, $58,000 per year. Now we are talking
about $913 per week or about $47,000 per year. So it is a
partial adjustment. And, in fact, to speak to your question,
when the rule was in effect unemployment was low, GDP growth
was faster than it is today. Productivity growth was faster
than it was today. I don't know that worker morale was
negatively impacted at all.
In fact, one of the things that numerous analysts predicted
from looking at the rule based on past history-- not based on
assertion, not based on what you think might happen, but based
on research driven by what has happened in the past when we
have changed thresholds-- the expectation is that there will be
some number of new jobs created at straight-time pay. Maybe
100,000 according to Goldman Sachs, maybe 150 or so according
to the National Retail Federation. I think this is positive for
the economy and positive for the workplace.
Ms. Davis. Thank you, Mr. Rounds, and thank you for your
service, sir. You mentioned that workers cared more about their
exempt status than getting paid for the time they work. Well, I
find all the discussion around higher education fascinating
because I served 30 years, 40 years in academia. But, you know,
the people that I talk to really find it demeaning and
demoralizing to be asked to put in extra hours at work for no
pay. What would your response be to that?
Mr. Rounds. First, I would like to say thanks for your
service in academia. Obviously it is essential to the country
and we appreciate your willingness to work in the academic
sector. I would say that as I look at the employees at the
University of Kansas and I look at the ones that we are talking
about who are primarily responsible for providing services to
students, the ones that would be impacted by this legislation
is that their passion is for positive outcomes for students.
They will lose some of their workplace flexibility and their
lack of ability to meet the needs of students will be of great
concern to them. I have talked in my testimony that is most
important, the culture of higher education and being able to
serve our primary customer, our students. That will be eroded.
Ms. Adams. Thank you, Mr. Chairman. I believe I am out of
time. I yield.
Chairman Kline. The gentlelady yields. Mr. Jeffries.
Mr. Jeffries. Thank you, Mr. Chair. Mr. Passantino, would
you agree that the 40-hour work week has become a classic part
of the American Dream?
Mr. Passantino. I do not know that I would describe it as
that.
Mr. Jeffries. So it was enacted into law in the late 1930s
as part of the New Deal, which was part of the effort to make
sure that we have a more even playing field in terms of working
class, middle class Americans. Correct?
Mr. Passantino. It was enacted in the late 1930s, I think,
to make it more expensive for people to work more than 40
hours.
Mr. Jeffries. You think the objective of President Franklin
Delano Roosevelt was to make it more expensive for people to
work more than 40 hours a week? That was his objective, part of
the New Deal?
Mr. Passantino. Well, the second part of that is that makes
more people work for the same amount. So you can pay at a
straight time.
Mr. Jeffries. Now, you were part of the Bush
administration, correct?
Mr. Passantino. That is correct.
Mr. Jeffries. And do you think that President Obama and his
administration, his policies-- whether that the Affordable Care
Act, whether that is the Dodd-Frank legislation that was passed
into law, whether that is the overtime rule -have been job
killing?
Mr. Passantino. Have they been job killing?
Mr. Jeffries. Right.
Mr. Passantino. I think that they have.
Mr. Jeffries. They have?
Mr. Passantino. Yes.
Mr. Jeffries. So, you spent time in the Bush
administration, which brought us two unfortunate wars and tax
cuts to benefit the wealthy and the well-off. But also,
presumably, you made your best efforts to be part of an
administration that was going to improve the employment
situation in this country. Correct?
Mr. Passantino. Correct.
Mr. Jeffries. But the eight years under President Bush we
lost 650,000 jobs, correct?
Mr. Passantino. I do not know the figures.
Mr. Jeffries. Okay. Under President Obama's seven and a
half years we have actually gained 14 plus million jobs in the
private sector, correct?
Mr. Passantino. I do not know the numbers on that either.
Mr. Jeffries. But you are here as an expert to talk to us
about employment and the impact of this rule and you do not
know these basic numbers, including the ones that relate to
your time being spent in the Bush administration. Is that your
testimony?
Mr. Passantino. My testimony and my expertise is on
advising clients how to deal with these issues and so on, on a
very micro level. I have a very good understanding of how that
works. On a macro level I don't have that data.
Mr. Jeffries. So on a micro level, you think that the 40-
hour work week, which is working five days a week, presumably
Monday through Friday, 9:00 to 5:00, is not part of the basic
American Dream in terms of being able to work hard, earn a good
living, but also be there as a father, as a mother, as a son or
daughter to a parent or grandparent that may be ailing to have
a good work-- life balance? You have a problem with that?
Mr. Passantino. I believe that I am living the American
Dream and I am not subject to a 40-hour work week, so, yeah, I
think it's possible that the 40-hour work week is not an
inherent part of that.
Mr. Jeffries. Okay. Mr. Rounds, thank you for service in
terms of working in the academic realm. Higher education is
incredibly important. A few things you talked about that in the
limited time I have I would like to touch on, you said that the
University of Kansas is a not-for-profit public university. Is
that correct?
Mr. Rounds. That is correct.
Mr. Jeffries. And so presumably, what you ultimately strive
to do is provide some form of public benefit to your students,
but also in the context of being part of the State government
out in Kansas. Is that correct?
Mr. Rounds. Correct.
Mr. Jeffries. And you said 262 employees of Kansas
University would be impacted by the overtime rule, is that
right?
Mr. Rounds. Actually 354, 92 of those are postdoctoral
employees who we have made the determination to raise their
salaries to the new threshold.
Mr. Jeffries. Okay, so that means that they are actually
going to put more money in their pocket at the end of the day.
That will either go into the economy or go to the benefit of
their families. Is that right?
Mr. Rounds. That is correct. But at the same time, as we
looked at the fixed grants that their principal investigators
are responsible for managing is the concern. This has also been
expressed by the Postdoctoral Association as we are not going
to be able to maintain the same number that we have had in the
past, which you can argue will have an impact on research.
Mr. Jeffries. Okay. I mean, I would simply say I think K.U.
is a great university, great basketball program. I mean, it
does interest me that, I believe, Bill Self earns about
$230,000 directly from the university and as I understand it $3
million in total salary, and that the chancellor of the
university earns approximately $510,000 per year. So I think
maybe there needs to be a reassessment of priorities before the
complaint is directed at the effort of the Obama administration
just to make life better for working families.
Chairman Kline. And the gentleman's time has expired. All
time for questions has expired. I want to thank the witnesses
and turn to Mr. Scott for any closing remarks he might have.
Mr. Scott. Thank you, Mr. Chairman. As the gentleman from
New York just indicated, in 1938,-- 1938-- Congress established
40 hours as a normal work week. And if you make more than that,
you are supposed to get time and a half. After 40 hours, if you
work more, you are supposed to get more. The law covered about
60 percent of salaried employees back then, but because we have
not updated the laws we should have, now only 7 percent of
salaried workers are covered. This new regulation will increase
it to 33 percent.
We've heard a lot from colleges. We have not heard enough
about all the exemptions in colleges: teachers, grad students,
many coaches, many academic administrators, all hourly
employees not affected by this law. In fact, Department of
Labor estimates that only 3.4 percent of college workers will
be affected. In 0.5-- one-half of 1 percent would be both
affected and usually work overtime. One-half of 1 percent of
college workers. To honor the 40-hour work week you are only
talking about one-half of 1 percent-- of workers that will get
a little extra when they work over 40 hours.
We also heard from Easter Seals honoring the 40-hour work
week, rather than working people without pay after 40 hours
would cost less than 1 percent of the budget. Suggesting that
people are going to die because you cannot work people more
than 40 hours is obviously absurd. And also you could be more
honest; if you expect them to work 60 hours a week, you can
restate their salary, expect them to make the overtime and they
would get the eventual salary that they are expecting to get.
But it would be more honest to say what it is for the 40 hours
and more than that after that.
Now, some of this Committee think that we should honor the
40-hour work week, and if people work more than 40 hours they
should get paid for additional hours. The rule means, as I
said, one-third of salaried employees will benefit from the 40-
hour work week: up from 7 percent, but way under the 60 percent
who were covered in the 1970s. And incidentally, businesses,
colleges, and nonprofits complied with those regulations
without complaint.
So, Mr. Chairman, I hope that we will honor the 40-hour
work week. We actually ought to get above the 33 percent I
would have hoped they would have done more, but they've done
what they've done.
Chairman Kline. And the gentleman yields back. I thank him
for his comments. It has been a good discussion today. I am
always fascinated how we hear statistics here. We've had a
number of my colleagues on this side of the aisle have been
citing how many more people are going to be getting raises and
work from a far left-leaning think tank. But that is just the
world we live in here.
I very much appreciate the expertise of the witnesses. You
are all very, very fine witnesses. We, and most of my
colleagues on this side, are entirely for people getting fair
pay for their work, but we have great concerns, as we heard
from some of my colleagues today, that this rule is going to
have a negative impact.
And I appreciate Mr. Passantino talking about the
differences in response to Mr. Rokita's question. Ms. Sharby as
well addressed it. We have a very different pay scale in
Manhattan than you do, for example, in the center of Minnesota,
as so $47,000 means one thing in one part of the country and
something else in another. This rule does not recognize
demographic differences. Anyway, thank you all very much for
the witnesses being--yes? Mr. Scott.
Mr. Scott. I was just going to ask to submit to the record
a fact sheet from the Economic Policy Institute that shows the
effect on jobs, hours, and salaries.
Chairman Kline. The aforementioned left-leaning think tank
and, without objection, it will be entered. I thank the
witnesses. We are adjourned.
[Additional submission by Mr. Hinojosa follow:]
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[Additional submission by Mr. Takano follow:]
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[Whereupon, at 12:44 p.m., the Committee was adjourned.]
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