[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








DAMAGING REPERCUSSIONS: DOL'S OVERTIME RULE, SMALL EMPLOYERS, AND THEIR 

                               EMPLOYEES

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JUNE 23, 2016

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                               

            Small Business Committee Document Number 114-066
              Available via the GPO Website: www.fdsys.gov
              
              
              
              
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                         CRESENT HARDY, Nevada
                         WARREN DAVIDSON, Ohio
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
                       Jan Oliver, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Steve Chabot................................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Mr. Adam Robinson, Co-founder/CEO, Hireology, Chicago, IL, 
  testifying on behalf of the Job Creators Network...............     5
Hon. Jerrie Tipton, Commission Chair, Mineral County, Hawthorne, 
  NV, testifying on behalf of the National Association of 
  Counties.......................................................     7
Mr. Albert F. Macre, General Partner, Payroll + Services, 
  Steubenville, OH, testifying on behalf of the National 
  Federation of Independent Business.............................     8
Ms. Christine V. Walters, JD, MAS, SHRM-SCP, SPHR, Sole 
  Proprietor, FiveL Company, Westminster, MD, testifying on 
  behalf of the Society for Human Resource Management............    10
Mr. Ross Eisenbrey, Vice President, Economic Policy Institute, 
  Washington, DC.................................................    12

                                APPENDIX

Prepared Statements:
    Mr. Adam Robinson, Co-founder/CEO, Hireology, Chicago, IL, 
      testifying on behalf of the Job Creators Network...........    27
    Hon. Jerrie Tipton, Commission Chair, Mineral County, 
      Hawthorne, NV, testifying on behalf of the National 
      Association of Counties....................................    30
    Mr. Albert F. Macre, General Partner, Payroll + Services, 
      Steubenville, OH, testifying on behalf of the National 
      Federation of Independent Business.........................    38
    Ms. Christine V. Walters, JD, MAS, SHRM-SCP, SPHR, Sole 
      Proprietor, FiveL Company, Westminister, MD, testifying on 
      behalf of the Society for Human Resource Management........    41
    Mr. Ross Eisenbrey, Vice President, Economic Policy 
      Institute, Washington, DC..................................    49
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    ABA - American Bankers Association...........................    58
    CUPA-HR - College and University Professional Association for 
      Human Resources............................................    60
    CUNA - Credit Union National Association.....................    62
    ICBA - Independent Community Bankers of America..............    65
    IEC - Independent Electrical Contractors.....................    66
    IIABA - Independent Insurance Agents & Brokers of America....    69
    NAFCU - National Association of Federal Credit Unions........    72
    NAMIC - National Association of Mutual Insurance Companies...    74
    NRF - National Retail Federation.............................    79
    Partnerships to Protect Workplace Opportunity................    81
    WorldatWork..................................................    82
    Gila County Board of Supervisors.............................    84
 
DAMAGING REPERCUSSIONS: DOL'S OVERTIME RULE, SMALL EMPLOYERS, AND THEIR 
                               EMPLOYEES

                              ----------                              


                        THURSDAY, JUNE 23, 2016

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:14 a.m., in Room 
2360, Rayburn House Office Building, Hon. Steve Chabot 
[Chairman of the Committee] presiding.
    Present: Representatives Chabot, Luetkemeyer, Huelskamp, 
Radewagen, Hardy, Kelly, Davidson, and Velazquez.
    Chairman CHABOT. The Committee will come to order. I want 
to thank everyone for being here today.
    Last month the Department of Labor finalized the overtime 
rule which will affect millions of small employers all across 
this country. The Department of Labor has heralded this rule as 
a long overdue action that will provide tremendous benefits to 
workers. However, like so many of this Administration's 
policies, this one-size-fits-all will do, I believe, far more 
harm than good.
    I have been meeting with small business owners, as Chairman 
of this Ccommittee, from all across the country. In fact, I 
just had a group of restaurant owners in my office right before 
this meeting, and I would like to share with you some of the 
things that they have told me.
    They are only successful if they treat their employees 
well. Many give their employees the flexibility to leave work 
early and provide paid time off. They pay their employees as 
much as they can afford. When they can provide a bonus or a 
raise, they do. And when budgets are tight, many of the owners, 
the people who own these businesses, forgo paying themselves, 
so that each of their employees can take home a full paycheck.
    Countless small employers, including small businesses, 
small nonprofits, and small local governments, do not have the 
profit margins or the budget flexibility to increase currently 
exempt workers' salaries to the new salary level.
    The Department of Labor seems to think that employers will 
simply be able to raise prices or find extra money elsewhere. 
This just is not the case, particularly in rural parts of the 
country where the cost of living and wages are lower or for 
cash strapped technology startups that often pay lower based 
salaries, but provide equity in the companies as incentive to 
work there.
    For many small employers, their only choice may be to shift 
workers from salaried positions to hourly status and require 
them to punch a time card. This means that many workers, 
particularly entry level managers, will have reduced 
flexibility, reduced paycheck certainty, and reduced benefits, 
as well as fewer opportunities for career advancement.
    Numerous small employers weighed in on this proposal and 
told the Department of Labor that the unprecedented salary 
level increase would have very negative repercussions. They 
asked for a common sense rule that recognized that not all 
employers have the same resources or utilize the same 
compensation structures. Unfortunately their pleas fell on deaf 
ears.
    I want to assure the small employers here today, and those 
tuning in from across this great country, that while the 
Department of Labor didn't listen to you, this Committee will. 
We are.
    The December 1st compliance deadline is rapidly 
approaching. So today we want to hear how small employers are 
working to comply with these new requirements and what 
challenges that you are encountering.
    We want to thank the witnesses, particularly those who have 
traveled from all across the country to be here today. And we 
are looking forward to hearing your testimony.
    And I would now like to yield to the Ranking Member, Ms. 
Velazquez, for her opening statement.
    Ms. VELAZUEZ. Thank you, Mr. Chairman.
    Overtime pay and the Fair Labor Standards Act are 
cornerstones of economic fairness in our society. For nearly 80 
years overtime rules have ensured that millions of workers are 
justly compensated when they work longer than the traditional 
40 hour workweek. Yet, more and more Americans are working 
longer hours than ever before.
    Those employed full-time report working an average of 47 
hours per week and nearly 40 percent report logging 50 hours or 
more. Preserving the right to overtime pay is particularly 
crucial at a time when lower and middle-income families' wages 
are stagnant. These changes in the broader economy landscape 
prompted the Department of Labor to examine whether the 
standards used to determine which employees are eligible for 
overtime no longer reflected economic realities. In fact, it 
has been estimated that just 11 percent of salaried workers 
qualified for overtime. This is a significant decrease compared 
to 40 years ago when two out of three workers received time and 
a half working overtime.
    In May the Department of Labor published its final revision 
of the overtime rules. The new regulations will extend overtime 
pay to 4 million workers currently exempted and strengthen 
protections for 6 million white collar and 3 million blue 
collar salaried workers within the first year of its 
implementation. This is the government's most significant step 
to address income inequality in recent memory.
    The new overtime requirements will bring a number of 
important benefits to working families and to our economy as a 
whole. Lower wage workers tend to quickly spend any additional 
earnings they make. This means that if workers start receiving 
additional pay, they will likely spend that money stimulating 
their local economies, in many cases supporting small 
businesses in their community.
    Likewise, if businesses elect to hire more workers, rather 
than having employees work overtime, then there could be 
potential job creation, furthering economic opportunity. 
Despite these positive outcomes, we have heard concerns as to 
how these regulations will impact the small business community. 
Increasing the salary threshold and the number of workers 
eligible for overtime pay could augment compliance and labor 
costs, putting financial strain on small business owners. This 
fact is particularly true for small employers located in low 
wage regions and in industries that operate with low profit 
margins.
    More concerning is that small businesses have commented 
that the high costs of this rule could lead to hourly cutbacks 
to employees or even salary adjustments. Such actions runs 
counter to the goals of this rule and could ultimately harm 
employees.
    Now that the rules have been finalized, we in Congress can 
get a better understanding of their impact. All of us want to 
see workers treated fairly and it has become clear that the 
overtime rules were due for an update. However, it is critical 
that we understand the new rules' impact on small businesses. 
This hearing is intended to accomplish that.
    I thank the witnesses for being here today. And look 
forward to your comments. I yield back, Mr. Chairman.
    Chairman CHABOT. Thank you. The gentlelady yields back. And 
if Committee members have opening statements prepared, we ask 
that they submit them for the record.
    And I would now like to take just a moment to review our 
rules here relative to timing. It is pretty simple. We operate 
by the 5 minute rule. Each of you gets 5 minutes to testify and 
each member gets to ask questions for 5 minutes. Sometimes we 
go into a second round, sometimes we don't, depending on time.
    There is a lighting system to help you out. The green light 
starts out, it is on for 4 of the 5 minutes, the yellow light 
comes on for 1 minute to let you know you are kind of getting 
near the red light, which means you are supposed to conclude 
your testimony by then if at all possible. We will give you a 
little time in addition if you need it, but we would ask you 
not to abuse it and stay within it as closely as you can.
    And now I would like to introduce our distinguished panel 
here today. We will begin with you, Mr. Robinson. Our first 
witness will be Adam Robinson, the cofounder and CEO of 
Hireology, a Chicago-based technology firm that was launched in 
2010 to revolutionize the hiring process. In 2015 Mr. Robinson 
was added to the Chicago Tribune's Blue Network, a listing of 
Chicago's most influential entrepreneurs and innovators, and 
named a ``Top 25 HR Industry Game Changer Under 40'' by 
Workforce Magazine.
    Under his leadership, Hireology has been recognized 
nationally by Entrepreneur magazine as a ``Top Company 
Culture'' and by Crain's Chicago Business as a ``Best Places to 
Work'' for both Millennials and Generation X. Mr. Robinson is 
testifying on behalf of the Job Creators Network today and we 
welcome you here.
    Our next witness is the Honorable Jerrie Tipton. Ms. Tipton 
is the chairman of the Mineral County Board of Commissioners in 
Nevada. Commissioner Tipton was elected to the Board in 2006 
and also serves as Mineral County's representative on many 
associated boards, including the local Conservation District. 
She and her husband have a livestock operation and a business 
that supports exploration drilling in the region.
    Commissioner Tipton is also an active member of the Nevada 
Association of Counties. Today she will be testifying on behalf 
of the National Association of Counties. And we welcome you 
here as well, as a former county commissioner myself we 
especially welcome you.
    Our third witness is Mr. Albert--is it Macre?
    Mr. MACRE. Macre
    Chairman CHABOT.--Macre, who is testifying on behalf of the 
National Federation of Independent Business, NFIB. He is the 
owner of three small businesses, including a small payroll firm 
based in Steubenville, Ohio, called Payroll + Services, which 
has served 200 small to medium size businesses since 1994. Mr. 
Macre also--did I pronounce that right?
    Mr. MACRE. Macre.
    Chairman CHABOT. Macre--I have a mental block and it--
Macre, sorry about that. Everybody is always mispronouncing my 
name so--Mr. Macre, also currently serves as an assistant 
professor of accountancy at the Franciscan University of 
Steubenville and lends his expertise to various boards and 
organizations such as the NFIB/Ohio Leadership Council and the 
Ohio Business Gateway Steering Committee.
    He received a master of accountancy from Miami University 
in Ohio with an emphasis in financial accounting and taxation. 
A great university. The head of our Small Business Committee, a 
Miami graduate, my brother a Miami graduate, our son a Miami 
graduate so a great school.
    Our fourth witness is Ms. Christine Walters. She is an 
attorney and the sole proprietor of FiveL Company in 
Westminster, Maryland, and will be testifying on behalf of the 
Society for Human Resource Management. Since 2002, Ms. Walters 
has provided full-time human resources and employment law 
consulting to small businesses and small nonprofits.
    Prior to starting her firm, Ms. Walters worked nearly 10 
years in human resource administration. She has also served as 
an adjunct faculty member of Johns Hopkins University and 
worked in a law firm, Saul Ewing L.L.P. Ms. Walters has 
received numerous nominations and awards for her work, 
including the small business of the year award by Baltimore 
Washington Corridor Chamber of Commerce in 2010. 
Congratulations for that and we welcome you here.
    And I would now like to yield to the ranking member to 
introduce our fifth and final witness.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman. It is my pleasure 
to welcome back Mr. Ross Eisenbrey, vice president of the 
Economic Policy Institute. Prior to joining EPI, he worked as a 
former commissioner of the U.S. Occupational Safety and Health 
Review Commission and as the policy director of the 
Occupational Safety and Health Administration. Welcome.
    Chairman CHABOT. Mr. Robinson, you are recognized for 5 
minutes.

    STATEMENTS OF ADAM ROBINSON, CO-FOUNDER/CEO, HIREOLOGY, 
CHICAGO, IL, TESTIFYING ON BEHALF OF THE JOB CREATORS NETWORK; 
THE HONORABLE JERRIE TIPTON, COMMISSION CHAIR, MINERAL COUNTY, 
HAWTHORNE, NV, TESTIFYING ON BEHALF OF THE NATIONAL ASSOCIATION 
   OF COUNTIES; ALBERT F. MACRE, GENERAL PARTNER, PAYROLL + 
    SERVICES, STEUBENVILLE, OH, TESTIFYING ON BEHALF OF THE 
   NATIONAL FEDERATION OF INDEPENDENT BUSINESS; CHRISTINE V. 
   WALTERS, JD, MAS, SHRM-SCP, SPHR, SOLE PROPRIETOR, FIVEL 
 COMPANY, WESTMINSTER, MD, TESTIFYING ON BEHALF OF THE SOCIETY 
    FOR HUMAN RESOURCE MANAGEMENT; AND ROSS EISENBREY, VICE 
     PRESIDENT, ECONOMIC POLICY INSTITUTE, WASHINGTON, D.C.

                   STATEMENT OF ADAM ROBINSON

    Mr. ROBINSON. Thank you, Chairman Chabot, Ranking Member 
Velazquez, and members of the committee for the opportunity to 
testify about the impact of the Department of Labor's new 
overtime rule. This rule requires employers to provide overtime 
pay to employees whose salary is less than $47,500, which is 
about double the existing threshold.
    What I want to do in my time today is focus on how this 
rule will adversely affect technology startups and high growth 
small business owners like me and what that means for the 
people we employ. I am the CEO and co-founder of a human 
resources technology business called Hireology. We have 
streamlined and improved the hiring process to help companies 
eliminate bad hires and identify good ones.
    We have also fielded hundreds of confused inquiries from 
our customers about how to comply with this rule. As a result, 
we have a unique perspective to speak about its impact. Like 
most Federal regulations, the overtime rule is a one-size-fits-
all policy that doesn't distinguish among firm size, sector, 
location or comp structure. This means that companies that 
don't fit the Department of Labor's outdated model will 
disproportionately be hurt by the rule. Take the capital 
constrained technology startup sector that I work in for 
example. Employees at these companies trade long hours and 
lower pay for the opportunity to get amazing professional 
experience early in their careers and the potential for a 
significant financial windfall later on.
    Are we exploiting these employees? Of course not. Those 
working at tech startups voluntarily recognize that their 
positions are high-risk, high-reward ventures and that they may 
have to go years with below market pay to get a big pay out in 
the end. Do we want to regulate these opportunities out of 
existence?
    Looking back on when I started my company in 2010, I can 
tell you with 100 percent certainty that I would not have been 
able to hire my first employee had this rule been in place. My 
company now has 100 employees with median, median annual 
compensation that exceeds $70,000 a year, well above the U.S. 
average. How many ``Hireology's'' won't get started as a result 
of this rule, making that first employee unaffordable for the 
entrepreneur. Are fewer good paying jobs created and fewer 
businesses launched outcomes that this ruling is desiring? I 
don't think so.
    Sales professionals, the lifeblood of almost every company, 
also suffer from this rule because their commission-based 
compensation structure doesn't align with the Department of 
Labor's vision of the workplace. Consider what my company is 
facing, 40 of our 100 full-time salaried professionals are 
salespeople whose success, like with most sales positions, 
depends on persistence. That means working until the sale is 
made, whatever the hours. We pay new sales people a base salary 
of $40,000 a year. And those who hit their quota can earn 
$70,000 to $120,000 a year or more. This compensation structure 
is pretty typical in software startups and sales sectors 
because it allows employees to directly share in the profits 
they produce for the company.
    However, the overtime rule forces us to choose between 
raising base salaries to the new exempt threshold or convert 
everyone on the sales team, about half my business, to an 
hourly rate, capping hours at 40 a week. Both alternatives are 
very unattractive. A 20 percent pay increase for new hires to 
put them above the threshold would hamstring our expansion 
plans, but capping hours at 40 a week would mean a loss of 
earning potential for all of our sales people, and add costly 
time tracking overhead to our bottom line. Both paths result in 
less opportunity and fewer middle class jobs.
    To the extent that employers like me are forced to 
reclassify employees as hourly to avoid unexpected overtime 
costs, these high paying job opportunities will be reduced. 
Millions of Americans have entered the middle class by securing 
a salaried job when working their way up by working until the 
job gets done. That means sometimes during a busy season, a 
financial month-end, or when a coworker is out sick, working 
longer than 8 hours a day. In return these employees are 
rewarded with the flexibility, benefits, bonuses, status, and 
promotions that come with a salaried position. It is not 
exploitative. It is a key tenet of American work culture and 
startup culture.
    Reduced middle class job opportunities as a result of this 
rule will be compounded in parts of country with lower 
standards of living. Companies in Chattanooga will have a much 
more difficult time complying with a $47,500 salary threshold 
than companies in Chicago. As a result, the rule will be 
another hurdle for smaller communities across the country that 
are still suffering from high unemployment and a lack of middle 
class job opportunities.
    I urge you to pursue legislative solutions to undo the harm 
that will be inflicted by this overtime rule. At a time when 
the middle class in this country is already being squeezed, the 
tech sector, sales jobs, and middle management positions are a 
few areas that still provide relief. The overtime rule 
threatens to close those career pathways that have been paved 
by hard work.
    Thank you for your time today, and I am happy to take any 
questions.
    Chairman CHABOT. Thank you very much. Commissioner Tipton, 
you are recognized for 5 minutes.

            STATEMENT OF THE HONORABLE JERRIE TIPTON

    Ms. TIPTON. Thank you, Chairman Chabot. Is that right?
    Chairman CHABOT. Chabot like rabbit, but yeah.
    Ms. TIPTON. Chairman Chabot, Ranking Member Velazquez and 
members of the Committee, thank you for the opportunity to 
testify today on the impact of U.S. Department of Labor's 
overtime rule on entities including small governments.
    My name is Jerrie Tipton, I serve as chair of the Mineral 
County Nevada Board of Commissioners, and today I am 
representing the National Association of Counties.
    Mineral County has a population of 4,479. Our county 
employs 102 full-time salaried workers--no 102 full-time 
employees and has a median household income of the county of 
$38,664. Mr. Chairman and members of the Committee, as you 
continue to assess this new rule and the potential impact on 
small entities, including counties, I would like to highlight 
three observations.
    First, America's 3,069 counties employ 3.6 million people 
and deliver public services to more than 300 million Americans. 
Because of our role as employers we are concerned that the new 
rule could have unintended consequences for counties, 
especially small and rural counties, hindering our ability to 
provide crucial services to the communities from transportation 
and health, to public safety and emergency services.
    Almost 70 percent of counties are considered rural, with 
fewer than 50,000 residents. Together we employ over 410,000 
full-time workers, and serve almost 40 million Americans. Most 
of us do not have the flexibility in our local budgets to pay 
the newly eligible employee overtime pay, especially as soon as 
December. Rural counties have been doing more with less, and 
without new revenue sources it is hard to see any alternative 
than to cut services that benefit the residents to pay for this 
rule.
    Second, the new rule does not adequately address the wide 
variations in local labor markets across the country. Labor 
markets across the country vary dramatically in our counties. 
However, the DOL's overtime rule takes a one size fits all 
approach. Let me explain why this is a problem. In 34 of the 50 
States, local government employees earned less than $46,000 a 
year, less than the new salary threshold. In 97 percent of the 
counties in the South Census Region, the average wages in local 
government are less than the new threshold. That is why DOL 
rule does not provide an accurate picture of the major 
differences in labor markets across the local communities.
    Finally, the new rule will have broad consequences for 
taxpayers and county services. Many counties are still 
struggling to recover from the recession and may not have the 
resources to absorb sudden spikes in labor costs. According to 
the NACo's County Economies 2015 report, only 214 of those 
county economies have fully recovered to their pre-recession 
levels. In Mineral County the new rule would make 13 to 17 of 
our full-time, 102 full-time employees eligible for overtime 
pay.
    The additional cost would be up to $45,000 a year for us. 
It might not seem like a lot but it poses quite a financial 
challenge since counties are limited in our ability to generate 
local revenue. In fact, more than 40 states limit the county's 
ability to collect sales tax and/or property tax and other 
fees. This leaves us with a difficult choice: Which critical 
local services do we cut to fund the rule?
    Additionally, 62 percent of counties nationwide have 
considerable federal land within their boundaries. Federal 
lands are not subject to local property taxes, further reducing 
the local property tax base. Moreover, many counties have 
budget years that run from July 1st to June 30th, which means 
their budgets have already been approved for the coming fiscal 
year. In my county, we finalized our budget before the 1st of 
June and had it certified and approved by the State of Nevada. 
Since the DOL rule goes into effect in December, it doesn't 
take into account that our finances are already set through 
next July. It complicates our ability to comply with the rule 
in the short term. And furthermore, counties have limited human 
resource personnel and advisory staff.
    While the DOL estimated the small entities may incur $100 
to $600 in compliance costs, counties typically spend a higher 
amount of time and money on compliance because we have less 
staff capacity and in-house expertise. Many counties may need 
to hire outside consultants which is again costly.
    Finally, comp time not a complete solution for counties. 
Where the DOL rule allows us to provide comp time this isn't 
realistic since we have such a small number of employees to 
start with. If one key employees uses comp time, I may not be 
able to carry out public services that protect the community. 
For example, we have one librarian who is now eligible for 
overtime pay. If she uses comp time, we would have to shut the 
library down and that would create a problem for some of the 
residents because the library is the key source for Internet 
access in a county with limited broadband service.
    In conclusion, while we share the same goal of fair wages, 
we are concerned that the new rule will impose considerable 
burdens on the counties. We stand ready to work with Congress 
to help craft policies that are fair to workers and workable 
for county governments.
    Thank for the opportunity to testify and I will be happy to 
take any questions.
    Chairman CHABOT. Thank you very much. Mr. Macre, you are 
recognized for 5 minutes. And feel free to mispronounce my name 
if you so choose.

                  STATEMENT OF ALBERT F. MACRE

    Mr. MACRE. Good morning, Chairman Chabot, Ranking Member 
Velazquez and members of committee. My name is Albert Macre. I 
am a CPA, and the owner of several small businesses located in 
eastern Ohio, one of which, Payroll + Services, is affected by 
the new Department of Labor overtime rules for salary exempt 
personnel. And I am pleased to be here on behalf of the 
National Federation of Independent Business to discuss these 
rules at today's hearing.
    NFIB is the Nation's leading small business advocacy 
organization, representing 325,000 independent business owners 
located throughout the United States, 25,000 of which are 
located in my home state of Ohio and several who are here to 
support me in my testimony today.
    As a small business owner with several salaried employees 
positioned between the current exempt overtime earnings 
threshold and that created by the DOL new rule, I now find 
myself standing with countless other small businesses forced to 
swallow more government medication prescribed before an 
accurate attempt at diagnosis has been completed.
    NFIB believes that the rule will have a substantial 
negative impact on small businesses and their employees. 
Frankly, the 100 percent increase in the salary exempt 
threshold to $47,500 is too much too fast. To put the 
significance of this into perspective from the time the last is 
salary threshold was increased in 2004, the Consumer Price 
Index has only risen by 28 percent.
    To make matters worse, the threshold will be automatically 
updated every 3 years. And while the rule does allow for the 
use of nondiscretionary bonuses and incentive payments to 
satisfy up to 10 percent of the standard salary level, the 
reality is that few administrative and lower level supervisory 
personnel receive such compensation.
    NFIB estimates that the new rule will impact approximately 
40 percent of small businesses, while the Department of Labor 
has said that the rule would affect over 4 million employees. 
Instead of increasing wages for certain employees as the DOL 
might project, the rule will force small business owners to 
take more control of employee hours and benefits to keep costs 
in check. These controls could ultimately result in employees 
taking home less money annually. And don't underestimate the 
impact on employee morale as affected employees are told that 
they must now punch a time clock for the first time in their 
careers.
    In addition to these negative impacts, the implementation 
window is very short. This rule will become effective on 
December 1, 2016, just over 5 months from now. Given that many 
small businesses are still struggling with the implementation 
of the Affordable Care Act 5 years after enactment, this window 
of compliance barely seems cracked open.
    From a personal perspective, this rule is likely to have 
negative consequences not only to my company but my employees 
as well. Payroll + opened in 1995 in response to my clients' 
desire to farm out payroll processing services to a local, low 
cost provider. We currently have three salaried employees 
earning above the current threshold and below the new amount. 
We operate on a 30 to 35 hour workweek for 8 months of the year 
but do incur substantial overtime during the four payroll tax 
months.
    Our employees appreciate the certainty of their salary-
based take home pay each period. They also appreciate the fact 
that they don't have to punch a time clock every day. And I 
estimate that the roughly 600 hours of overtime our employees 
work each year are offset by the less than 40 hour workweek the 
remainder of the year.
    Unfortunately, the law doesn't allow me to bank the short 
weeks to offset the long weeks. In addition, we pay 100 percent 
of our employees' health insurance and have done so since we 
opened our doors.
    Without getting into the analytical weeds, in order to keep 
employee take home pay consistent, we are contemplating a 
system of salary advances to be recovered during the overtime 
months. In order to keep our cash flow level, we are 
contemplating for the first time in 20 years requiring 
employees to bear a share of the cost of their health insurance 
benefits.
    DOL's new overtime rule will have a significant, and in my 
belief, negative impact on employers and employees alike. In 
order for small businesses to avoid costly overtime pay, 
managers move from their salaried positions to hourly jobs will 
need to keep time cards and be prohibited from working 
overtime, including answering email from home. This will not 
only be a burden financially, but in terms of productivity, as 
managers and supervisors will only be allowed to work when 
permitted. From an employee perspective, the flexibility that 
so many had will become a thing of the past.
    NFIB anticipates the changes will hit hardest those low- to 
mid-level managers. These managers currently make less than the 
proposed threshold but value workweek flexibility and benefits 
such as health insurance and employer provided pension 
benefits. Also fewer salaried managerial positions would signal 
to employees that there is little opportunity for growth at the 
company. These consequences will severely hamper opportunities 
in growth and development, not just for the small business but 
their employees as well. Unfortunately, neither can afford it.
    Thank you for allowing me to share my thoughts with you and 
at the appropriate time I will answer questions.
    Chairman CHABOT. Thank you very much. Ms. Walters you are 
recognized for 5 minutes.

               STATEMENT OF CHRISTINE V. WALTERS

    Ms. WALTERS. Thank you. Good morning, Chairman Chabot, 
Ranking Member Velazquez, and Committee members.
    I am Christine Walters, sole proprietor of FiveL Company 
where I serve as an independent human resources and employment 
law consultant to numerous nonprofit and small business 
clients. Prior to that I worked as an in-house HR practitioner 
for 12 years in the nonprofit sector, including government 
contracting.
    I appear before you today on behalf of the Society for 
Human Resource Management or SHRM.
    I appreciate the opportunity to share a little bit about 
what this new overtime rule means for my clients, as well as 
SHRM's reaction to the final regulation.
    In short, Mr. Chairman, while SHRM supports an increase to 
the salary threshold, we agree that the final overtime rule may 
be too far too fast. Small businesses and nonprofits in 
particular may be disproportionately impacted by the rule's 
dramatic and more than 100 percent increase to the salary 
threshold, and this threshold may escalate since the final rule 
includes an automatic update every 3 years.
    Let me explain briefly how the rule may impact some of my 
clients, their employees, and the services that they provide. 
Let me start with the employees and how they may be impacted.
    Under the final rule, newly nonexempt employees will likely 
face reduced workplace flexibility or I will call it work flex. 
Today, many employers provide exempt employees with work flex 
opportunities, such as, for example, the ability to leave work 
early next week, such as for a parent-teacher conference, in 
consideration of having worked extra hours this week, and to do 
that without using paid leave and without reducing their pay. 
In fact, employers are generally prohibited today by law from 
docking an exempt employee's pay for a partial-day absence.
    And that is at the heart of exempt compensation. The salary 
is based on an understanding that an employee's work schedule 
regularly exceeds 40 hours a week and that employee is paid the 
same wages every week regardless of hours worked, whether it is 
46 or 36.
    However, employees classified as nonexempt cannot be 
granted the same flexibility that I just described. If they 
work in the private sector more than 40 hours this week, they 
must be paid overtime, and that cannot be offset by taking 
hours off from work next week. Thus I find most employers 
require nonexempt employees to use paid leave for any partial 
or full day absence. And if an employee has no paid leave 
remaining, then the absence from work may be without pay where 
that is permitted by state or local law.
    It is clear to me and others that nonexempt employees do 
have fewer options and less flexibility to manage work-life 
needs than exempt employees.
    And while the rule affects all employers, the rule will 
drastically impact the operations of small business and 
nonprofits who cannot simply raise the fee or price for the 
services they offer to offset those increased labor costs. They 
must find a way to raise additional funds, obtain an increase 
from public or private sector funding sources, all of which are 
limited.
    For example, one of my clients provides rehabilitation 
services to a disadvantaged population of whom 85 percent 
currently meet the poverty threshold. This organization will 
not and really cannot transfer those increased labor costs to 
their low-income consumers. They have to face some unattractive 
alternatives. One might be reassigning the overtime duties that 
are currently performed in excess of 40 hours in a week to 
those employees who will remain exempt, and that is likely to 
adversely impact those coworkers' working relationships as well 
as the employer and employee relationship.
    And the impact won't be just in the form of expenses, but 
also in the form of compliance. The Office of Advocacy of the 
U.S. Small Business Administration noted that increasing the 
salary level would add significant paperwork burdens on small 
entities, particularly businesses in low-wage regions and 
industries that operate with a low profit margin.
    For example, employers also have to consider federal, 
state, and local laws and regulations that apply to nonexempt 
employees, including and not limited to dictating pay 
frequency, paid leave mandates, minimum wage, fair and 
predictive scheduling requirements, limits on mandatory 
overtime, on-call pay, travel pay, waiting pay, pay before and 
after a holiday, to name a few.
    So for small businesses and nonprofits who often have a 
one-person HR manager/payroll manager, navigating all these 
complex rules can add an additional compliance burden that is 
overwhelming.
    So with that, in closing, SHRM and employers across the 
country have serious concerns with the implementation of the 
final overtime rule at this time. We strongly support House 
Resolution 4773, Protecting Workplace Advancement and 
Opportunity Act. It simply seeks more time for further study on 
the economic impact of the rule and what it will have on 
employers for varying sizes, industry sectors, and locales. 
SHRM and its members look forward to working with Congress to 
improve this rule in a way that works for employers and 
employees.
    I thank you and also welcome your questions.
    Chairman CHABOT. Thank you very much.
    Mr. Eisenbrey, you are recognized for 5 minutes.

                  STATEMENT OF ROSS EISENBREY

    Mr. EISENBREY. Thank you, Mr. Chairman, Ranking Member, 
members of the Committee. I am Ross Eisenbrey with the Economic 
Policy Institute, a small nonprofit with one HR manager who 
somehow manages to have us comply with the law.
    And we have looked at this, and the amount of time it takes 
to figure out what this rule does and comply with it is 
minuscule since what it says simply is, if you make less, if 
you pay your employee less than $47,476 a year, pay overtime. 
That is what the law does.
    It makes it much easier to comply for nonprofits. We have 
talked to nonprofit managers who say that they have maybe even 
100 employees at various nonprofits scattered across the 
country that they supply HR services to and it will make the 
job so much easier for them. They don't have to look at duties 
tests. They don't have to figure out whether somebody is an 
administrative employee or qualifies as a professional. They 
just know, if is less than $47,476, that is the end of the 
story.
    The rule that the Department has issued increases the 
number of salaried workers who are entitled to overtime pay and 
does several important things. It will encourage employers to 
give raises. And the rulemaking record is full of employers and 
employer associations who did surveys and their members say 
they will raise their employees above the threshold. So there 
will be pay increases across the country as a result of this 
rule.
    It will reduce the excessive number of hours worked by 
millions of others, giving them a better work-life balance. It 
will ensure that salaried employees get paid time and a half 
when they work more than 40 hours in a week. And it will cause 
employers to create more than 100,000 jobs, according to the 
National Retail Federation, in its sector alone. And Goldman 
Sachs affirms that view. This is a job-creating rule.
    They make it clear, the rules make it clear that it doesn't 
matter whether you are salaried or hourly, blue collar or white 
collar or pink collar, you will be entitled to overtime pay if 
you make less than $913 a week. This provides clarify that will 
prevent litigation. It tells people their rights in a way they 
haven't known them before.
    It is popular. The Gallup Poll found that 67 percent of the 
public supports making more employees eligible for overtime pay 
and only 14 percent oppose it.
    It carries out the statutory intent of the Fair Labor 
Standards Act, and this is the Department's duty after all. The 
law says that everyone is entitled to overtime pay, 
essentially, except bona fide executives, bona fide 
professionals and administrators. There is no exception from 
the rule for salaried workers, white collar workers, 
supervisors, paraprofessionals, or, incidentally, sales 
employees. The exemption applies only to a narrow class of 
genuine professionals, genuine executives, and other highly 
paid employees whose independence and bargaining power make 
protection against overwork unnecessary.
    Being called a manager and being paid a salary of $35,000 
or $40,000 a year doesn't make you that kind of an executive. 
Dawn Huey, a woman I met who lives in Swartz Creek, Michigan, 
was a dollar store manager for almost 3 years. When she was 
hired, she had 28 years of retail experience and felt she had 
finally climbed up the ladder into the middle class. She was 
told she would work 44 hours a week at about a $35,000-a-year 
salary.
    But the 44-hour weeks quickly stretched into 60 and 70 
hours with no overtime compensation. She wasn't allowed to hire 
enough staff to do all the work, so she did it herself; 13-hour 
shifts from open to close became common. At one point, she went 
4 straight weeks without a day off and usually worked holidays 
with no overtime compensation. The first 4 to 5 hours of every 
day she was the sole store employee, she worked the cash 
register, did inventory, stocked shelves, moved heavy boxes. 
She literally ran the store on the run and ended the day 
mopping floors from front to back.
    You hear from some employers and lobbyists about 
flexibility that salaried workers have. Here is what Dawn said: 
``The idea that I had been hired with a flexible salary was a 
cruel joke.'' There were times her executive--her so-called 
executive salary--divided by her weekly hours was less than the 
minimum wage, and that was legal because exempt executives are 
exempt from the minimum wage too.
    Her story is repeated all across America at major 
corporations and their small business franchises from Burger 
King, to Dunkin' Donuts, to Walgreens. The new rule will not 
completely eliminate that kind of abuse of overtime, but it 
will make it more costly, and therefore less likely.
    This rule has great benefits for people like postdoctoral 
researchers who are paid $43,000 a year on average and work 55 
hours or 60 hours a week. They will get salary increases at 
universities all across the country because it will be much 
cheaper for a university to pay them a more reasonable salary 
for their Ph.D. in science and their science research abilities 
than it will be to pay them the overtime that would otherwise 
be required.
    The truth of the matter is that the rule will hardly make a 
dent in most employers' payrolls and profits. And I encourage 
you to look at the Department's rulemaking where table 30 shows 
that the impact on every industry group is less than one-tenth 
of 1 percent of payroll. Only transportation and utilities will 
experience costs as great as 1 percent of profits.
    That is a tiny price to pay for a rule that will provide a 
better work-life balance for millions of Americans, that will 
improve health and productivity, reduce employee turnover, and 
put more money into the pockets of millions of middle class 
Americans.
    Chairman CHABOT. Thank you very much.
    We will now turn to ourselves and ask questions. I 
recognize myself for 5 minutes.
    I had a number of questions I was going to ask but your 
testimony, Mr. Eisenbrey, I am going to shift direction. I 
think that perhaps all the concerns that I have heard from 
America's small businesses for months and months and months 
now, and perhaps the panel here today, our concerns must have 
been unfounded. This is a good rule that is going to benefit 
workers all over the United States apparently.
    I would be happy to open it to the other witnesses. Do you 
want to tell the panel why you think that perhaps the point of 
view that you just heard testified to by Mr. Eisenbrey is 
incorrect or is he right?
    Mr. Robinson.
    Mr. ROBINSON. Thank you, Mr. Chairman.
    I can comment pretty directly there. I mean saying it is so 
easy, all you have to do is pay overtime to people that make 
less than $47,500 a year is like telling me 5 years ago: The 
ACA is so easy, just buy everybody health insurance, no 
problem.
    Chairman CHABOT. Yeah. And the ACA, for anybody who may be 
watching out there, is the Affordable Care Act, or some people 
refer to it as the un-Affordable Care Act or ObamaCare, that is 
what you are referring to.
    Mr. ROBINSON. Correct. And we do provide and have always 
provided health care for our employees, but it makes the 
compliance so much harder.
    And buried in table 30--and I haven't read that report--but 
buried in table 30 is Hireology and thousands of other 
technology startups. And I am telling you firsthand this is 
going to take our cost up 20 percent, not a tenth of a percent, 
20 percent.
    And, yes, we can do that, but what that means is we shift 
very, very scarce resources from one part of the business, 
where we can maximize our growth and create more opportunity, 
to complying with this rule and to hitting a salary threshold.
    And the net effect for those employees that we bump base is 
we have to reduce their upside, because you cannot take up 
fixed cost and not reduce variable upside. There is just not 
enough money to do that.
    Chairman CHABOT. Let me go ahead and ask another question. 
Commissioner Tipton, I will turn to you, if I can.
    In your testimony, you explained that Mineral County, your 
county, doesn't have the flexibility within its budget to 
comply with the overtime rule by December 1, and that you don't 
see any alternative to cutting services. What type of services 
would you have to cut? And how would this affect the residents 
of your county that you represent?
    Ms. TIPTON. Okay. Our budgets are set. The State of Nevada 
says this is when your budget cycle is. They are done.
    For us, we can't raise revenue. Mineral County is 2 cents 
over the state cap already paying off a school bond debt. We 
had less than 1.5 percent of our land base has taxable 
infrastructure on it out of 3.4 percent private land and the 
rest of it is federal in one form or another. There is nothing 
to raise taxes on.
    What it is going to mean is, in order to make this work, if 
we have to fall in compliance, and we are going to have to, we 
are either going to reduce, to start with, what is considered 
nonessential services like the library, the park and rec. And 
my offset to that is in that community, if I don't have 
something for those kids to do, I am going to have it them in 
JPO.
    Chairman CHABOT. And JPO is?
    Ms. TIPTON. Juvenile protection.
    Chairman CHABOT. Thank you.
    Let me shift over to Mr. Macre now, if I can.
    Sir, could you give us some examples of employee perks and 
benefits that are likely to have to be reduced because of this 
new overtime rule.
    Mr. MACRE. From our perspective, again, not only are we a 
small company, but we are a small payroll company that performs 
payroll services for other small companies. A lot of those 
businesses do provide pension benefits, 401(k) contributions, 
health insurance. There is not a finite number of dollars here. 
In Mr. Eisenbrey's testimony he said, if they make over $47,500 
just pay them overtime. Well, hell, that is real easy, but 
where does this money come from?
    We figured that that increase in overtime cost to our 
small, little company would entirely consume the revenue that 
is generated by 12 clients. So where do we just magically get 
this 8 to 10 percent increase in size to automatically cover 
this? So we are likely to have to for the first time, like I 
said, take health insurance dollars from these employees.
    And the way I projected it, our take-home pays are actually 
going to decrease as a result of paying our employees more. The 
math is a little bit funky, but accountant math and economics 
math are a little bit funky at times. But we have determined 
that actually payroll, net pay, could decrease as a result of 
gross wages going up.
    Chairman CHABOT. Thank you very much. My time has expired.
    The Ranking Member is recognized, Ms. Velazquez of New 
York, for 5 minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. Eisenbrey, from 1979 to 2013 inflation-adjusted wages 
have grown 15 percent for the bottom 90 percent of income 
earners, while wages for the top 1 percent have grown 137 
percent. I think that it is very clear that something has to be 
done. How will this rule accomplish that?
    Mr. EISENBREY. It is a great question and it answers Mr. 
Macre's query, which is the money will have to come, as he 
says, from somewhere. Where it will come is from the owners of 
the businesses. There is no question about that. And if you are 
the owner of a business, you can not like that or you could be 
like Mitchell Kaplan at Kaplan Stahler in Las Angeles who said: 
I make a good income, and the law will change and I will pay my 
people more.
    Executive salaries have increased in the United States so 
much faster than salaries at the bottom, the share of national 
income that goes to business owners has increased so much that 
we now have a trillion dollars less that is being paid to the 
labor force in the United States than we otherwise would have 
if we had the kind of equality that the Ranking Member 
mentioned.
    Ms. VELAZQUEZ. California has the highest state overtime 
standards and over the last 5 years has led the country in 
employment growth. Is what California did a model for the 
Nation?
    Mr. EISENBREY. That is exactly right.
    Ms. VELAZQUEZ. And how do these findings compare to the 
testimony we have heard today?
    Mr. EISENBREY. The fact of the matter is that employment 
growth depends on businesses having customers, and businesses 
have customers when working people are paid enough that they 
can go out and shop and buy things. California has been the 
leader in the overtime threshold at $41,500 and, as you say, 
its employment growth is much faster than the Nation as a 
whole. It is not proof, but it is a real indication that this 
kind of policy, putting more money into the pockets of the 
workers, is good for the economy overall.
    I would just like to say that back in 1975, for example, 
and in the 1960s, we had a much higher threshold. Small 
businesses did not suffer then, they managed. I am old enough, 
maybe older than the rest of the people on the panel, to 
remember working back then when the threshold in today's 
dollars would have been $64,000.
    So this is a much easier rule to adjust to than businesses 
had to adjust to in the past. They did it well then, they can 
do it today.
    Ms. VELAZQUEZ. Thank you.
    As we all know, the cost of living and therefore wages 
drastically differ based upon the location of the business. And 
this one was one the most common concerns in comments filed, 
that the proposed changes do not account for the diverse 
economies across the country.
    Why did DOL choose to go with a national minimum salary 
threshold instead of keying it to government data on regional 
cost-of-living differences?
    Mr. EISENBREY. What the Department did was actually it did 
what some people will call one-size-fits-all, but the one size 
was fit to the poorest region in the country. They set the 
salary at the 40th percentile for salaries in the South, in the 
poorest of the four census regions. As I say, it is a very 
modest level. This is not an executive salary in New York and 
an executive salary in Boston. It has been set at the level for 
an executive salary in Chattanooga or in Tipton, Nevada.
    Ms. VELAZQUEZ. Small-business owners, and we heard them 
here, are warning that they may have to move currently salaried 
employees to hourly rates. This can be construed as a demotion 
by these workers and can impact their morale and even their 
fringe benefits. Is there a way for small businesses to avoid 
such changes under the final rule?
    Mr. EISENBREY. Yes. If you look in the comments that were 
submitted for the record, there are numerous comments where 
employers say they will not do that, they will either reduce, 
just hold people to 40 hours a week. They don't have to change 
them to hourly. That is not the majority of the survey findings 
that I see in the record in the comments that were submitted.
    There is nothing in the rule that says that you have to 
change someone from salaried to hourly. This Committee had a 
witness who made this claim back in the fall. She herself was 
already tracking the time of workers and giving them bonuses 
based on the extra time that they worked.
    So there is nothing in the rule that dictates how an 
employer responds to this. There are a variety of different 
responses possible. I have talked to employees, incidentally, 
who have already in some cases been switched to receiving 
overtime. I am not sure whether they were salaried or hourly 
after the change. But they said: This doesn't feel like a 
demotion to me, I am happy getting the overtime.
    Ms. VELAZQUEZ. Thank you. I yield back.
    Chairman CHABOT. The gentlelady's time has expired.
    The gentleman from Missouri, Mr. Luetkemeyer, who is the 
vice chairman of the Committee, is recognized for 5 minutes.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman, and I appreciate 
the opportunity.
    I think we need a little clarification here. I was 
listening to Mr. Eisenbrey's testimony, and he made the comment 
that we have 117,000 new workers that are going to be hired. 
Those, according to the study that he quoted, an Oxford 
Economics study that was commissioned by National Retail 
Foundation, those are part-time workers, by the way.
    And those part-time workers are required to be hired 
because you are going to have to have somebody else to do the 
additional work that the people who have been working will not 
now be doing because you are not going to pay them overtime. It 
is cheaper to hire someone part-time than it is to pay them 
overtime. So it is a part-time worker.
    Also, you made a comment with regard to 42 million new 
people that are going to be eligible for overtime. The same 
study indicates that three-quarters of those people right now 
don't get overtime. So you are only talking about 825,000 
people. And the same study also indicates that they probably 
would get about 1 hour per work of overtime, which would be 
about $20 per week that they would increase.
    In the meantime, the Regulatory Flexibility Act analysis by 
DOL itself indicates that there would be $3,265 of total 
compliance costs, including wages, which means that for $20 an 
hour for the employees it is going to cost the employer $3,265 
for the individual. Plus, the employee is probably going to 
lose benefits, flexibility from the standpoint of health 
benefits, retirement benefits.
    And, Mr. Macre, you deal with a lot of small businesses. Is 
that the experience that you see with what is going on, that 
people are going to have to hire part-time workers to make up 
the difference, cut back on benefits to be able to make the 
bottom line?
    Because at the end of the day, as Mr. Eisenbrey made the 
comment a while ago, I don't think he understands there is only 
a finite number of dollars in each one of the pockets of the 
owners. You can only pay for so much increase in cost. You 
can't continue to pay to increase this otherwise your 
competition is going to eat you and you are going to go out of 
business.
    Mr. MACRE. Well, again, where we are, we are in eastern 
Ohio, we are in that Appalachian area, we really can't raise 
fees. So it was pointed out that the money could come from the 
owners' pocket, and I would be happy to send you my K-1 from 
Payroll + Services. There is no money that goes into my pocket 
from that business. So it is going to come from the employee's 
pocket.
    The business was never designed to generate immense amounts 
of profits. It was designed to generate a service and actually 
to employ people. That is probably an anomaly in the business 
world, but that is the way it was set up.
    So I don't it know what option we have other than to reduce 
costs, because, again, the increasing revenue option is 
probably off the table.
    Mr. LUETKEMEYER. Commissioner Tipton, you are in a unique 
situation where you can't go out and price your product. You 
are delivering services with a finite number of tax dollars. 
How do you anticipate trying to do this? Are you going to wind 
up having more part-time workers, are you going to reduce the 
benefits, health insurance, retirement benefits for the 
employees? I mean, how are you going to make the same number of 
dollars stretch to comply with the rules?
    Ms. TIPTON. Yes, sir. I am not the king of the world, and 
so this is something that we have been having conversations on 
at the board level. Our options are right now Mineral County 
pays 100 percent of the employee benefits and at least half of 
their retirement right now. We are either going to have to say, 
okay, boys if we have to do this, then those of you we are 
doing this for, you are going to have to pay part of your 
benefits. And if it is sauce for the goose, is it also sauce 
for the gander, see? So do we make everybody pay part of their 
benefits?
    I look for us to reclassify some of those individuals and 
take them out of a salary exempt to an hourly exempt, and what 
business does not get done does not get done. We can't afford 
to hire part-time people, not even school-to-career people 19 
hours a week to pick up the slack. We don't have the revenue, 
sir.
    Mr. LUETKEMEYER. Mr. Robinson, what kind of a problem do 
you have with employee morale when you have to reclassify 
somebody down to an hourly worker? Even though they are making 
the same amount of money, now they lose benefits, lose 
retirement, even though they are doing the same job, but they 
are being viewed as an hourly worker.
    How does that work with employee morale? And if you do wind 
up paying benefits, how is that going to affect the rest of the 
employees who don't get the benefits?
    Mr. ROBINSON. Well, it is going to have an impact. And I 
invited my whole company to tune in and listen to this, and we 
are going to have a talk about it when we get back to Chicago 
and explain why we are having to take these actions.
    We offer our employees unlimited time off. We don't track 
time off. People need to take time, they get the job done, they 
can take 2 weeks, they can take 3 weeks if they want, with 
permission to do that. They can take as much or as little as 
they want. They can work from home 100 percent. They can come 
in the office 100 percent of the time. They can do whatever 
they want. We don't track any of that.
    Let me state for the record, our goal, we would love to see 
wages lifted as well. We share that goal. You do that by 
attacking opportunity and growing it, right, and employing 
people, that is how you do that.
    And I would invite Mr. Eisenbrey to come in and tell my 
sales force that they are not a bona fide professional. These 
folks went to school, it is 100 percent college degree, most of 
them are carrying huge student loan payments. They have 
invested in themselves to get ahead.
    And imagine me walking back in there and saying: Hey, guys, 
here is your new time clock. We are going to punch it. And I 
know you are really striving to make that extra money, but you 
can't over 40 hours a week. And you can't work from home 
anymore unless we put this time-tracking app on your phone. And 
by the way, don't respond to customer inquiries after 5 
o'clock, they are just going to have to wait till tomorrow.
    And so this cascades and impacts our ability to compete 
against big players. All we can do is work harder to earn that 
business. I am concerned at every level of how we have built 
this company that we are negatively impacted.
    Mr. LUETKEMEYER. Thank you. I yield back. Thank you, Mr. 
Chairman.
    Chairman CHABOT. The gentleman yields back.
    The gentleman from Nevada, who is the chairman of the 
Subcommittee on Investigations, Oversight and Regulations, Mr. 
Hardy, is recognized for 5 minutes.
    Mr. HARDY. Thank you, Mr. Chabot, for holding this hearing. 
I think it is highly important.
    Mr. Eisenbrey talks about these groups with the realtor 
folks being on board with this situation. I have heard nothing 
but negative in my office from everybody that I have talked to, 
whether it is NFIB or the real estate folks. So I guess I am 
getting a little bit different data than maybe you are getting.
    Mr. Eisenbrey, have you ever been an employer? Have you 
ever had your own business?
    Mr. EISENBREY. I am an employer now.
    Mr. HARDY. Have you had your own business?
    Mr. EISENBREY. I am the vice president of a 40-person 
nonprofit.
    Mr. HARDY. So you consider that----
    Mr. EISENBREY. So I have to meet a payroll, yes, 
absolutely.
    Mr. HARDY. Okay. Interesting.
    With the comments that have been made here, you know, we 
have had a letter that has gone out, myself and Mr. Knight, we 
joined together, over 100 Congressmen signed on to it, 
bipartisan letter. This has been one of the most disturbing 
rules for the business sector that I ever listened to, even 
with the state legislature. We do things that more directly 
impact. But this across-the-board legislation, and in my 
district every county is going to get hit by this. Even the Las 
Vegas area is going to get hit very hard by this.
    So, Ms. Tipton, I would like you go in, you talked about 
you have 100 employees, tell me what kind of impact that is 
going to do overall. And maybe even dabble into--all of you 
would like to maybe dabble into what is going to maybe happen 
to the hiring process. We have talked about the impact on those 
that are employed. What happens to the future of the hiring 
process?
    So, Ms. Tipton, I will give you first.
    Ms. TIPTON. Thank you.
    For Mineral County, depending on how the board determines 
we are going to handle this, we may not hire anybody. That is 
the bottom line. We have a finite amount of resources.
    If I had an ask of this commission, see if Congress can't 
step back and look at this from a more commonsense standpoint 
maybe. Look at a sliding scale. $28,000 dollars is ridiculous, 
and we all know that, even in Mineral County, that is one of 
the poorest of the poor.
    But look at this from a different--what is your population 
base? And when you are talking regional, if you throw 
Intermountain West into the Pacific Rim, the rural 
Intermountain West falls off the board. It doesn't even get 
looked at. You throw 15 counties in Nevada in with the two 
urban counties in Nevada, it doesn't get addressed.
    What is your public to private land? All of you back here, 
you have private land that you have taxes on, and every square 
inch of your land back here produces. Ours doesn't and it can't 
because of the nature of the beast.
    What is it going to do to us, Congressman? We won't hire. 
We will not increase hiring. We can't. We can't afford to.
    Mr. HARDY. Anybody else care to address that?
    Ms. WALTERS. I would share one thought and that is the 
challenge in the recruiting process. I think in 1938, when the 
FLSA was enacted, America had a very different economy. We were 
strong in manufacturing. An employer would have the same job 
with lots of employees working in the same job, so that if 
those employees were cut to 40 hours, creating those part-time 
jobs would be--could be full-time employees, easier to recruit.
    Today, for example, one company I know, they have 38 
employees. They have 32 different job titles. So when it comes 
to reclassifying some of those employees who are exempt today 
to nonexempt, and then trying to recruit a part-time worker, to 
work those hours over 40 at straight time, it is going to be 
incredibly challenging, I think, to find someone who was 
qualified and interested in working.
    And Ranking Member Velazquez, I think you said today the 
average may be 47 hours a week and working 7 hours overtime a 
week. And so the ability to merge those extra hours into a 
full-time job is just not feasible because they are all 
different jobs. So I think that is a challenge that is on the 
table as well.
    Mr. HARDY. You know, the issues that we have also heard 
about is the education system, whether it be at the higher ed 
or the K through 12 situation with certain counties and areas 
and how that overtime ruling will impact our university system, 
and the individuals coming out of those higher ed programs. A 
lot of schools pride themselves in how they place their 
graduates and the opportunity they have for the students.
    Do any of you hire from the university systems, and is that 
going to impact their opportunity to maybe enter into a job in 
the future?
    Chairman CHABOT. And the gentleman's time is expired, but 
you can answer the question if you like. Ms. Walters.
    Ms. WALTERS. Thank you. One academic client I have, they 
are estimating the biggest impact to them will be for their 
coaches and their academic counselors. The coaches operate 
very, very independently now. They coach evenings, weekends, 
flexible hours, do not track time. Currently, they are properly 
classified as exempt, based on the salary increase they may, 
need to be reclassified as nonexempt. So that is a big 
philosophical change, you know--the issue of what I hear--a 
common response from employees is a trust issue. What are you 
telling me? Why do I have to track my time today and I didn't 
yesterday? Is it because you no longer believe I am really 
working, I am really producing?
    Also for the admissions counselors, folks who, again, have 
come out of school, many have a certification. They belong to a 
professional, a national association. They travel, they go to 
college fairs. You know, they are the representative of the 
university or the college. Converting them to nonexempt I 
think, again, is going to be this philosophical, employee/
employer relations challenge of, I don't understand.
    So it is, I think, starting the dialogue with why we are 
changing and then what the strategy is. And I think the beauty 
of part of this dialogue is, as I don't disagree with some of 
what Mr. Eisenbrey has shared, what I would reverse is I think, 
yes, the analysis becomes easier. If you make less than $913 a 
week, you need to be reclassified as nonexempt, but I don't 
think that is the end. I think that is the very beginning.
    And what I am hearing employers say is, okay, now what do I 
do and how do I do it? For example, I have heard at least seven 
different options how employers may respond to the new 
regulations. Four of those seven would not result in the 
employee receiving any more compensation than they do today. 
Three would. And so employers are trying to figure out which 
option is going to work for them, what the fiscal impact will 
be to their company, and what the relationship impact will be 
to their employees.
    So it is just a lot of dialogue, and I think we are asking 
for time to just, you know, have the economic study, figure out 
what the impact is, and then move forward in a way that is 
going to work really well for the employees and the employers.
    Chairman CHABOT. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Davidson, who is a relatively 
new addition to this Committee--and for those who may not know 
replaced Speaker Boehner in the House--is recognized for 5 
minutes.
    Mr. DAVIDSON. Thank you, Mr. Chairman.
    Guests, thank you for coming here and thanks for your 
testimony.
    The past 15 years I have spent growing small manufacturing 
companies. I had very little background with politics other 
than as a news junkie and decided to run for office, so pretty 
recently here from the small business world. Our businesses in 
Ohio have about 200 employees and will have some firsthand 
experience from it, but I have enjoyed some roundtable 
feedback.
    And I will say, Mr. Eisenbrey, your perspective seems out 
of touch with the folks in the Eighth District of Ohio. We 
cannot create a bigger middle class simply by decreeing it from 
Washington any better than it has been decreed from any throne 
anywhere in the world. It is ignorant of history, economics, 
and math.
    And as an example, California was well below the threshold 
at 41. Do you know the median annual income in California?
    Mr. EISENBREY. Not offhand, no.
    Mr. DAVIDSON. It is $67,458 in 2014. That was number three.
    Mr. EISENBREY. That is not true. That could be a family 
income. That is not an individual income.
    Mr. DAVIDSON. And in the State of Ohio it is $45,000, which 
is down at number 35. So the idea that there could be some 
national edict, that is going to set a standard, is entirely 
market distorting. And when your solution, which is in line 
with the Administration's solution, is we will just confiscate 
it from the owners, is also ignorant.
    Commissioner Tipton, thanks for your testimony. Who are the 
owners of your county that this would be confiscated as from?
    Ms. TIPTON. Sir, it is my taxpayers whose median annual 
income is $38,000, per household.
    Mr. DAVIDSON. Thank you.
    Ms. TIPTON. Twenty-five percent of my county lives at or 
below the poverty level. Twenty-four percent of my county is 65 
or older. Those are the constituents that it would impact.
    Mr. DAVIDSON. Very similar for some of our counties in the 
Eighth District of Ohio. We have some great universities in the 
Eighth District of Ohio, and our country is blessed with some 
great educational solutions, not just higher education but 
skilled trades.
    And who are the owners there? The bill payers are students. 
Students are the ones that are going to pick up this tab, and, 
you know, last I checked, students are really dealing with a 
way to pay for that tuition. So your solution is to give these 
researchers, who are benefiting from better tuition and 
degrees, bigger wages, which are really financed by student 
loans. Students, young people, 18 to 25 years old, generally 
are going to pay these wages, okay. And they have been decreed 
with very little input. So there is not a universal class 
warfare confiscation scheme that is going to work.
    I think that the other thing that, Mr. Robinson, you 
touched on, and from SHRM, we have been members for a long 
time, so thanks for your work in the field of HR. One of the 
things that really this rule also seems very ignorant of is the 
changing culture. So you alluded to it with manufacturing and 
kind of the stereotypical things. And Mr. Robinson, you also 
alluded to it with the way people work. They are sending 
emails. FIB, also very active, small businesses in the State of 
Ohio in the west just as in east.
    So if you guys could comment on the impact of culture and 
just, you know--I don't know how many people came to the room 
without some version of a smart phone. How does this rule 
affect the ability to do work in today's economy?
    Ms. WALTERS. Thank you for the question. One thing I would 
share is, back to kind of whether this is the beginning or the 
end, the next thing that will be, or we understand will be 
happening, the Department of Labor has already published in its 
regulatory agenda, that it will be publishing an RFI, a request 
for information, seeking feedback from employees and employers 
about how they are tracking the time that nonexempt employees 
use electronic devices.
    So that is on the radar. We add to that population, our 
exempt employees today who will be converted to nonexempt so in 
the little, small litany of pay practices where we have to be 
cognizant of how we pay, when we pay, and for what we pay our 
nonexempt employees, we need to be cognizant of that as well. 
So there is just a whole lot in the mix, I think.
    Mr. DAVIDSON. Thank you for that.
    I just have one other thing. You talk about that and just 
to where this will lead us, well, just install an app for that. 
And that will be yet another encroachment into people's Fourth 
Amendment privacy rights. So we have all here sworn to support 
and defend the Constitution, and we continue to see people who 
have sworn that oath trample it. So thanks for any other 
feedback you guys can give.
    Chairman CHABOT. Thank you very much. The gentleman's time 
has expired.
    The gentleman from Mississippi, Mr. Kelly, is recognized 
for 5 minutes.
    Mr. KELLY. Thank you, Chairman, for holding this hearing 
today.
    And thank you, witnesses, for being here.
    You know, it is so frustrating to me to hear people who 
have no idea what is going on. And Mr. Eisenbrey talks about he 
is a private employer, and he is a small business owner, but 
Mr. Robinson, Mr. Macre, and Mr. Eisenbrey's testimony states 
Economic Policy Institute is both a nonprofit and a small 
business entity.
    For the record, I would like to share just a few facts with 
you about the Economic Policy Institute that I learned from its 
Website. From 2010 to 2014, EPI received 27 percent of its 
funding from unions and 57 percent from foundations. The 
chairman of EPI's board is none other than Mr. Trumka, the 
chairman of the AFL-CIO. So from my perspective, EPI has 
absolutely nothing in common with the other small businesses 
that we have here.
    Mr. Robinson or Mr. Macre, does 80 percent of your funding 
come from unions or foundations, or does it come from you?
    Mr. ROBINSON. Our revenue comes from our customers that we 
have to deliver a service to that adds value. So no, no, sir.
    Mr. KELLY. And I wish that everything was cherry blossoms 
and rainbows. I wish everybody could have all the money that 
they want regardless of where they are from or what job they 
do. I wish we all made equal amounts. I wish I had a lot more 
money than I do. However, that is just not going to happen, and 
you can't take it from owners who don't have it.
    Having owned a small business, a law firm, a private 
practice law firm, where I did write the checks, and the money 
came from me, not some outside foundation, from the clients 
that I represented, I think it is important to understand that 
it is not going to create 100,000 jobs. I don't care what the 
statistics say. And if it does create jobs, those jobs are 
going to be part-time.
    I also worked as a city prosecutor in a county government 
for a long time. Most of the salaried employees made less than 
this amount in Mississippi, which is very, very rural. But that 
is a good living there. You understand this, that what happens 
is people just go home or you don't--you have a hiring freeze, 
you don't rehire because personnel is the largest cost of a 
local government.
    And you understand that, Commissioner. Can you comment just 
a little bit about the difference between a part time and the 
benefits they receive versus a full-time employee that they 
receive from the county or city?
    Ms. TIPTON. Yes, sir. Thank you for the question. In 
Mineral County, a part-time employee is 19 hours a week. They 
cannot work any more than that. State won't allow that or then 
you have to pay retirement on them. They get workman's comp, 
that is what they get. A full-time employee, we pay 100 percent 
of their benefits. Last year it was probably $500 a week per an 
employee.
    And my next worry is, it has gone up, of course, because 
healthcare has. Mineral County, Nevada, some of my employees, 
the day may come, in the not too distant future, where they are 
paying taxes on their healthcare. And that is going to be 
interesting too.
    Yeah, and that is it. From a part-timer they get workman's 
comp, that is what they get, and Social Security, period.
    Mr. KELLY. And I also take exception to professionals. And 
again, I think there is just--you know, even within my 
district, it is 22 counties. I have one county that has 167,000 
people in it. I have one county that has 8,000 people in it. So 
to compare those incomes in those counties is not--so I 
understand exactly what you are saying.
    And when you throw in Atlanta, Georgia, with Calhoun City, 
Mississippi, or Vardaman, Mississippi, those are not equal and 
you can't compare statistics about what salaries are based on 
those. Would you agree with that?
    Ms. TIPTON. Oh, definitely. The community I live closest to 
is a population of 200. The next community is 32. The largest 
town--no incorporated cities in Mineral County--the largest 
town is about 3,000. About 900 of my county residents live on 
the Walker River reservation. We--yeah, that is my residence.
    Mr. KELLY. Thank you.
    And the final point I will say is, I worked for the 
government as a district attorney, and so I hired people.
    Most of my investigators that worked for me--which are 
long-time law enforcement officers who are stepping up in a job 
and it paid at or less than what the salaried amount is now, 
which is a great limit--I had ADAs, assistant district 
attorneys who were coming out of law school, and I could not 
pay them $49,000, $50,000 a year because it was not within my 
budget.
    But the experience and the trial experience and the 
mentorships and the things those people got, but what would 
have happened if they would have said you have to pay them this 
or pay them overtime, I would just not have hired someone. I 
would have had less assistant district attorneys and less 
opportunities. Can any of you comment on that?
    Chairman CHABOT. And the gentleman's time has expired, but 
you can comment.
    Mr. ROBINSON. Well, sure, in brief, you take our--and not 
just us. Every startup who--technology startup creating the 
bulk of the high-paying jobs, in this country right now, if you 
take the wage base up 20 percent, you are eliminating one job 
every five hires. That is the math. It is simple. It is I can 
higher one fewer person in five. Now scale that across 
thousands of businesses like ours and you have the suppression 
on job growth which seems to me antithetical to the whole point 
of this exercise.
    I mean, just let us--it is a labor market. People can go 
where they want. If we treat them poorly, they will leave. We 
compete for talent. It is not just the salary. It is equity and 
stock options and all the other tools we have to compete as an 
employer. This is a giant, blunt instrument that we now have 
one tool and it really doesn't help us differentiate and hire 
the people we need.
    Chairman CHABOT. Anybody else need to comment?
    Mr. EISENBREY. Mr. Chairman, could I just comment?
    Chairman CHABOT. Go ahead.
    Mr. EISENBREY. You know, the beauty of a one-size-fits-all 
rule that has been attacked here today is that every business 
is subject to the same rule, so that all of your competitors, 
will be subject to the same rule. And the notion that raising 
labor costs is somehow a bad thing leads us to having no 
minimum wage, which, you know, that would not be a good thing 
and the American people wouldn't support that.
    That the notion that every time you raise labor costs you 
are somehow crimping business would--I think it is actually the 
biggest cause for the wage stagnation that we have had for the 
last 30 or 40 years, that that has been raised--it has sort of 
been deified and it leaves employees behind.
    Mr. ROBINSON. If our ability to pay was the same as local 
corporations----
    Mr. EISENBREY. Excuse me, I didn't interrupt anyone else, 
and I would like you not to interrupt me. Thank you.
    I would just like to say that somehow we managed as a 
Nation from 1938 until the late 1970s with rules that set a 
higher threshold than we have now. Workers, as the ranking 
member said, we had a much higher----
    Mr. KELLY. Mr. Chairman, I would like to claim back my 
time. He has gone over what the amount is.
    Chairman CHABOT. It is the gentleman's time. I did want to 
give somebody else a chance to respond here, if that is okay 
with the gentleman. Mr. Robinson or----
    Mr. ROBINSON. Well, my comment was just, bigger businesses 
have a much greater--and excuse me for the interruption--much 
greater impact to bear the cost than a small company like ours.
    Oracle, you know, in many ways we compete against, 
multibillion dollar company, multibillion dollars in profit 
publicly traded. I compete for deals with those guys. I can't 
just take my cost up. I don't have it. One size does not fit 
all. I am this big; they are this big; there is a difference. 
That is the problem.
    Chairman CHABOT. Okay, the gentleman's time has expired.
    We want to thank all the witnesses for being here today and 
participating in this hearing.
    From my perspective, as Chair, I would indicate, I believe 
that the overtime rule is going to do more harm than good and 
is likely to pose a considerable challenge for small 
businesses, especially those with thin margins, which is most 
small businesses, as well as, small nonprofits, and small 
governmental jurisdictions, as you, Commissioner Tipton, have 
indicated, with very tight budgets.
    However, the most damaging repercussions are likely to be, 
I believe, the loss of employee morale as workers are shifted 
from salaried positions to hourly status. Benefits very well 
may be reduced, as the testimony was; flexible work options 
will be limited; and opportunities for career advancement may 
well be decreased.
    My colleagues and I will continue, on both sides of the 
aisle, to work on legislative solutions that help America's 
small employers and their workers succeed and reverse the 
harmful effects caused by this new overtime rule.
    I would ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record.
    And without objection, so ordered. And if there is no 
further business to come before the Committee, we are 
adjourned. Thank you very much.
    [Whereupon, at 11:37 a.m., the Committee was adjourned.]







                            A P P E N D I X




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    Thank you Chairman Chabot and Ranking Member Velazquez and 
Members of the Committee for the opportunity to testify about 
the impact of the Department of Labor's new overtime rule. This 
rule requires employers to provide overtime pay to employees 
whose salary is less than $47,500, which is about double the 
existing threshold.

    What I want to do in my time today is focus on how this 
rule will adversely affect technology startups and high-growth 
small business owners like me, and what that means for the 
people we employ.

    I am the CEO and co-founder of a human resources technology 
business called Hireology. We have streamlined and improved the 
hiring process to help companies eliminate bad hires and 
identify good ones. We have also fielded hundreds of confused 
inquiries from our customers about how to comply with this 
rule. As a result we have a unique perspective to speak about 
its impact.

    Like most federal regulations, the overtime rule is a one-
size-fits-all policy that doesn't distinguish among firm size, 
sector, location, or compensation structure. This means that 
companies that don't fit the Department of Labor's outdated 
model will be disproportionately hurt by the rule.

    Take the capital-constrained technology startup sector that 
I work in, for example. Employees at these companies trade long 
hours and lower pay for the opportunity to get amazing 
professional experience in their careers, and the potential for 
a significant financial windfall later on.

    Are we exploiting our employees? Of course not. Those 
working at tech startups voluntarily recognize that their 
positions are high-risk, high-reward ventures, and that they 
may have to go years with below-market pay to get a big payout 
in the end. Do we want to regulate these opportunities out of 
existence?

    Looking back on when I started my company in 2010, I can 
tell you with 100% certainty that I would have not been able to 
hire my first employee had this rule been in place. My company 
now has 100 employees with a median annual compensation that 
exceeds $70,000 a year--well above the US average. How many 
``Hireology's'' won't get started as a result of this rule 
making that 1st employee unaffordable for an entrepreneur? Are 
fewer good-paying jobs created and fewer businesses launched 
the outcomes that are desired here?

    Sales professionals--the lifeblood of almost every 
company--also suffer from this rule because their commission-
based compensation structure doesn't align with the Department 
of Labor's vision of the workplace. Consider what my company is 
facing: Forty of our 100 full-time salaried professionals are 
salespeople, whose success--like with most sales positions--
depends on persistence. That means working until the sale is 
made, whatever the hours.

    We pay new salespeople a base salary of $40,000, and those 
who hit their quota can earn $70,000 to $120,000 a year. This 
compensation structure is typical in the technology and sales 
sectors because it allows employees to directly share in the 
profits they produce for the company.

    However, the overtime rule forces us to choose between 
raising base salaries to the new exempt threshold or converting 
everyone on the sales team to an hourly rate, capping hours at 
40 per week.

    Both alternatives are unattractive. A 20 percent pay 
increase for new hires to put them above the threshold would 
hamstring our expansion plans. But, capping hours at 40 per 
week would mean a loss of earning potential for our 
salespeople, and add costly time tracking overhead to our 
bottom line. Both paths result in less opportunity and fewer 
middle-class jobs.

    To the extent that employers like me are forced to 
reclassify employees as hourly to avoid unexpected overtime 
costs, these high-paying job opportunities will be reduced. 
Millions of Americans have entered the middle-class by securing 
a salaried job then working their way up by working until the 
job gets done.

    That means sometimes--during a busy season, a financial 
month-end, or when a coworker is out sick--working longer than 
eight hours in a day. In return, these employees are rewarded 
with the flexibility, benefits, bonuses, status, and promotions 
that come with a salaried position. It's not exploitative. It's 
a key tenant of American work culture.

    Reduced middle-class job opportunities as a result of this 
rule will be compounded in parts of the country with lower 
standards of living. Companies in Chattanooga will have a much 
more difficult time complying with a $47,500 salary threshold 
than companies in Chicago. As a result, the rule will be 
another hurdle for smaller communities across the country that 
are still suffering from high unemployment and a lack of 
middle-class job opportunities.

    I urge you to pursue legislative solutions to undo the harm 
that will be inflicted by this overtime rule. At a time when 
the middle-class in this country is already being squeezed, the 
tech sector, sales jobs, and middle-management positions are a 
few areas that still provide relief. The over-time rule 
threatens to close those career pathways that have been paved 
by hard work.

    Thank you for your time today. I'm happy to take any 
questions.


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    Chairman Chabot, Ranking Member Velazquez and members of 
the Committee, thank you for the opportunity to testify today 
on the Impact of the U.S. Department of Labor's (DOL) final 
overtime rule on small entities--including small county 
governments like mine. As an integral part of our federal-
state-local intergovernmental system, county governments have a 
vested interest in labor market policies.

    My name is Jerrie Tipton. I am the Chairman of the Mineral 
County, Nevada, Board of Commissioners and also serve in 
leadership positions with the Nevada Association of Counties 
and the National Association of Counties (NACo).

    About the National Association of Counties (NACo)

    Founded in 1935, NACo is the only national organization 
that represents county government in the United States and 
brings together county officials to advocate with a collective 
voice on national policy, exchange ideas and build new 
leadership skills, pursue transformational county solutions, 
enrich the public's understanding of county government and 
exercise exemplary leadership in public service.

    About Mineral County

    Counties are highly diverse, not only in my home state of 
Nevada but across the nation, and vary immensely in natural 
resources, social and political systems, cultural, economic, 
public health and environmental responsibilities. Mineral 
County is located in western Nevada, approximately 300 miles 
north west of Las Vegas.

    We have a population of 4,478 and a land area of just over 
2.4 million acres--of which the majority is owned by the 
federal government. Of those 2.4 million acres, 1.6 million are 
managed by the U.S. Department of the Interior's Bureau of Land 
Management (BLM) and nearly 400,000 more acres are managed by 
the U.S. Forest Service (USFS).

    To put that into perspective, the BLM and Forest Service 
together manage an area of our county more than two times the 
size of Rhode Island. All told, federal lands in Mineral 
County, including military reserves and land held in trust for 
Native American tribes, are as large as Rhode Island and 
Delaware combined.

    Mineral County is the very definition of a small 
governmental entity and we are very concerned about the 
potential impact of the new overtime rule on our ability to 
fulfill our fundamental responsibilities--many of which are 
mandated by the state and federal government. We employ 102 
full time employees to serve our 4,478 residents across this 
vast, rugged--and beautiful--landscape.

    In addition to the county, there are 60 more establishments 
that serve as employers in our area--many of which will also be 
impacted by the final rule. The majority of these are small 
businesses and are essential to the continued vitality of our 
communities.

    Mr. Chairman and members of the committee, as you continue 
to assess DOL's new overtime rule and the potential impact on 
employers--and especially small entities including local 
governments--we respectfully submit three observations for your 
consideration:

          1. The nation's 3,069 counties, most with fewer than 
        500 employees, provide vital services to more than 300 
        million residents.

          2. The new overtime rule does not adequately address 
        the wide variations in local labor markets across the 
        country.

          3. The new rule will have broad consequences for 
        taxpayers and county services.

    First, the nation's 3,069 counties, most with fewer than 
500 employees, provide vital services to more than 300 million 
residents.

    County governments are an essential component of the 
federal-state-local intergovernmental system, and therefore we 
have a vested interest in wage and hour policies that are both 
fair and efficient for public employers and employees.

    America's 3,069 counties administer public programs and 
deliver public services, often on behalf of states and the 
federal government. Counties employ over 3.6 million people to 
carry out this important work. Because of our role as 
employers, we are concerned that the new rule could have the 
unintended effect of placing additional strain on already 
limited county budgets throughout the country, hindering our 
ability to provide crucial services to our local communities.

    The majority of counties, almost 70 percent, can be 
considered rural and have fewer than 50,000 residents and are 
therefore categorized as small governmental jurisdictions under 
the Regulatory Flexibility Act (RFA). The RFA defines small 
governmental jurisdictions as governments of cities, towns, 
townships, villages, school districts, or special districts, 
with a population of less than 50,000 (RFA, 5 U.S.C. 
Sec. Sec. 601-12).

    Small rural counties are also major employers. These 
counties across the country employ over 410,000 full-time 
employees, who collectively serve almost 40 million Americans. 
Like Mineral County, these small counties often deliver 
services over expansive areas--some even larger than smaller 
states. Small counties in particular have raised concerns that 
the new overtime rule could adversely affect their county 
finances as well as their county employees' work hours and 
benefits.

    As mentioned earlier, 70 percent of our nation's counties 
have fewer than 50,000 residents. Despite major variations in 
size and population, counties across the country must provide 
basic public services at the local level. These include 
maintaining the justice and public safety system, including 
police and fire protection, criminal justice, courts and jails; 
transportation and infrastructure, including road and bridge 
building and maintenance, airports and transit; health, 
including local public health departments, hospitals, clinics, 
nursing homes and mental health programs; and in this election 
year, counties are responsible for administering federal, state 
and local elections. We also serve as conveners for our 
communities, bringing local stakeholders together to engage 
with state and federal agencies on matters of local concern. 
Our ability to perform all these critical--and often mandated--
local functions could be affected as we try to comply with the 
new rule.

    Of Mineral County's 102 full-time employees, 13 to 17 of 
our county employees will eligible for overtime pay under the 
new rule. We simply do not have the flexibility within our 
local budget to pay the newly eligible employees overtime pay 
in compliance with the rule--especially as soon as December. 
Two factors limit our capacity to comply. First, we must 
maintain spending required under existing federal and state 
mandates. Second, we are constrained by limits on our ability 
to generate revenue imposed by the state of Nevada and by the 
fact that so much of our land is tax-exempt federal land. Like 
many other counties, the upcoming December 2016 implementation 
date puts our county in an even more difficult bind as we work 
to try to find where this extra revenue will come from. We have 
been ``doing more with less'' for so long that, absent new 
revenue sources, it is hard to see any alternative to cutting 
services.

    Second, the new rule does not adequately address the wide 
variations in local labor markets across the country.

    While it is encouraging that the rule attempted to take 
into account regional variations, using Census regions to 
determine the salary threshold is too broad and does not 
provide an accurate picture of the major differences in labor 
markets across local communities. The rule pegs the proposed 
salary level to the salary level of the 40th percentile of 
weekly earnings of full-time salaried workers in the lowest-
wage Census region (now the South). The South Census Region 
includes Alabama, Arkansas, Delaware, the District of Columbia, 
Georgia, Florida, Kentucky, Louisiana, Maryland, Mississippi, 
North Carolina, Oklahoma, South Carolina, Tennessee, Texas, 
Virginia and West Virginia.

    As is often the case with federal regulations, the new 
salary threshold will likely have an even greater impact on 
small and rural county governments. A nationwide uniform 
federal regulation does not, in this case, adequately take into 
account key measurable differences between small and rural 
communities and larger population centers. The new salary 
threshold is significantly above our Mineral County median 
household income of $38,664.

    Consider local government average wages by state. Based on 
data from the Bureau of Labor Statistics, in 2015, the average 
annual wages paid by local governments nationally ranged from 
$62,482 in Hawaii to $32,911 in South Dakota. In 34 of the 50 
states, local government employees earned less than $46,000--
which is less than the new DOL salary threshold.

    The situation is even more uneven at the local level. In 85 
percent of counties, local governments do not meet the new 
salary threshold of $47,476. For example, in Decatur County, 
Kansas the current average wage in local government in $18,465. 
In 97 percent of counties in the South Census region, the 
region used by the new rule for pegging of the threshold, 
average wages in local government are less than the newly 
proposed threshold.

    Mr. Chairman, in your state of Ohio, local governments pay 
on average $44,526 and in 94 percent of the counties in your 
state, local governments pay less than the newly proposed 
threshold. And Ranking Member Velazquez, in New York, almost 
three quarters of the counties (42 of 58) pay less than the 
newly proposed threshold. So as you can see, the new overtime 
rule will have a significant impact on the nation's counties--
especially those with populations of 50,000 and below.

    Because we are often unable to offer wages as high as in 
the private sector, local governments will often compete in the 
labor market by offering our employees great benefits. For 
example, counties provide extensive health coverage to their 
employees, dependents and retirees. An estimated 2.5 million 
county employees--out of 3.5 million full-time and part-time 
county workers--and nearly 2.4 million of their dependents were 
enrolled in health plans offered by county governments in 2014. 
Full-time employees are eligible for county health benefits in 
almost all counties and 80 percent of counties offer health 
coverage for all employee dependents.\1\
---------------------------------------------------------------------------
    \1\ Istrate, Emilia. County Health Benefits 2014, Washington, D.C.: 
National Association of Counties. Available at http://www.naco.org/
sites/default/files/documents/
County%20Health%20Benefits%20FINAL--06.30.2014.pdf

    Finally, the new rule will have broad consequences for 
---------------------------------------------------------------------------
taxpayers and county services.

    Many counties are still struggling to recover from the 
recession and may not have the resources to absorb sudden 
spikes in pay increases

    First and most obvious, doubling the current salary 
threshold amount all at once will have harmful consequences on 
county budgets--and ultimately on county employees--
particularly as we struggle to recover from the recession. 
According to NACo's County Economies 2015 report, only 214 
county economies have fully recovered by 2015 (based on four 
indicators--jobs, unemployment rates, economic output (GDP) and 
median home prices) to their pre-recession levels.\2\
---------------------------------------------------------------------------
    \2\ Istrate, Emilia, Brian Knudsen. County Economies 2015: 
Opportunities and Challenges, Washington, D.C.: National Association of 
Counties. Available at http://www.naco.org/sites/default/files/
documents/2016%20CET-report--01.08.pdf

    Some counties have calculated the impact of the overtime 
pay change on their payroll costs and are expecting dramatic 
increases to payroll in the first year of implementation and 
beyond. For example, according to Berks County, Penn., 97 of 
the 419 county employees who are currently ineligible for 
overtime pay because of their salary levels would be newly 
eligible under the final rule. Berks County has estimated that 
the resulting additional financial burden could cost the county 
---------------------------------------------------------------------------
as much as $1.5 million in the first year alone.

    In Mineral County, of our 102 employees, approximately 13-
17 would now be newly eligible for overtime pay under the new 
law--and potentially cost an additional $25,000 to $45,000. 
This might not seem like a lot, but for our county, this poses 
quite a financial challenge.

    Many counties do not have the financial flexibility or 
resources to absorb sudden spikes in pay increases without 
reducing current service levels, decreasing employee benefits 
and/or reducing our county employee work hours or staff.

    In the final rule, DOL does not seem to have adequately 
analyzed the economic impact on small governmental 
jurisdictions as required by the RFA. In the section of the 
final rule titled ``Projected Impacts to Affected Small 
Entities,'' DOL provides an analysis of the projected economic 
impact on small entities, including small local governments 
(pgs. 32, 536-32,541). In Table 42 (pg. 32,540) it estimates 
the total costs--directs costs and payroll increases--per 
establishment. For state and local government establishments, 
DOL estimates the total cost would be $9,264.\3\ However, as I 
noted above, my county is projecting a total cost of $25,000 to 
$45,000, which is significantly higher than DOL's estimate.
---------------------------------------------------------------------------
    \3\ DOL Overtime Pay Rule; 81 Fed. Reg. 32540 (May 23, 2016) (to be 
codified at 29 C.F.R. Part 541)

    Most counties' ability to raise new revenue is limited by 
---------------------------------------------------------------------------
states

    Increasing taxes to pay for overtime increases is not often 
an option for counties, beyond the political difficulty of 
instituting additional taxes. In fact, 43 states impose some 
type of limitation on counties' ability to increase property 
taxes, including 38 states with statutory limitations on 
property tax rates, property tax assessments or both. There are 
not many other revenue solutions at counties' discretion. For 
example, only 12 states authorize counties to collect their own 
local gas taxes, which are limited to a maximum rate in most 
cases and often involve additional approvals for 
implementation.

    Given these fiscal limitations, many counties may have to 
reduce the service levels for critical programs (public 
transportation and infrastructure, justice and public safety, 
public health, search and emergency rescue and 911 operations) 
and cut any non-mandated services such as critical support for 
economic development--to comply with the new rule.

    Counties with federal land in their jurisdictions are even 
more limited in their ability to raise additional revenue to 
pay for the new overtime rule

    Our ability to raise additional revenue to pay for the 
salary increases is not just impacted by the states--there is 
another complicating factor for many counties. Sixty-two 
percent of counties nationwide have federal land within their 
boundaries and in each case, those county governments provide 
important local services to federal public lands visitors and 
federal employees every day. However, once the federal 
government acquires land, it is removed from county tax rolls 
and no longer subject to local property taxes. The loss of 
revenue greatly impacts local schools, roads, hospitals, fire 
and public safety services. In Mineral County, just 3.4 percent 
of our county is privately held and over half of the private 
land has no taxable infrastructure associated with it.

    Although the federal government has traditionally provided 
some relief for this lost revenue through the Payments in Lieu 
of Taxes (PILT) program, PILT often reimburses at a rate well 
below the land's taxable value per acre. For example, Mineral 
County receives $0.36 cents per acre from the PILT program, far 
less than the $3.84 per acre we receive in local property taxes 
for similar land. In addition, in recent years the fate of the 
PILT program has been uncertain. The lack of long-term, 
predictable and full funding for the program has a significant 
impact on the budgets of public lands counties acres the 
nation.

    The budget process and timing for counties further 
complicates our ability to comply with the new rule

    Many counties have a budget deadlines of July 1, if not 
sooner. Because the final rule was announced on May 18, 
counties--including mine--hae very little time to conduct 
analysis and calculate the additional costs of the increased 
salary threshold and where these resources would come from. Our 
budget cycle is from July 1 to June 30 and for this year, we 
had to submit our budget, without accounting for the overtime 
rule, to the state by April 15.

    In addition, some counties operate on a bi-annual budget, 
meaning some counties already have their finances accounted for 
in the coming fiscal year excluding the additional costs for 
the new rule. Furthermore, many counties, like Mineral County, 
must have their budgets approved or certified by the state. 
Once these budgets are approved, it is very difficult to change 
if the needs of the county shift.

    It can be more challenging for small and rural counties to 
ensure that we are in compliance with federal regulations, 
because we have limited human resources personnel, legal 
counsel and financial advisory staff

    DOL estimated that on average, an affected small 
``establishment'' is expected to incur $100 to $600 in direct 
management costs, a one-hour burden for regulatory 
familiarization (reading and implementing the rule), a one-hour 
burden per each affected worker in adjustment costs, and a 
five-minutes burden per week scheduling and monitoring each 
affected worker.

    However, we are concerned that these estimates may not 
reflect the actual experiences of small entities--as we 
typically spend a disproportionately higher amount of time and 
money on compliance because we have less capacity and staff 
expertise to work through the required changes under the new 
rule. Unfortunately, we may be forced to adjust by hiring 
outside consultants to help us comply with these new 
regulations, which can cost thousands of dollars. In Mineral 
County, we do not have the extra funding to hire an outside 
consultant.

    The comp time option for compliance is not a complete 
solution

    The final rule offered alternatives to state and local 
governments to help us comply with the new rule. One 
alternative that DOL offered was to allow public sector 
employers, including local governments, to satisfy their 
overtime obligation by providing comp time rather than cash 
overtime premiums. State and local government employers may 
continue to use comp time to satisfy their overtime obligations 
to employees who have not accrued the maximum number of comp 
time hours. However, in Mineral County, we have so few full-
time employees, comp time is not a real option. In most of our 
county departments, for example, we have one employee 
fulfilling certain job duties and responsibilities. If that 
employee has to use comp time, we may not be able to carry out 
the public services that are need in order to have a 
functioning county government.

    Additionally, comp time is not budget neutral and offering 
it to newly overtime eligible employees will have costs 
associated with it. In fact, for accounting purposes, overtime 
paid as comp time must be regarded the same as cash. While we 
appreciate DOL attempting to offer options for state and local 
governments, ultimately, the comp time option does not seem to 
provide enough flexibility to be very helpful for small 
counties confronting significant compliance challenges.

    Conclusion

    Chairman Chabot, Ranking Member Velazquez and members of 
the Committee, as we have explained, DOL's new overtime rule 
will impose considerable burdens on counties, especially small 
counties. We thank you once again for holding this important 
hearing and respectfully ask that you continue to consider the 
interests of America's 3,069 counties in this matter--not only 
as employers, but as your intergovernmental partners, providing 
vital services to more than 300 million residents. 
Unfortunately, the new overtime rule does not adequately 
address the wide variations in local labor markets in counties 
across the country. And ultimately, please remember that the 
new rule will have broad consequences for taxpayers--and county 
services.

    NACo and our member counties stand ready to work with you 
to craft balanced policies that are fair to workers and 
workable for county governments and their residents.

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    Good morning, Chairman Chabot, Ranking Member Velazquez, 
and members of the Committee. My name is Albert F. Macre. I am 
a Certified Public Accountant and the owner of several small 
businesses located in eastern Ohio, one of which--Payroll + 
Services--is affected by the new Department of Labor (DOL) 
overtime rule for salary exempt personnel. I am pleased to be 
here on behalf of the National Federation of Independent 
Business (NFIB) to discuss these rules at today's hearing.

    NFIB is the nation's leading small business advocacy 
organization. Founded in 1943 as a nonprofit, nonpartisan 
organization, our mission is to promote and protect the right 
of its members to own, operate, and grow their businesses. NFIB 
represents about 325,000 independent business workers located 
throughout the United States, 25,000 of which are located in my 
home state of Ohio.

    As a small business owner with several salaried employees 
positioned between the current exempt overtime earnings 
threshold and that created by the Department of Labor's new 
rule, I now find myself standing with countless other small 
business owners forced to swallow more government 
``medication'' prescribed before an accurate attempt at 
diagnosis has been completed.

    NFIB believes that the rule will have a substantial 
negative impact on small businesses and their employees. 
Frankly, the 100% increase in the salary exempt threshold to 
$47,476 is too much, too fast. To put the significance of this 
increase in perspective, from the time that the last salary 
threshold was increased in 2004, the Consumer Price Index has 
risen by only 28%. To make matters worse, the threshold will be 
automatically updated every three years. And while the rule 
allows use nondiscretionary bonuses and incentive payments to 
satisfy up to 10 percent of the standard salary level, the 
reality is that few administrative and lower level supervisory 
personnel are the recipients of such compensation.

    NFIB estimates that the new rule will impact approximately 
40% of small businesses while the DOL has said the rule could 
affect over 4 million employees. Instead of increasing wages 
for certain employees, as the DOL might project, the rule will 
force small business owners to take more control of employee 
hours and benefits to keep costs in check. These controls could 
ultimately result in employees taking home less money annually. 
And don't underestimate the impact on employee morale as 
affected employees are told they must now punch a time clock 
for the first time in their careers.

    In addition to these negative impacts, the implementation 
window is very short. This rule will become effective on 
December 1, 2016, just over five months from now. Given that 
many small businesses are still struggling with the 
implementation of the Affordable Care Act five years after the 
enactment, this window of compliance seems barely cracked open.

    From a personal perspective, this rule is likely to have 
negative consequences--not only to my company, but to my 
employees as well.

    Payroll+ opened in 1995 in response to my clients' desire 
to farm out payroll processing services to a local, low cost 
provider. We currently have three salaried employees earning 
above the current threshold and below the proposed amount. We 
operate on a 30 to 35 hour workweek for 8 months of the year, 
but do incur substantial overtime during the four payroll tax 
months. Our employees appreciate the certainty of their salary-
based take-home pay each period. They also appreciate the fact 
that they don't have to punch a time clock every day. I 
estimate that the roughly 600 hours of overtime our employees 
work each year are offset by the less than forty hour weeks 
they work during the slow months. Unfortunately law doesn't 
allow me to ``bank'' the short weeks to offset the long weeks. 
In addition, we have paid 100% of our employees' health 
insurance since the day we opened our doors.

    Without getting into the analytical weeds, in order to keep 
employee take-home pays consistent, we are contemplating a 
system of salary advances to be recovered during those overtime 
months. In order to keep our company cash flow level, we are 
contemplating--for the first time in over twenty years--
requiring employees to bear a share of the cost of their health 
insurance benefits.

    DOL's new overtime rule will have a significant, and in my 
belief, negative impact on employers and employees alike. In 
order for small businesses to avoid costly overtime pay, 
managers moved from their salaried positions to hourly jobs 
will need to keep time cards and be prohibited from working 
overtime, including answering email from home. This will be a 
burden not only financially, but in terms of productivity, as 
managers and supervisors will only be allowed to work when 
permitted. From an employee perspective, the flexibility that 
so many had will become a thing of the past.

    NFIB anticipates the changes will hit hardest those low-to-
mid-level managers. These managers may currently make less than 
the proposed threshold, but value work week flexibility and 
benefits such health insurance and employer-provided pension 
benefits. Also, fewer salaried, managerial positions would 
signal to employees that there is little opportunity for growth 
at the company. These consequences will severely hamper 
opportunities for growth and development, not just of small 
businesses, but their employees as well. Unfortunately, neither 
can afford it.

    Thank you again for allowing me to share my thoughts today. 
I will do my best to answer any questions you might have.


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