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



                               before the


                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives


                             FIRST SESSION

             HEARING HELD IN WASHINGTON, DC, JULY 23, 2015

                           Serial No. 114-23

  Printed for the use of the Committee on Education and the Workforce


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            Committee address: http://edworkforce.house.gov

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                    JOHN KLINE, Minnesota, Chairman

Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Duncan Hunter, California              Ranking Member
David P. Roe, Tennessee              Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania         Susan A. Davis, California
Tim Walberg, Michigan                Raul M. Grijalva, Arizona
Matt Salmon, Arizona                 Joe Courtney, Connecticut
Brett Guthrie, Kentucky              Marcia L. Fudge, Ohio
Todd Rokita, Indiana                 Jared Polis, Colorado
Lou Barletta, Pennsylvania           Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada                 Northern Mariana Islands
Luke Messer, Indiana                 Frederica S. Wilson, Florida
Bradley Byrne, Alabama               Suzanne Bonamici, Oregon
David Brat, Virginia                 Mark Pocan, Wisconsin
Buddy Carter, Georgia                Mark Takano, California
Michael D. Bishop, Michigan          Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin            Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma              Alma S. Adams, North Carolina
Carlos Curbelo, Florida              Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia

                    Juliane Sullivan, Staff Director
                 Denise Forte, Minority Staff Director


                    TIM WALBERG, Michigan, Chairman
Duncan Hunter, California            Frederica S. Wilson, Florida
Glenn Thompson, Pennsylvania           Ranking Member
Todd Rokita, Indiana                 Mark Pocan, Wisconsin
Dave Brat, Virginia                  Katherine M. Clark, Massachusetts
Michael D. Bishop, Michigan          Alma S. Adams, North Carolina
Steve Russell, Oklahoma              Mark DeSaulnier, California
Elise Stefanik, New York             Marcia L. Fudge, Ohio

                            C O N T E N T S

Hearing held on July 23, 2015....................................     1
Statement of Members:
    Walberg, Hon. Tim, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     4
    Wilson, Hon. Frederica S., Ranking Member, Subcommittee on 
      Workforce Protections......................................     6
        Prepared statement of....................................     8
Statement of Witnesses:
    Eisenbrey, Mr. Ross, Vice President, Economic Policy 
      Institute, Washington, D.C.................................    29
        Prepared statement of....................................    31
    Hays, Ms. Elizabeth, Director of Human Resources, MHY Family 
      Services, Mars, PA.........................................    11
        Prepared statement of....................................    13
    McCutchen, Hon. Tammy, Principal, Littler Mendelson P.C., 
      Washington, D.C............................................    48
        Prepared statement of....................................    51
    Williams, Mr. Eric, Chief Operating Officer, CKE Restaurant 
      Holdings, Inc., Carpinteria, CA............................    21
        Prepared statement of....................................    24
Additional Submissions:
  Chairman Walberg:
    Letter dated July 23, 2015, from the American Hotel & Lodging 
      Association................................................   106
    Prepared statement of the American Network of Community 
      Options and Resources (ANCOR)..............................   109
    Letter dated July 22, 2015, from HR Policy Association.......   111
    Letter dated August 3, 2015, from Meridian Health Plan.......   130
    Letter dated July 22, 2015, from the National Association of 
      Home Builders..............................................   134
    Letter dated July 22, 2015, from the National Retail 
      Federation.................................................   141
    Letter dated July 23, 2015, from the Partnership to Protect 
      Workplace Opportunity......................................   144
    Letter dated July 23, 2015, from WorldatWork.................   149
  Ms. Wilson:
    Letter dated July 22, 2015, from the Center for American 
      Progress...................................................    90
    Letter dated July 20, 2015, from the Center for Economic and 
      Policy Research CEPR.......................................    93
    Letter dated July 23, 2015, from the National Employment Law 
      Project....................................................    95
    Letter dated July 23 2015, from the National Partnership for 
      Women and Families.........................................    98
    Letter dated July 22, 2015, from the United Steelworkers USW.   100
    Letter dated July 22, 2015, from the 9to5, National 
      Association of Working Women...............................   102


                        Thursday, July 23, 2015

                     U.S. House of Representatives

                 Subcommittee on Workforce Protections

                Committee on Education and the Workforce

                            Washington, D.C.


    The subcommittee met, pursuant to call, at 10:03 a.m., in 
Room 2175, Rayburn House Office Building, Hon. Tim Walberg 
(Chairman of the subcommittee) presiding.
    Present: Representatives Walberg, Thompson, Rokita, Brat, 
Bishop, Russell, Stefanik, Wilson, Pocan, Clark, Adams, 
DeSaulnier, and Fudge.
    Also present: Representatives Kline, Scott, Jeffries, 
Courtney, Takano, and Bonamici.
    Staff present: Janelle Belland, Coalitions and Members 
Services Coordinator; Ed Gilroy, Director of Workforce Policy; 
Callie Harman, Staff Assistant; Tyler Hernandez, Press 
Secretary; Nancy Locke, Chief Clerk; John Martin, Professional 
Staff Member; Zachary McHenry, Legislative Assistant; Brian 
Newell, Communications Director; Krisann Pearce, General 
Counsel; Lauren Reddington, Deputy Press Secretary; Molly 
McLaughlin Salmi, Deputy Director of Workforce Policy; Alissa 
Strawcutter, Deputy Clerk; Alexa Turner, Legislative Assistant; 
Joseph Wheeler, Professional Staff Member; Tylease Alli, 
Minority Clerk/Intern and Fellow Coordinator; Austin Barbera, 
Minority Staff Assistant; Denise Forte, Minority Staff 
Director; Christine Godinez, Minority Staff Assistant; Brian 
Kennedy, Minority General Counsel; Kevin McDermott, Minority 
Senior Labor Policy Advisor; Amy Peake, Minority Labor Policy 
Advisor; Veronique Pluviose, Minority Civil Rights Counsel; 
Arika Trim, Minority Press Secretary; and Elizabeth Watson, 
Minority Director of Labor Policy.
    Chairman Walberg. A quorum being present, the subcommittee 
will come to order.
    Good morning to each of you, and welcome, to all of our 
guests this morning.
    I would like to thank our witnesses for joining us today to 
discuss the costs and consequences of the administration's 
overtime proposal.
    Just over a month ago this subcommittee convened to discuss 
the need to modernize the confusing and outdated regulations 
implementing federal wage and hour standards. At the time, the 
administration had not yet released its overtime proposal, but 
several of our witnesses were already worried about what the 
proposal would look like and the consequences for workers and 
job creators.
    Recognizing this administration's propensity for executive 
overreach, I shared many of those same concerns. But I was 
still hopeful that somehow this time might be different--that 
somehow the administration would listen to all of the concerns, 
consider all of the data, and put forward a proposal that would 
help do some good without doing any harm. As it turns out, the 
optimism was misguided, much like the rule the administration 
eventually proposed.
    In the weeks since the administration unveiled its overtime 
proposal, even more concerns have been raised about the impact 
it would have on both employees and employers. Various studies 
and analyses have shown the administration's plan would result 
in billions of new costs for employers annually--a reality that 
is tough for many employers in this economy, but even tougher 
on small businesses and nonprofits.
    Unfortunately, the proposal's anticipated consequences 
extend far beyond added costs and could have much more serious 
implications for many Americans.
    Of all the concerns we have heard about this proposal, the 
ones I find most alarming are those that will limit flexibility 
and opportunity in the workplace. As employers struggle to cope 
with the added costs of these new overtime rules, many salaried 
employees will be demoted--demoted--to hourly workers with 
lower pay and stricter schedules.
    With that shift comes fewer opportunities for on-the-job 
training, talent development, and managerial experience, all of 
which leads to fewer opportunities to advance up the economic 
ladder. And isn't that what America is about?
    One of the most inspiring things about the American 
workforce is that a crew member at a fast-food restaurant can 
work hard, earn a spot in management, and eventually go on to 
become a leader at a major U.S. business. That is the American 
dream--one that all policymakers should work to encourage, not 
    I am sure Mr. Williams will have more to say on that topic. 
Unfortunately, if the administration's proposal has the effect 
many anticipate it will, stories like that of Mr. Williams will 
be harder to come by.
    Inasmuch as the administration's proposal is flawed for 
what it would do, it is equally disappointing in what it 
doesn't do. It doesn't address the complexity of current 
regulations, and it doesn't reduce unnecessary litigation.
    As Chairman Kline and I said when the proposal was first 
unveiled, it is a missed opportunity.
    What we need instead, and what the American people deserve, 
is a balanced approach that will strengthen employee 
safeguards, eliminate employer confusion and uncertainty, and 
encourage growth and prosperity for those working hard to make 
a living. From what we have heard so far, the administration's 
proposal is not that approach.
    This Committee has held numerous hearings and explored 
various efforts over the years to improve the rules and 
regulations guiding federal wage and hour standards. We have 
heard from employees and employers alike that the current 
system is too complex, burdensome, and outdated. And we have 
seen studies that show related litigation is on the rise.
    For all these reasons, we will continue to urge the 
administration to improve these rules and regulations 
responsibly and in a way that doesn't destroy opportunities for 
hardworking Americans.
    I look forward to hearing from our witnesses today to 
better understand the effects this proposal could have on our 
    And so, with that, I will now recognize the senior 
Democratic member of the subcommittee, Representative Frederica 
Wilson, for her opening remarks.
    [The statement of Chairman Walberg follows:]
    Ms. Wilson of Florida. Chairman Walberg, thank you for 
holding this hearing today and giving us the opportunity to 
talk about the Department of Labor's proposed overtime rule.
    As a prelude to the passage of the Fair Labor Standards 
Act, President Roosevelt made a powerful declaration: All 
Americans deserve a fair day's pay for a fair day's work.
    This simple, powerful principle is the foundation of the 
historic labor law that we, as members of Workforce Protections 
Subcommittee, are charged with strengthening and defending. We 
must protect the workforce.
    Implicit in this principle is the freedom from excessive 
work hours. Explicit in FLSA is premium pay for overtime work.
    Overtime pay was established to protect workers from the 
excessive hours that endanger their health and well-being, 
prevent them from spending time with their families, and 
prohibit them from taking the necessary time to recover from 
the stresses of work, which we all need to do.
    Unfortunately, the failure to update the overtime salary 
threshold to reflect the economic realities of today has 
seriously eroded FLSA's protection against excessive hours and 
its explicit promise of a fair day's pay for a fair day's work.
    Forty years ago, nearly two-thirds of the workforce was 
eligible for overtime protections. Today, only 8 percent of 
workers are eligible for overtime protections.
    We cannot possibly argue that these current working 
conditions for millions of Americans are fair.
    It is not fair that the men and women teetering on the 
brink of poverty--people making $23,660 a year--are asked to 
work 50, 60, or 70 hours a week with no promise of extra pay. 
It is not fair that millions of mothers and fathers who are 
forced to work long hours each week find it almost impossible 
to give their children the time and attention they deserve, yet 
are still deprived of the overtime pay that could lend to the 
economic security of their families.
    It is not fair that a worker eager to advance her career 
can be enticed by the promise of a promotion, a salaried 
position with the management title, yet be met with 
astonishingly similar work duties, shockingly greater hours, 
and in the end, pitifully smaller pay.
    The Department of Labor's proposed rule promises to restore 
a fair day's pay for a fair day's work. The proposed rule would 
raise the salary threshold from the current $23,660 a year to 
about $50,440 a year, extending overtime protections to almost 
five million Americans.
    The rule also ensures that the salary threshold 
automatically increases to keep pace with future shifts in 
average earnings.
    These strengthened overtime protections would mean so much 
in the daily lives of millions of Americans. This overtime rule 
would allow more parents to be involved in their children's 
lives--something we know is absolutely critical for the 
development and betterment of our children.
    This overtime rule would encourage employees to hire more 
workers instead of overworking a few, meaning more jobs for 
more Americans. Jobs, jobs, jobs.
    The overtime rule would give part-time workers access to 
more hours that would help them earn more money.
    I stand strong with Chairman Scott and my colleagues on 
this Committee in support of this overtime rule. I stand strong 
with the more than 150 House and Senate Democrats who sent a 
letter to President Obama this week to express our strong 
support of this overtime rule.
    I want to thank the witnesses for being here today and look 
forward to hearing about how this proposed rule strengthens 
overtime protections and renews the promise of a fair day's pay 
for a fair day's work.
    And I need to correct that: I stand strong with my Ranking 
Member and colleague, Mr. Scott.
    Thank you.
    [The statement of Ms. Wilson of Florida follows:]
    Chairman Walberg. I thank the gentlelady.
    Pursuant to committee rule 7(c), all subcommittee members 
will be permitted to submit written statements to be included 
in the permanent hearing record. And without objection, the 
hearing record will remain open for 14 days to allow 
statements, questions for the record, and other extraneous 
material referenced during the hearing to be submitted in the 
official hearing record.
    It is now my pleasure to introduce today's witnesses.
    First, Ms. Elizabeth Hays is the director of human 
resources at MHY Family Services in Mars, Pennsylvania. In her 
role as director of human resources, she is responsible for 
overseeing all H.R. operations and regulatory areas, including 
those associated with benefits, administration, employee 
relations, health and safety, and policy administration.
    Mr. Eric Williams is the chief operating officer at CKE 
Restaurants, Incorporated, in Carpinteria--Carpinteria, that's 
better--California. Mr. Williams was named COO of CKE 
restaurants in June 2015. Having previously served as executive 
vice president of operations for Carl's Jr., Mr. Williams began 
his career as a Hardee's crew member in 1983, advancing through 
the ranks with management positions in both the company and 
franchise operations and training.
    Welcome. Go blue.
    Mr. Ross Eisenbrey is vice president at Economic Policy 
Institute here in Washington, D.C. Prior to joining EPI, he 
worked as a staff attorney and legislative director in the 
House of Representatives and as a committee counsel in the 
Senate. Mr. Eisenbrey also served as policy director of the 
Occupational Safety and Health Administration from 1999 to 2001 
and is a former commissioner of the Occupational Safety and 
Health Review Commission and a graduate of University of 
Michigan Graduate School.
    The Honorable Tammy D. McCutchen is a principal with 
Littler Mendelson P.C. in Washington, D.C. She represents 
management clients in connection with all types of labor and 
employment matters but focuses her practice on complying with 
the FLSA and state wage and hour laws, conducting audits of 
overtime exemption classifications, implementing compliance 
programs designed to avoid wage and hour disputes, and 
representing employers being investigated by DOL's Wage and 
Hour Division. Prior to her work at Littler, Ms. McCutchen 
served as the administrator of the Wage and Hour Division at 
the Department of Labor from 2001 to 2004.
    I will now ask our witnesses, as is the custom in this 
Committee, to stand and raise your right hand.
    [Witnesses sworn.]
    You may be seated.
    Let the record reflect the witnesses answered in the 
affirmative, and we look forward to your testimonies.
    Before I recognize you to provide those testimonies, let me 
briefly remind you of the lighting system. Like the traffic 
lights, green is go for your five minutes of testimony; yellow, 
caution, get ready to stop, start slowing down; red, find a way 
to conclude as briefly as possible. We want to hear your 
testimonies and we want to make sure we also have opportunities 
for questioning.
    And then as our Committee Chairman is known to say, we will 
be a little bit more firm with our Committee members--right, 
Mr. Chairman?--to keep ourselves at the five-minute questioning 
timeline, as well.
    And so, having said that, I now recognize Ms. Hays for your 
opening five minutes of testimony.


    Ms. Hays. Chairman Walberg, Ranking Member Wilson, and 
distinguished members of the subcommittee, my name is Elizabeth 
Hays and I am the human resources director at MHY Family 
Services in Mars, Pennsylvania. I have been in this role 
overseeing H.R. operational and regulatory issues since 2007. I 
appear before you today on behalf of the Society for Human 
Resource Management, or SHRM.
    Thank you for the opportunity to testify today about how 
these proposed changes will impact not only my organization, 
but other employers.
    Mr. Chairman, quite literally these proposed overtime 
regulations to more than double the salary threshold presents 
the risk of my organization closing its doors. As a nonprofit 
with tight costs, we are often unable to provide pay increases 
and hire additional employees.
    Worst case scenario, I estimate that these changes could 
result in additional and unfunded costs of more than three-
quarters of a million dollars. To be clear, this would be a 9.1 
percent unfunded increase to our budget.
    Allow me to tell you a little bit about my organization. 
MHY is a nonprofit organization serving youth and families by 
providing support and services that afford opportunities for a 
better life. MHY offers comprehensive residential, educational, 
and community-based services, responding to an array of 
hardships and traumas, including mental illness, behavioral 
issues, abuse, and neglect.
    Let me highlight some specific challenges my organization 
would face if these proposed overtime regulations are 
implemented. To be clear, most of MHY's exempt employees--
managers and professionals--are currently paid less than 
$50,000 and under the administration's proposal would become 
eligible for overtime.
    As an underfunded nonprofit with limited flexibility in a 
budget, I have serious concerns about how we will cover 
potential overtime expenses while still providing high-quality 
services for the at-risk youth served by MHY. Our nonprofit's 
ability to provide critical services to the youth and families 
that we serve will be negatively impacted.
    At MHY we prioritize a continuity of care model that 
ensures that the at-risk youth receive services and care from 
the same therapists and supervisors. Therapeutic services are 
driven by the relationships that our employees have with the 
youth and families to which they are assigned.
    Months and sometimes years go into building that trust and 
bond, and this can't be replicated by swapping in another 
professional to avoid exceeding 40 hours on the part of a 
primary professional. Under this overtime proposal, continuity 
of care would be undermined by limiting the ability of our 
employees to effectively respond to clients' clinical needs.
    Changes to the overtime regulations will likely require 
employers to reclassify a significant number of salaried 
employees to hourly employees. Hourly employees, of course, are 
paid only for the hours that they work and often are forced to 
closely track their hours to ensure compliance with overtime 
requirements. This can lead to less workplace flexibility.
    At MHY our residential program managers, as an example, are 
provided with workplace flexibility options. If I had to 
reclassify these positions they would lose their ability to 
leave early on calmer work days to watch their children's 
soccer game or take a Friday off for a long weekend, which they 
are currently afforded to offset long work hours on other days.
    Let me turn to some of SHRM's concerns with the proposed 
overtime rule at this point. SHRM appreciates the 
administration's interest in modernizing the FLSA overtime 
regulations and agrees that a measured salary threshold update 
is, in fact, warranted. However, more than doubling the salary 
threshold to the 40th percentile of weekly earnings presents 
challenges for employers like mine, whose salaries tend to be 
    The proposed increase to the 40th percentile sharply 
contrasts with historical updates to the salary threshold that 
represented more reasonable increases. Those increases 
acknowledged pay differences across sectors and in certain 
areas with lower costs of living.
    SHRM remains concerned that the Department of Labor may 
still make changes to the duties test that would further 
exacerbate an already complicated set of regulations for 
employers. Further changes to the primary duties test, 
including a required quantification of exempt time or the 
elimination of managers' ability to perform both exempt and 
nonexempt work concurrently, would create significant 
challenges for employers and employees.
    Should the DOL ultimately suggest changes to the duties 
test, SHRM believes a full comment period would be warranted.
    In closing, I can't overstate how concerned I am with these 
proposed changes on my organization's ability to fulfill its 
mission to serve the youth and families in Pennsylvania. In 
addition, I share SHRM's concerns that changes to the FLSA 
overtime regulations will disproportionately impact nonprofit 
organizations like MHY, employers in low-cost-of-living areas, 
and employers in certain industries.
    Mr. Chairman, thank you again for allowing me to share my 
experiences and SHRM's views on the FLSA overtime regulations. 
I welcome your questions.
    [The testimony of Ms. Hays follows:]
    Chairman Walberg. Thank you.
    I now recognize Mr. Williams for your five minutes of 


    Mr. Williams. Chairman Walberg, Ranking Member Wilson, and 
members of the subcommittee, thank you for the opportunity to 
testify today on the impact of the administration's proposed 
overtime regulations. My name is Eric Williams and I serve as 
chief operating officer at CKE Restaurants, the parent company 
of Carl's Jr. and Hardee's restaurant chains. I also own and 
operate seven Hardee's franchise restaurants in and around 
Indianapolis, Indiana.
    CKE and its franchisees account for 75,000 jobs within the 
United States of America. Our employees are our greatest asset 
and are highly valued.
    As in my personal experience, our employees in our company 
can progress through our management ranks as high as their 
ambition may take them. Through hard work, determination, and 
the opportunities available in the quick-service restaurant 
industry, I have been able to enjoy a long and fruitful career.
    The experience I received was very valuable. My hard work 
was rewarded with increased responsibility, greater pay, and 
opportunities to advance for a job well done.
    My career development was initially a slow process. I was 
promoted from crew to an hourly management position limited to 
40 hours per week. Once I reached our weekly maximum, I was not 
allowed to work additional hours. I would have gladly traded 
the overtime premium to gain more experience and knowledge 
about the business.
    Shortly, I worked my way up to restaurant manager, where I 
was able to work a schedule that was most beneficial to the 
business and take off during the times that my supervision 
wasn't as needed. For example, local conventions provided 
significant business opportunities with significantly higher 
customer demands.
    Conversely, there were also a number of times when business 
was slow. During this time I was able to spend additional time 
with my family, raise my three daughters, attend school 
functions, work with my church, and take vacations. As a 
salaried manager at a time-demanding location, I was able to 
earn a good living and still enjoy a good quality of life.
    Over time my career accelerated and I gained greater 
opportunities. During my time in middle management I witnessed 
workers follow the same path to advancement that I followed, 
many of whom are still with our company today. Like myself, 
they have advanced in their careers and saved for the future by 
taking advantage of a model that encourages and rewards hard 
    As I noted a moment ago, aside from now serving as CKE's 
COO, I currently own and operate seven Hardee's restaurants in 
Indianapolis. My restaurants create jobs for 160 people who 
live primarily in low-income urban areas.
    I offer entry-level management programs similar to the ones 
which provided me with the opportunities I had to advance 
within our company over the last 30 years. Without these 
programs and the labor guidelines that allowed for them, many 
talented young adults will be stuck in jobs focused on time 
spent on the clock rather than time well-spent. They will not 
have the same opportunities I had because businesses just can't 
afford it.
    It will be both lucrative and fulfilling to the employees 
willing to invest the time and energy to move from hourly wage 
crew-level positions to salaried management positions with 
performance-based incentives. However, the Department of 
Labor's proposal replaces a general manager's incentive to get 
results with an incentive to clock more hours.
    The salaries of four of my 10 managers would be impacted by 
the proposal's change to the department's regulations. These 
four managers earn about $45,000 a year. Keep in mind that 
these salaries are competitive, particularly recognizing the 
regional economic differences across the country, and these 
managers are eligible for the previously mentioned performance 
bonuses and also receive generous fringe benefits.
    To comply with the department's proposal, these restaurants 
would take an estimated 6 percent reduction to the already thin 
margins that exist in the restaurant industry. The additional 
overtime cost is likely to negatively impact the rest of our 
hardworking workforce by reducing hours, reducing salaries, or 
reducing bonuses, and equity incentives.
    I would be forced to eliminate three salaried assistant 
manager positions and put them back on the clock. I can assure 
you that a demotion is the last thing these employees want, 
since it would block their career path to general manager. I 
would be forced to limit their hours to 40 hours per week and 
to schedule them on the busier shifts, which would allow for 
little development to grow their careers.
    As for CKE-owned restaurants, under the new rule we would 
need to rethink how we staff and schedule our management 
employees. Overtime pay is a penalty employers pay for 
requiring employees to work extended hours. It does not 
increase productivity, nor does it increase revenue. It simply 
requires employers to pay time-and-a-half for routine work, 
which reduces earnings.
    This is why we manage overtime very closely. Rather than 
staff our restaurants with salaried managers with performance-
based bonuses who can earn higher pay, we would be forced to 
operate the business with fewer managers who would be paid 
less, due to a reduction in hours and bonus, and who would be 
limited to a 40-hour work week.
    Unfortunately, operating with fewer management positions 
would limit the advancement of crew employees into these 
positions and stifle their personal growth.
    As a personal example, I was promoted from a crew position 
to a management position because there was a position 
available, and this opened many doors for me. Reducing the 
availability of those positions because they are too expensive 
hurts the very people we are attempting to help.
    Should the rule prevail, it is highly doubtful that we 
would expand our staffing much beyond current levels, primarily 
due to the rising cost of recruiting, training, and providing 
benefits to new employees. We would first look for ways to 
increase the existing employee productivity at the current 
wage, eliminate nonessential tasks altogether, and use 
technology to reduce hourly positions.
    While we may find the need to increase our minimum staffing 
levels to maintain high levels of guest service, we would 
primarily utilize part-time employees for limited shifts during 
the busiest hours of our operations. It should be clear that 
the biggest costs will be to all the talented people who, like 
me, could have advanced from cook to COO or franchise owner.
    Finally, I have heard that people are concerned that to 
avoid paying overtime employers are calling employees managers 
who are just stocking shelves. However, in reality, stocking 
shelves or engaging in similar activities won't make you a 
manager and won't exempt you from the overtime requirements 
under federal law.
    Managers may well help their employees stock shelves or 
perform other physical work while performing their primary duty 
as a manager, which is hardly something to disdain. Each 
manager is entitled to decide whether to perform such tasks, 
such as the small business owners may decide to perform non-
managerial physical work to increase their profits or to show 
the crew that they, too, can perform these tasks. As anyone who 
has run a business knows, that is what effective owners and 
managers do.
    Mr. Chairman, Ms. Wilson, subcommittee members, thank you, 
and I am happy to answer any questions.
    [The testimony of Mr. Williams follows:]
    Chairman Walberg. Thank you.
    Mr. Eisenbrey, I recognize you for your five minutes.


    Mr. Eisenbrey. Thank you, Mr. Chairman, and members of the 
Committee. I will make five points and then I will elaborate on 
    First, America's middle class has suffered through decades 
of wage stagnation and rising inequality that can't be 
corrected without changes in a range of federal policies that 
have worked against them.
    Two, the department's higher salary threshold for exemption 
from overtime will help. It is long overdue and millions of 
struggling middle-class workers will benefit from closing this 
loophole, which lets employers work them long hours without 
    Three, the rule will raise wages for some employees, reduce 
excessive work hours for others, and create hundreds of 
thousands of jobs. No one paid less than $50,000 a year should 
work more than 40 hours a week without being paid for it.
    For the overtime law to be effective, the salary threshold 
for exemption must be indexed so it increases automatically 
without political intervention. Automatic indexing is well 
within the Department of Labor's authority.
    Many employers, unfortunately, have gotten used to a system 
that lets them work people long hours without paying them for 
it. But that is exactly what the FLSA was intended to prevent.
    Employers will adjust to this rule, as they did to the 
original Fair Labor Standards Act and every improvement in the 
law and the regulations since then. What seems like a big 
increase in the salary threshold is simply the result of 
employers having gotten used to a loophole in the law for far 
too long.
    So number one, from 1979 to 2013 inflation-adjusted wages 
in the United States rose only 15.2 percent for the bottom 90 
percent--less than 0.5 percent per year--while wages for the 
top 1 percent increased 137 percent. The economy and total 
national income grew, but most Americans were left out.
    Tax policy encouraged CEOs and top executives to grab an 
oversized share of income, and they have. CEO pay for the 350 
largest corporations grew 1,000 percent since 1978, while the 
pay of average workers increased only 11 percent.
    Corporations have relentlessly squeezed labor costs at the 
expense of average workers, increasing profits and benefiting 
shareholders and executives with stock options. Corporate 
profits are at all-time highs while tens of millions of workers 
struggle to get by.
    The decades-long push to cut labor costs has gone too far 
and the economy is out of balance. Too many families have too 
little income because their wages have been held down. They 
can't spend what they aren't paid, and they can't be the 
consumers that businesses need.
    It isn't inevitable economic forces but, rather, federal 
policies that have reduced employee bargaining power, 
encouraged excessive executive compensation, worsened 
inequality, lowered labor standards, and offshored jobs. Those 
policies should all be reversed. Overtime reform is one part of 
this solution.
    Number two, the current salary threshold--the level above 
which employers can refuse to pay for overtime work--is less 
than the poverty line for a family of four and doesn't begin to 
reflect the status and financial reward that characterize true 
executives, administrators, or professionals, the small group 
that Congress originally meant to exempt. None of your 
constituents thinks an employee paid $24,000 a year is a bona 
fide executive. The current rule is indefensible.
    The regulatory changes in 2004 did double harm. They 
inappropriately expanded the exemptions and set the salary 
threshold at a level so low as to be a joke.
    In 1979 the salary threshold covered and protected about 12 
million employees. Today it protects only 3.5 million even 
though U.S. employment is 50 percent greater today.
    Number three, on job creation: Goldman Sachs, EPI, the 
National Retail Federation, and the Department of Labor all 
agree the rule will create more than 120,000 jobs, provide wage 
increases for some employees, and reduce excessive work hours 
for others. Those jobs are needed. Millions of Americans are 
unemployed, and experience here and abroad tells us that the 
affected employees and their families will be better off.
    Number four, to prevent the kind of neglect that led to a 
29-year decline in the real value of the threshold for 
exemption followed by another 11-year decline, it has to be 
indexed, preferably to the growth in compensation of salaried 
employees. The Department has for decades failed to carry out 
its statutory mandate to update the rules in a timely way, and 
indexing is the only way to prevent that kind of failure in the 
future. Nothing in the Fair Labor Standards Act or any 
subsequent enactment limits the epartment's authority to index 
the salary level.
    Finally, five, some employers have made it their business 
model to work salaried employees not 40 hours a week but 60 to 
90 hours a week while paying them salaries too low to meet a 
basic family budget. I have talked to and written to them, and 
I have seen scores of stories in the comments we collected on 
the rule, including the stories of employees worked literally 
until they dropped from injury or disability.
    Fran Rodgers, who for many years had a hugely successful 
consulting business that worked with corporations on improving 
work-life balance, put it well in a New York Times op-ed: 
Employers, like all of us, tend to be careless with and waste 
what they don't have to pay for, including the precious time of 
their time-stressed employees.
    The rule will make employers less careless and more 
efficient by making them pay for overtime. They will adapt. 
What seems like a big increase in the salary threshold is 
simply the result of employers having gotten a free ride for 
too long.
    [The testimony of Mr. Eisenbrey follows:]
    Chairman Walberg. Thank you.
    I now recognize the Honorable Tammy McCutchen for your five 
minutes of testimony.

                      CHAMBER OF COMMERCE)

    Ms. McCutchen. Thank you, Mr. Chairman. I would like to 
spend my time today talking about the salary level, based on my 
experience of being at the Department of Labor during the last 
set of changes to these regulations in 2004.
    Since the early 1940s the DOL has consistently stated that 
the purpose of setting the minimum salary threshold for these 
exemptions is to provide a ready method of screening out the 
obviously nonexempt employees. This is not a minimum wage for 
exempt employees. In fact, exempt employees are exempt from the 
minimum wage and the overtime requirements.
    DOL's proposal of a $50,000 salary level does the opposite 
of screening out the obviously nonexempt, and instead excludes 
from the exemption many employees that are obviously performing 
exempt duties and, in fact, many, many hundreds and thousands 
of employees that the DOL itself and federal courts have found 
perform exempt duties.
    I want to be clear, there is no--at the U.S. Chamber of 
Commerce, who I am representing today, there is no one in the 
business who is claiming that it is not time for a salary 
increase. From 1938, when the FLSA was passed, to 1975, the 
salary level was increased every five to nine years. It has now 
been 11 years since the last increase in 2004.
    So it is time for a change. The question is, how high? And 
the Department of Labor's proposal of using the 40th percentile 
of all salaried earners to get to that $50,000 is just 
unprecedented in the regulatory history in the 77 years of the 
    In 1948--1958--in setting the salary level, DOL looked at 
the 10th percentile of employees and the salaries earned by 
exempt employees in lower-wage businesses, lower-wage 
geographic areas, and in small businesses. In 2004 we adopted 
that 1958 methodology, doubled it, and we looked at the bottom 
20th percentile of salaried earners in the South and in retail, 
where wages and cost of living are lower.
    The Department of Labor proposes to set the salary level at 
the 40th percentile, but not looking only at rural areas, small 
businesses, and lower-profit margin businesses. They are using 
a data set that includes all salaried employees. It also 
includes doctors, lawyers, sales employees, and federal 
employees, who all, of course, earn a lot more than most exempt 
employees and, by the way, are not even subject to the salary 
level tests in the regulations.
    This $50,000 level--the--I guess the best way to 
demonstrate how high it really is, is that it is actually 
higher than the salary levels that are required for exemption 
under New York law and California law. Just like the minimum 
wage, states have their own exemptions from overtime and can 
set their own salary levels.
    In New York that salary level is around $34,000 a year. And 
in California, employees who are earning more than $37,000 a 
year can be classified as exempt from overtime. That number is 
going to be going up to $41,000 in 2016.
    So the Department of Labor's proposal is $10,000, $15,000 
higher than the minimum salary level for exemption in New York 
and California, arguably the two highest cost-of-living states 
and higher-salary states. This is like applying the San 
Francisco $12.25 minimum wage in Biloxi, Mississippi. It just 
won't work and will have a disproportionate impact on economies 
in our rural areas, and particularly in the South and in the 
    If you go back through the historical salary levels from 
1938 to the present and correct those numbers for inflation, 
also the $50,000 level is simply not supported. I actually used 
the BLS inflation calculator to create the chart that is in my 
written testimony, and what that shows is that if you correct 
for inflation all the salary levels under all tests on the 
entire 77-year history, the average is about $42,000.
    So $50,000 is at least $10,000 higher than any possible 
justification that you could have.
    Before my time expires I also want to talk briefly about 
the duties tests. The Department of Labor has not proposed any 
specific regulatory changes to the text of the duties tests.
    However, they have also stated in an e-mail, in response to 
a question from the publication Law360, that they do not have 
to propose specific statutory--regulatory text in order to make 
significant changes to the duties test. In their opinion, all 
you have to do under the Administrative Procedures Act is to 
propose issues for discussion.
    I would like to suggest that words matter in statutes and 
in regulations. A comma placed one place versus the other can 
really make a difference about how that interpretation is--how 
the regulation is interpreted by DOL or the courts.
    Yet, if there are changes--if DOL goes through with making 
significant changes in the duties test--for example, adopting 
the California rule on primary duty that employers have to 
establish employees spend more than 50 percent of their time 
performing exempt duties--we will not have an opportunity to 
actually review and comment on the statutory text, and I do--in 
my opinion, that is not in the spirit of the Administrative 
Procedures Act and giving the public a sufficient time and a 
meaningful role in the regulatory process.
    Finally, I do want to talk about the impact. You have heard 
about that from some of the other increases.
    There are advantages and disadvantages to being classified 
as exempt. And the biggest advantage for being exempt is you 
have a guaranteed salary, a salary that cannot be reduced 
because of the quality of your work or the quantity of your 
work. An exempt worker who works even an hour during a work 
week must be paid their entire salary.
    This is where the flexibility comes in. As an exempt worker 
you can go home early. I have heard Secretary Perez himself 
talk about how important it has been in his life to have jobs 
that give him the flexibility--gave him the flexibility to 
attend his son's sporting events.
    With this regulation, with potentially five million 
employees being reclassified, you are taking that flexibility, 
which is so important, away from those 5,000 workers. Instead, 
as a nonexempt employee you just get paid for the hours you 
actually worked. So if you need to take time off to go to a PTA 
meeting you really have to think, ``Can I afford this? Because 
I am not going to be paid for these hours that I am taking 
    The other differences between exempt and nonexempt that I 
would ask you to consider is--and I think we heard Mr. Williams 
talk about this--availability for bonuses and incentive pay. 
Nonexempt employees generally do not have--generally do not get 
the opportunity to earn bonuses and incentive pay because if 
you pay those bonuses you also have to pay overtime on the 
    That calculation is complex. It is easy to make mistakes, 
and if you make a mistake you could face massive liability.
    [The testimony of Ms. McCutchen follows:]
    Chairman Walberg. I am going to have to start paying you 
    Ms. McCutchen. I am sorry.
    Chairman Walberg. Here soon, so----
    Ms. McCutchen. I am sorry. I----
    Chairman Walberg. I think there will be plenty of time for 
questions on this, and you are a walking textbook----
    Ms. McCutchen. Thank you.
    Chairman Walberg. As each of our witnesses are.
    So, having said that, I will now recognize for first round 
of questioning, or first five minutes of questioning, Mr. 
Bishop, of Michigan.
    Mr. Bishop. Thank you very much, Mr. Chairman.
    And thank you, to the panel. Thank you for your time. This 
is a very important issue.
    We appreciate your testimony. I know it is frustrating to 
have only five minutes to say what you want to say. This is an 
important subject and we would like to hear more from you.
    One of the biggest concerns that I get from my constituents 
in the businesses that I represent as I travel across my 
district is the growing administrative burden, the costs of 
these new regulations that have been descending upon small 
business in particular for quite some time.
    And it is becoming more and more stifling, to the point 
where many businesses feel like they have an entire wing of 
their business whose sole purpose is to deal with regulation 
and compliance. And it is really choking off small business.
    It is a big issue, and it is one that I think a lot of us 
are going to spend some time to find a solution for. But I am 
told that the department has estimated that this particular 
regulation in the first year alone is expected to cost $600 
million, which to me seems unbelievable. And I am interested in 
hearing from all of you, of course, and I wish that I could, 
but in particular I would like to hear from Mr. Williams.
    Sir, you bring incredible perspective to this, given the 
fact that you were an employee, a middle manager, and now the 
CEO--COO of a major American business, and I am very interested 
to hear your perspective on this. You have seen it. You are 
inclined to want to do whatever you can to enhance the 
employment environment in this country, to advance the economy.
    Do you view this as a positive change to--what are the 
impacts--fiscal, administrative? Any negative impacts that this 
might have on a business such as yours? And is this an--are 
there many unintended consequences that we are seeing today 
that can be avoided?
    How can we better address this issue? I know you had a lot 
of testimony and I know you hurried through it, so I would like 
to hear more from you if I could please, sir.
    Mr. Williams. Mr. Bishop, I do believe that this will have 
a negative impact on the work environment. I also believe that 
it will make administrative costs go up because now we will--
just basically, managers that now are salaried managers will--
they will be reduced back to hourly managers. There is no way 
to avoid that.
    Now, in my own business in Indianapolis I have four 
managers that are assistant managers--that are managers that 
are below the proposed rate, and those managers, I will have to 
move those salaries up to the proposed rate. And there are 
three managers that are below the proposed rate that I will 
have to put them back on the clock. This will be a very 
demoralizing effect, which is an unintended consequence that 
this regulation will bring.
    When I first took over that business one of the things that 
I saw in some of those employees was the potential to be 
general managers, the potential to be district managers or 
multi-unit supervisors. But they were being held back because 
we had to limit their hours to 40 hours per week.
    Businesses just can't afford to pay overtime week after 
week after week, and so, unfortunately, when the business goes 
away they have to get off the clock. So it will not be a 
positive change, and I have seen where managers have been taken 
from salaried positions to hourly positions so that the 
business could thrive, and it is not viewed very positively by 
the managers or the people that are impacted by that, as well.
    I do not view this as being positive.
    Mr. Bishop. So, sir, am I correct in assuming, then, based 
on your testimony, that a regulation such as this will actually 
have a negative impact to the extent that businesses like yours 
would be less inclined to hire, would be less inclined to 
advance their employees to a management level, and in fact, it 
has an effect of negatively contracting your business so that 
you are less likely to grow and be more prosperous?
    Mr. Williams. That is correct. Under the guidelines now, we 
would staff a restaurant with additional management personnel. 
Those manager personnel that are not the restaurant manager, 
they have an opportunity to grow. And so you would have maybe a 
couple of managers on the shift that would all supervise an 
area or they would all supervise employees.
    Under this guideline, those managers--we would not be able 
to afford those managers, and so we would have less management 
positions available. So the management position that I advanced 
into would no longer exist because we just simply couldn't 
afford it.
    So yes, it would have a contracting effect and ultimately 
could not only reduce the earnings of a business, but it could 
have an impact on guest service and sales because there is less 
supervision available to manage the business.
    Chairman Walberg. The gentleman's time is expired.
    Mr. Bishop. Yield back.
    Chairman Walberg. I now recognize the gentlelady from 
Florida, Ranking Member, Ms. Wilson.
    Ms. Wilson of Florida. Thank you, Mr. Chair.
    My question is for Mr. Eisenbrey.
    According to the Economic Policy Institute, in 1975 nearly 
two-thirds of salaried workers were eligible for overtime pay. 
Now only 8 percent of salaried workers are eligible. What 
effect has this shift had on wages and on the average number of 
hours worked? Would you elaborate?
    Mr. Eisenbrey. Well, it is not clear overall what it has 
had on the number of hours worked. If you look at the BLS 
surveys, I think that they show fairly steady weekly hours. But 
if you look at Gallup Polls and public policy opinion polls, 
the General Survey--General Social Survey, they all are showing 
that salaried workers are working longer and longer hours, to 
the point of the average being, in some of these surveys, as 
much as 49 hours a week.
    So I would say--there is no question, I think everyone at 
the table would agree, that salaried workers who don't have to 
be paid overtime will work longer hours than people for whom 
overtime has to be paid. That is what Mr. Williams just said.
    So the effect of exempting people obviously is to increase 
their hours, and when they don't get paid anything more for it, 
all it does is increase the stress in their lives without 
    Ms. Wilson of Florida. Thank you.
    In your testimony you mentioned a woman named Dawn Hughey. 
You say, ``Retail store managers like Dawn Hughey, who was paid 
a salary of less than $35,000 a year, are sometimes forced to 
work as many as 90 hours a week.'' You go on to say that ``a 
salary and a title are no protections against oppressive 
overwork and never have been.''
    Is that story an isolated one? Is this something that 
happens often? If so, why don't the workers just refuse to work 
all those extra hours?
    Mr. Eisenbrey. Well, workers can't refuse to work the extra 
hours because they will be fired by their employer, the 
corporation that employed them, whether it is Dollar General or 
Duane Reade, whoever it is. We have heard stories from dozens--
scores of workers who say that they, at very low pay, make--
when you make $35,000 a year and you work 60 hours a week your 
pay is reduced to about $12 an hour.
    When you work, as Dawn Hughey did, 90 hours a week, your 
pay actually falls to below the minimum wage. And she had no 
life at all because she was working all the time for the 
corporation that employed her--until she was finally injured, 
until she was basically worn out and couldn't work any longer.
    But that is not an isolated story, and I would be happy to 
share stories that we have received in the comments with the 
    Ms. Wilson of Florida. Can you go on to discuss why 
overtime protections are even necessary for salaried workers? 
If workers are making a salary instead of hourly wages, why 
should they be entitled to overtime?
    Mr. Eisenbrey. Well, they have always been entitled to 
overtime under the Fair Labor Standards Act. We didn't have a 
40-hour work week in America until the New Deal, when President 
Roosevelt and the Congress passed this law. And people who had 
been working 50 and 60 hours a week suddenly had a standard 
work week of 40 hours.
    The fact that they were salaried--the stories in the 
Department's reports of white-collar workers being paid $17 a 
week and working 60 hours are the very reason that we had the 
Fair Labor Standards Act.
    You can be a blue-collar worker--a carpenter making $60,000 
a year and your hourly wage will be 150 percent when you work 
more than 40 hours in a week. A salaried worker making $25,000 
a year who is held to be exempt under the rule as it is now 
gets nothing for the extra 20 hours a week. Nothing. Zero. Not 
time-and-a-half, not straight time, not one penny.
    Ms. Wilson of Florida. How did the Department of Labor come 
up with the proposed salary threshold?
    Mr. Eisenbrey. Well, they went through the long history of 
the Act and looked at all the different possibilities. Tammy 
McCutchen mentioned one that the Dpartment has used. In 2004 
they did something different from what had ever been done 
before. So there is no set rule in the statute about how the 
Department approaches this.
    I think that they chose the 40th percentile because it is--
of salaried workers because they understand that the rule is 
meant to exempt a small number of top people--the bosses, the 
people who can control their own time. It was never intended to 
be something that exempted low-level accountants and people 
in--you know, clerks in insurance companies, first-line 
supervisors. All of those people were intended by the law to be 
    Ms. Wilson of Florida. Thank you.
    Chairman Walberg. Gentlelady's time is expired.
    Now I recognize for five minutes of questioning Mr. Kline, 
Chairman of Ed and Workforce Committee.
    Mr. Kline. Thank you, Mr. Chairman, for the courtesy of 
recognizing me for questions and for holding this hearing.
    Ms. McCutchen, it is good to see you again. Welcome back.
    There seems to be a difference of opinion here that at 
least I am hearing between Mr. Eisenbrey's view of the 40th 
percent threshold--percentile and yours. And you were making a 
point, Ms. McCutchen, in your testimony about how this is 
unprecedented to go to the 40 number instead of 10th and 20th 
percentile, which had been more normal.
    And you started to say--in fact, you had about one sentence 
worth or so in here--that you were comparing New York and 
California, but I think you picked Biloxi but we could pick a 
whole lot of other places. Can you take a minute or two here 
and talk about what that difference means--the difference in 
economies, the difference between rural America and places like 
San Francisco and Manhattan?
    Ms. McCutchen. Certainly. It does make a difference, 
because in 2004 we looked at salary levels in the rural Midwest 
and the rural South. We looked at salary levels in different 
    And I guess the best way to put it is where I grew up in 
the Quad Cities, Illinois--Moline, Illinois; Davenport, Iowa--
you can buy a house for less than it costs you to park a car in 
New York City, right? And so a $50,000 salary level in some 
place like Indianapolis, Indiana, for example, is a very, very 
good living because--a salary, and it is among the top of the 
salaries in that area because of the low cost of living.
    And so trying to apply something that, yes, maybe $50,000 
works--well, I was going to say maybe it would work in 
California, but not even California thinks $50,000 would work 
in California since their level is $37,000. So I am not sure 
where this works outside of San Francisco and New York City 
themselves, but what it does is it is just not in line with 
local economies and the realities of local economies.
    And that is what DOL has always tried to do is to look at 
the actual salary levels that are reflected, to draw that line 
between--to exclude only the obviously nonexempt. And if you 
think about, for example, your own staff who are earning less 
than $50,000--from the duties they perform there is going to be 
a lot of them that are not obviously performing nonexempt 
duties even though they earn below $50,000 a year.
    Mr. Kline. Yes. Thank you. It concerns me--we are always 
worried about a one-size-fits-all, and in this case you were 
talking about what the purpose was.
    Mr. Eisenbrey has said this is to affect the boss's boss 
kind of thing, and you were making the point that no, that was 
never what this was really designed to do, to go back to the 
very beginning. And so you were talking about where you looked 
and where to set that bar based on what seems to be a different 
criteria than what we had heard about.
    Can you just touch on that again? You had it in your 
testimony but I want to get that clear.
    Ms. McCutchen. Well, the salary is not the only test for 
exemption, right? Employees who are paid by the hour who earn 
below the minimum salary level must be paid overtime, but if 
you earn more you still have to meet the duties tests, which 
are quite substantial, right?
    And that is why the purpose is to drawing the line is to 
exclude the obviously nonexempt--the employees who, just based 
on their salary alone, are unlikely, in the department's view, 
to ever be able to meet the duties tests. And so it is not--
this is not a minimum wage debate, right?
    And so this is not about increasing and cutting--you know, 
getting rid of wage stagnation is not the goal here. The goal 
is to have rules that will allow at least some bright-line 
judgments, in the Department of Labor's eyes, about who earns a 
salary that is low enough that they are obviously nonexempt 
even if the duties tests are applied.
    Mr. Kline. And then when you--once you get past that 
obvious line, then you are going to get into the duties tests, 
which we haven't----
    Ms. McCutchen. That is correct.
    Mr. Kline. Yet seen in this thing.
    Ms. McCutchen. Which we don't really know----
    Mr. Kline. Which we don't know yet.
    Ms. McCutchen. Right.
    Mr. Kline. Right. Exactly.
    Okay. Thank you very much. I yield back, Mr. Chairman.
    Chairman Walberg. I thank the gentleman.
    And now I recognize the gentleman from Virginia, Ranking 
Member of the full Committee, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Ms. McCutchen, you mentioned someone who would be entitled 
to their salary even if they worked one hour a week. Is it your 
testimony that somebody showing up one hour a week can expect 
to receive their salary on any kind of ongoing basis? Is that 
your testimony?
    Ms. McCutchen. Yes. That is called the salary basis test. 
That is a third test for exemption. And what the salary basis 
test is--was----
    Mr. Scott. Well, I just asked you, if somebody is showing 
up one hour a week----
    Ms. McCutchen. Yes.
    Mr. Scott. It is your testimony that they can keep their--
    Ms. McCutchen. They are----
    Mr. Scott. That they can keep their job?
    Ms. McCutchen. Well, I have done it and I haven't lost my 
    Mr. Scott. Okay. Well, we just receive the testimony as it 
is given.
    Ms. Hays, most people think of full-time work as 40 hours a 
week. How often do you require employees to work more than 40 
    Ms. Hays. The need to work 40 hours or more than 40 hours a 
week would be dependent on what is transpiring in the course of 
delivery of services. We don't mandate that our exempt 
employees work any specific number of hours, but we do have 
children very often who are in crisis during the course of any 
given day--or night.
    Mr. Scott. Right. And when you ask them to work more than 
40 hours, what compensation do they get for the hours after 40?
    Ms. Hays. For exempt employees they don't receive 
additional cash compensation. They can flex their schedules----
    Mr. Scott. Okay. Now, if they don't get any compensation 
over 40 what--is there any limit to the number of hours you can 
ask someone to work for no compensation--no additional 
    Ms. Hays. We don't assign a limit, but MHY is committed to 
something called self-care as part of the sanctuary model. We 
preach regularly the need to balance work and life as part of a 
model of treatment and care that takes into consideration both 
the safety and needs of clients as well as our employees.
    Mr. Scott. Well, Mr. Eisenbrey, if someone is required to 
work more than 40 hours a week what, in most cases, when the 
employer says, ``We need you to work 50 hours this week,'' what 
happens if they don't show up?
    Mr. Eisenbrey. Well, there is no proscription against 
mandatory overtime, and that employee could be fired.
    Mr. Scott. Okay. Now let's go through a couple of 
scenarios. Somebody is making $10 an hour and they work 40 
hours a week. If they were to work a few extra hours, how would 
they be compensated for that--for those extra hours?
    Mr. Eisenbrey. Well, if they are hourly they would be paid 
time-and-a-half, 150 percent of their regular rate. If they 
were salaried they wouldn't be paid anything more.
    Mr. Scott. If they were salaried under the threshold?
    Mr. Eisenbrey. If they were salaried under the threshold 
then they would not be exempt. They would be entitled to 
    Mr. Scott. So somebody making $10 an hour, about--full-
time, $20,000 a year, they would get time-and-a-half?
    Mr. Eisenbrey. They would, yes.
    Mr. Scott. Okay. Now, if somebody is making $15 an hour and 
they work the additional--more than 40 hours--they are paid $15 
an hour on an hourly rate, they would get overtime--time-and-a-
half. Now, if you converted that to $30,000 a year, what kind 
of compensation would they get for the extra hours?
    Mr. Eisenbrey. If they were hourly?
    Mr. Scott. No, if you called it $30,000 a year salary.
    Mr. Eisenbrey. If they were in an exempt position they 
wouldn't get--they would have no right to any overtime pay at 
    Mr. Scott. Any right to overtime pay or any extra pay at 
    Mr. Eisenbrey. Any pay beyond the $30,000.
    Mr. Scott. So if you are making $15 an hour you get time-
and-a-half over 40. If you are making essentially the same, 
$30,000--if you call it $30,000 a year then you not only don't 
get the right to over time time-and-a-half, you don't get any 
extra salary at all.
    Mr. Eisenbrey. You don't have the right to a penny for the 
extra hours. That is right.
    Mr. Scott. Can you say a word about how the new rule will 
reduce litigation involving overtime?
    Mr. Eisenbrey. Well, you know, in 2004 the rule was put out 
and--with the promise that it would reduce litigation. And 
since then, litigation has tripled. So I think changing the 
duties tests, as they did, led to a lot of litigation.
    This rule, by contrast, as it has been proposed, is as 
simple as it could be. It just tells an employer, ``If you pay 
a salary less than $50,440 a year, the person is entitled to 
overtime pay.'' I mean, that could not be clearer, and it will 
affect about 15 million people who otherwise might be subject 
to litigation because they don't know whether they are--and 
their employers aren't sure whether they are exempt or not.
    Chairman Walberg. The gentleman's time is expired.
    I now continue with the state of Virginia and recognize Mr. 
Brat for his five minutes of questioning.
    Mr. Brat. Thank you, Mr. Chairman.
    I think it is first of all important to note that I think 
everyone in the room here has the same goal. We would all like 
people to be richer and do better and have happier lives with 
the family and the kids.
    The only problem with this proposal--and it is important to 
look at this proposal. Everyone is nibbling around the edges, 
right, about certain groups of people and certain kind of moves 
around--in the short run around wage rates and pay and hours 
and this kind of thing.
    I think it is important to go back to the long run to show 
that this kind of procedure--at the macro level these kinds of 
policies will fail, right? And so in the long run--I made a 
very high-tech graph here; it is just a straight line going 
up--in the long run your wage rate is, roughly speaking, the 
same thing as your productivity, and there is no cheating that. 
We would all like to just announce to the world that everyone 
can make $500 an hour, et cetera.
    So just do that thought experiment. Any students out there? 
Let's just pay everyone $500 an hour. Is that possible?
    No, it is not possible. Everyone knows that, because wages 
have to track productivity.
    And so instead of dealing with the underlying issue that 
matters in this country--enhancing productivity--we tried to do 
an end run with clever little procedures that in the short run 
may enhance wage rates or hours worked, you know, and that is a 
little wrinkle in this nice line. But over the last 200 years, 
economies that don't focus--and countries. Our country has had 
phases of time where we let Rome rule, right, the central 
planners up here, and we don't do as well as a country.
    And so at a time where we should all be talking about 
productivity growth, because that is the only thing that gives 
the next generation of kids a good life, we are still doing 
this little nickel-and-diming around the edges.
    And so, as my colleague brought up before, when we go 
around door to door and talk to the vast number of small 
businesses, and the CEOs in the room, and the folks that are 
speaking on the economy, we hear the opposite is going on. 
Instead of enhancing productivity we find small business 
talking about the regulatory burden.
    I think for the country as a whole it is about $1.5 
trillion. Per employee, I think it is $10,500 per employee in 
regulatory costs that go on to every small business.
    We have the Affordable Care Act. Obamacare is crushing 
small business and making it harder to pay people. The EPA 
overreach, regulatory burden, et cetera.
    And what we are missing, in some of the testimony we 
started hearing hints at what is really going to happen. What 
is really going to happen in the short run, too, is people are 
going to get fired. And we don't pay attention to them.
    They are off. They are not in the labor force anymore, 
right? So we don't look at them, but they are going to lose 
their jobs. Firms are going to substitute capital for people 
and hire more little smart screens instead of people.
    And so it is nice to have all these clever little ideas in 
mind, but in the long run the bottom line is any country that 
over the long run tries to run their economy from Rome and from 
central government land is no longer a nation, right?
    And you have the perfect case study with Greece going on 
right now, right? They have moved in this direction. I think 
the youth unemployment rate is 50 percent, right, youth out 
there. If you want 50 percent unemployment rate for the youth, 
go towards centralized planning.
    And so I would just question for Mr. Williams or the 
Honorable McCutchen: Can you comment in the business world on 
how we can be more effective at enhancing--at getting to this 
goal by increasing productivity and just what we can do to 
really make progress? Because I think we all have that goal in 
    And, Mr. Williams, if you want to lead off?
    Mr. Williams. With respect to productivity--and I have 
heard the testimony of some of the other witnesses that talk 
about 90 hours and 100 hours. In those scenarios that is very 
low productivity. And even as being a manager myself for years 
and years and years, I have investigated those kinds of 
comments and those kinds of claims, and what we find is very 
low productivity if not some embellishment, in terms of, you 
know, what that person is really doing with their time.
    So yes, I would agree with you that low productivity will 
be enhanced because an individual will now just ride the clock. 
If I have an opportunity to enhance my pay by working 50 or 60 
hours then that becomes my bonus and I enhance my pay that way.
    The manager that is salaried that realizes what the goals 
are of his job now becomes the more productive manager because 
they recognize that I am going to get paid my salary whether I 
work 30 hours or whether I work 40 hours.
    I think the thing that we have missed here is that--and I 
think one of the questions was, do I--would I expect to get a 
check for one hour? Yes. And I have gotten a check for one hour 
    I come in, I count inventory, I leave, and I go home. And 
that was my job for that day and that was my job for that week, 
and I did it and I got paid. So I was very productive with 
that, and I will yield the rest of my time to----
    Ms. McCutchen. Well, I think----
    Chairman Walberg. The gentleman's time is expired. And you 
really are a professor, aren't you? Yes. Yes. Thank you.
    Now I recognize the gentleman from Wisconsin, Mr. Pocan.
    Mr. Pocan. Sure. Thank you, Mr. Chairman.
    Well, you know what? I will pick up on that, on the 
productivity question, because here is the number I am looking 
at: Since 1973 productivity has gone up 74 percent. The hourly 
compensation for a typical worker in the same period has gone 
up 9 percent. The average CEO pay during that same period, 937 
    Something doesn't quite add up on all those numbers when 
you look at that.
    And then I am looking at this rule and specifically the 
fact that only 8 percent of the people are currently, you know, 
covered under this area, and we are trying to get to the 40 
percentile, when in the past we have been up to 62 percentile 
back in 1975.
    I am a small business owner. I have been since I had hair. 
Since I was 23 years old I have run a small business, and I 
will tell you, I just look at it differently. I look at my 
employees as my partners, not as a line on my budget. And 
unfortunately, this conversation so seems like we are talking 
about employees as simply a line on the budget, as some end sum 
    I think, Ms. McCutchen, you made a comment about the 
benefit of having a guaranteed salary. You know what you are 
going to make no matter what your productivity is. Kind of 
doesn't work in the real world.
    I don't know if you have ever had a small business and had 
employees where this ever affected you but, you know, it is not 
a benefit to know you are only going to make so much even if 
you work 60 or 70 hours a week. And, quite honestly, if someone 
is not productive we are not keeping them on anyway. We are not 
keeping someone on if they are not productive just because we 
have the benefit of giving them this salary.
    And then we talked about how they are less likely, if they 
are nonexempt, to get a bonus. That is not true either in the 
real world.
    I think people still can get bonuses in a lot of different 
business structures. There is no rule that says you don't have 
to. You are saying simply because they will pay overtime on it, 
but maybe they should be paying overtime instead of having 
their employee work for free after making $24,000.
    So here is the question I have, since we brought up Biloxi 
and we brought up San Francisco: If you are making $23,660 that 
is take-home, before tax, $1,971 a month. The median rent in 
this country according to Zillow, I looked it up, is $1,350 a 
    Can anyone make a strong case how that makes sense? $1,971 
a month, overtime you are not going to get any extra pay, but 
the median rent is $1,350 before your utilities, before any 
kind of car, before any kind of cable, food, entertainment, et 
    You want to talk about San Francisco? Even under that new 
dollar amount they are coming into in 2016, they are going to 
now be having $3,416 a month. You are right, it is different in 
different parts of the country. But that median rent is $3,055. 
It is still lopsided. The worker gets screwed over every time 
no matter how you do it.
    Let's go to Biloxi, all right? Biloxi, you are right, it is 
lower cost of living. But you know what? In Biloxi that median 
rent is $813--40 percent of your gross salary.
    So the problem we are having is we need to talk about how 
you affect a real employee, real wages, so you have got a 
productive employee. And quite honestly, keeping them at 
poverty level and making them work for extra hours for free and 
not being able to even get by much past the rent doesn't make 
any economic sense.
    Let me ask a question, Mr. Eisenbrey. One of the things 
that has come up over and over and over is this benefit that 
you can take a Friday off or leave work an hour early after you 
have worked 60 hours a week under this scenario.
    What is the real benefit to this flexibility for an 
employee? Because I still look at it, if they are working 60 
hours a week that is 1,000 extra hours a year they are not 
getting paid for that you don't see your family so you can get 
that Friday off. To me, I don't see the benefit--cost-benefit 
ratio, but if you could share a little bit from your research.
    Mr. Eisenbrey. Well, we did a report on this. Lonnie 
Golden, a professor at Pennsylvania State University, used the 
General Social Survey to see what happens in terms of 
flexibility, asking employees who are salaried and hourly who 
make less than $50,000. Actually, the survey asked between 
about $25,000 and $50,000, so it was perfect for this rule.
    And he found that you are actually more--somewhat more 
likely as an hourly employee to be able to take off an hour or 
two during the day than a salaried worker. It is not common 
that anyone can do that. Salaried workers don't generally have 
that right, but there was actually no more flexibility in that 
    Once you get up to a real executive salary, you know, to 
Tammy McCutchen's or my salaries, then people start to have the 
ability to actually take the time off, but it is not----
    Mr. Pocan. Thank you.
    And real quick--I have very little time--Ms. McCutchen, a 
quick question: Do you think 150 percent is the right number? 
Should it be higher or lower? What kind of number should we 
have at that rate?
    Ms. McCutchen. I want to make clear, I am in agreement that 
it is time for a salary level----
    Mr. Pocan. Yes. My question, though, is on the 150 percent. 
If you could very quickly, I am on the yellow light. The only 
reason I am asking----
    Ms. McCutchen. On the overtime, time-and-a-half has been 
the way it has been in the FLSA----
    Mr. Pocan. So you don't have a problem with that?
    Ms. McCutchen. No.
    Mr. Pocan. Okay.
    Thank you. I yield my time back.
    Chairman Walberg. Thank the gentleman.
    I recognize now for five minutes of questioning the 
gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, chairman. Appreciate the 
opportunity for this hearing.
    Ms. Hays, I want to say welcome. As a fellow Keystone State 
person, I wanted to welcome you to the hearing and also thank 
you for your role in providing critical support services--at-
risk youth, all the things that your agency does.
    Having worked, well, my--as I like to say, when I had a 
real job it was really--a lot of that time was spent working 
with nonprofits, and recognize that the workforce that we need, 
you know, is based on the, you know, the level of--the types of 
services they are providing, the intensity, and it is cyclical 
sometimes. And having that flexibility. So my question--
flexibility in terms of how do we deploy that workforce, as 
well, so that it works well for the employee and, quite 
frankly, fulfilling the mission.
    And so I really do have a vast appreciation for nonprofit 
organizations and their admirable missions.
    And, given your experience overseeing such an organization, 
can you elaborate on how the administration's overtime proposal 
will impact nonprofit employees and their relationships with 
those that they are serving, to be able to fulfill that 
    Ms. Hays. I think one of the biggest concerns that we have 
is around continuity of care. With an increase like that which 
we are discussing today, it would be a priority to be able to 
move individuals around who are professionals--therapists, as 
an example--to avoid overtime costs--again, unfunded overtime 
    In terms of continuity of care, you spend a very long time, 
as I said in my testimony, developing relationships with the 
clients that we serve, with their families, with the case 
workers that we work with within the counties. There is a lot 
of time dedicated to developing those relationships and that 
rapport and that trust, notably with the clients, first and 
    You can't just switch out therapists to offset time worked 
to avoid additional overtime costs. It diminishes continuity of 
care. There is not the same level of communication with those 
clients as with the primary caregiver--with the primary support 
    That would be a significant concern for us. For MHY it 
would be paramount to control significantly what--who are now 
exempt professionals and managers, the amount of time that they 
are putting in to handle crisis, to support staff who are 
handling crisis, and again, to provide direct care services 
both on our residential campus as well as out in the community 
services field, where we have several therapists who have a 
great deal of autonomy in when they meet clients, when they 
meet with schools, social workers, caseworkers, the families, 
get them all together. There would be a great deal of controls 
on that, and another level of bandwidth that we can't afford to 
administer that.
    Mr. Thompson. Very good. Thank you.
    Ms. McCutchen, the Department of Labor proposes to 
automatically increase the salary threshold annually based on 
either the 40th percentile of salaries or inflation, which 
would lead to rapid increases in the threshold. As your 
testimony points out, Department of Labor has repeatedly 
rejected automatic increases due to concerns regarding the 
impact on certain regions and industries.
    What problem do you see in automatically increasing the 
salary threshold? Was it Congress' intent in the law for the 
salary threshold to increase automatically?
    Ms. McCutchen. I question whether it was Congress' intent. 
Congress itself has often rejected proposals to index the 
federal minimum wage for annual increases in inflation. And in 
1996, when Congress enacted the exemption for computer 
employees at an hourly rate, they did not increase that--have 
any indexing of that hourly rate for inflation.
    And the problem with using the 40th percentile is it is 
going to have a ratcheting effect. In 2006, as employers 
increased some people's salary in order to get them over that 
40 percentile level, that means the next time you look at the 
data set it is going to be higher salaries. And so the 40 
percent level keeps moving up and moving up, ratcheting in 
geometric levels, until there is virtually no nonexempt--people 
who qualify for this exemption.
    And I, contrary to Mr. Eisenbrey, this exemption has been 
in the FLSA since 1938. It has always been the largest 
    There is actually over 50 exemptions in the FLSA, partial 
or total, from the overtime and minimum wage requirements. So I 
don't see any evidence that it was ever intended to be a tiny 
    Mr. Thompson. Thank you, Chairman.
    Chairman Walberg. Gentleman's time is expired.
    And I now recognize the gentlelady from Ohio, Ms. Fudge.
    Ms. Fudge. Thank you very much, Mr. Chairman.
    I thank you all for your testimony today.
    I guess maybe I am one of the few people that really lives 
in the real world here. Hiring is based on need. People hire 
people because they need them; they don't hire them out of the 
goodness of their heart. And so if you don't need a person, you 
don't hire them.
    You are making it seem, to me, that you are doing them a 
favor by hiring them and then making them work a lot of hours 
and not paying them. That is not how this business works.
    It is supply and demand. That is just basic, simple 
    Mr. Eisenbrey, is there any data that you are aware of that 
supports the premise that higher wages causes job loss?
    Mr. Eisenbrey. No. I think that one of the big problems 
with our economy right now is that wages have been held down so 
long that the power of consumers has been reduced and, 
therefore, businesses are not hiring. They don't have the 
customers they need.
    And that is what every survey of small business says, by 
the way, that the problem is not regulations. That is not the 
first thing that they say.
    Ms. Fudge. Correct.
    Mr. Eisenbrey. Their first problem is, ``We don't have the 
customers we need.''
    Ms. Fudge. Thank you very much.
    And so Mr. Williams' premise that overtime pay is a 
penalty--and I believe I wrote down exactly what you said--is 
actually not accurate, is it?
    Mr. Eisenbrey. Well, in a sense he is right. It is a 
penalty on employers who work their employees excessive hours.
    Ms. Fudge. That is what I thought.
    Mr. Eisenbrey. It makes it more expensive for them to do 
    Ms. Fudge. Thank you.
    Mr. Williams, you say you have about 75,000 employees. 
First, let me congratulate you for working your way up. I think 
that that is the American dream. I appreciate that.
    I started working at McDonald's. I understand the process.
    You have 75,000 employees. Approximately how many of them 
are management employees?
    Mr. Williams. It would probably be about 30 percent.
    Chairman Walberg. The microphone.
    Ms. Fudge. So 30 percent of your employees are management 
employees. You don't mind paying the other 70 percent overtime, 
    Mr. Williams. That is correct. If they work over 40 hours 
they get time-and-a-half.
    Ms. Fudge. And so what is the responsibility of a manager, 
just a regular line manager? What are their duties, as a 
general rule?
    Mr. Williams. Exempt or nonexempt?
    Ms. Fudge. Exempt.
    Mr. Williams. Well, an exempt manager has to pass the 
duties test, and so they would have to be a bona fide 
executive. They would have to have the responsibility of hiring 
and firing. They would have to be the person that manages the 
business according to the duties test of the Department of 
    Ms. Fudge. Okay. So basically, you have very trusted 
employees, people that do a great job, just as you do with your 
people that work with your children--and I think that is a 
great thing that you have people that you trust, that you 
believe in, that you trust with the lives of kids. But you guys 
don't want to pay them. That is what I don't understand.
    You have these valued employees in which you have put a lot 
of time and a lot of money, a lot of energy, you trust them, 
and then you want to restrict their pay when you make them work 
60, 70 hours a week. It just doesn't seem to mesh to me that 
you value your employees if you don't want to pay them.
    Mr. Eisenbrey. Ms. Fudge, may I just correct the record on 
    Ms. Fudge. Yes.
    Mr. Eisenbrey. It has been said that this is the biggest 
increase, you know, that we have ever had in the salary 
threshold. I just want the record to reflect that it has been 
11 years since the last increase. From 1938 to 1949 was 11 
years and the increase in the salary threshold for 
administrative employees went from $30 to $75 a week, which was 
150 percent. So that is not true, and I think that we need to 
keep it in perspective.
    Ms. Fudge. Thank you. At least I, you know, I very much 
appreciate Ms. McCutchen talking about the fact that it is time 
for a wage increase. I appreciate that, because it is. The very 
people that you all represent, low-income people--they are the 
ones who need it the most.
    I appreciate that you hire young people in communities of 
need, but they are the people who need the increases more than 
anyone else. So yes, you are helping them in one respect, but 
you are holding them down in another.
    So I just want to thank all of you for your testimony. I am 
hopeful that as we go forward we can find some way to come 
together to try to help the people that all of us, I believe, 
want to help.
    Mr. Chairman, I yield back.
    Chairman Walberg. I thank the gentlelady.
    I now recognize the gentleman from Indiana, Mr. Rokita.
    Mr. Rokita. Thank you, Mr. Chairman. I appreciate you 
holding this hearing.
    I appreciate the witnesses' testimony.
    Mr. Williams, I appreciate you operating a business in 
Indiana, where I am from. Thank you for what you do in the 
community and the experience you give employees at various 
different levels, some of them whom it is a first-time job 
experience, some have a part-time job experience, so that they 
can offer better lives for themselves and their families, which 
I think is part of the American way.
    First off, do you have any further response to my 
colleague, Ms. Fudge's, comments or anything that she said? 
Anything you want to add for the record?
    Mr. Williams. Well, I just want to make sure that--I want 
to, I guess, tie two thoughts together. One, the thought on 
productivity. The more productive managers get better results, 
and so that is ultimately how you measure whether or not a 
person is productive: What did you get done?
    And to say that a more productive manager or a person that 
works more hours, that we don't want to pay them just really 
isn't reality.
    Mr. Rokita. Right. Because for one thing, they can go 
somewhere else, right?
    Mr. Williams. One, they----
    Mr. Rokita. With the experience that you gave them, that 
they learned from you, they can walk right away. And that is--
there is a cost to that, isn't there?
    Mr. Williams. Absolutely. And businesses, over time, have 
recognized the value of their employees, like our business. We 
recognize the value of the employees.
    And so what businesses have done to reward employees that--
particularly salaried employees, is they put performance 
incentives together so that that employee--that a more 
productive employee has an opportunity to actually earn more 
money than they would by logging additional hours.
    And that is the incentive process that we have in place 
both at the company I own and CKE that we manage. And it is 
common throughout the industry.
    Mr. Rokita. Right. Well, thank you for that.
    I associate with Ms. Fudge when she says, you know, this is 
not done out of the goodness of hearts or the businesses to be 
run and all these kind of things, and she mentioned supply and 
demand. I think that is exactly right. It is another way that I 
describe the free market, and that you can freely go to another 
job, or not, or stay and have that kind of relationship with 
your employer.
    The 90-hour example, where this person--this worker was 
seemingly forced to work 90 hours and not compensated for it, I 
want, Ms. Hays, you and, Mr. Williams, you to comment on that.
    I will switch over to Ms. Hays for a minute. In your 
experience have you ever met someone who worked 90 hours like 
that and was so productive that couldn't get a job somewhere 
else if they wanted to or--any comment on this whole situation? 
It seems odd to me.
    Ms. Hays. The short answer----
    Mr. Rokita. Is your mic on? Yes.
    Ms. Hays. Forgive me.
    The short answer is no. You know, if folks are working 90 
hours a week in an exempt capacity there certainly are 
alternatives if an employer is not recognizing that, either by 
way of compensation or flex time or some other method that 
would offset the balance of that.
    Frankly, I think the folks that we have who work probably 
the most hours in any given week are, in fact, our direct care 
staff who earn time-and-a-half.
    Mr. Rokita. But yes, so you are either compensated for it--
    Ms. Hays. Correct.
    Mr. Rokita. You know, or----
    Ms. Hays. That is correct.
    Mr. Rokita. You have some other----
    Ms. Hays. Right.
    Mr. Rokita. Avenue.
    Mr. Williams, anything to add there?
    Mr. Williams. I agree with Ms. Hays that the managers that 
work more hours generally are not as productive, and generally 
if you have a manager that is working that many hours it is 
generally a crisis situation and it is very isolated.
    Mr. Rokita. So there is a productivity situation----
    Mr. Williams. There is a productivity issue.
    Mr. Rokita. Certainly if you want to have that kind of 
lifestyle and you can be productive you would either be 
compensated for it appropriately or you would soon be somewhere 
    Mr. Williams. Or your----
    Mr. Rokita [continuing]. For a more appreciative employer.
    Mr. Williams. Your results would demonstrate that 
productivity and would be rewarded by the benefits that you 
have achieved within the business, whether it be bonus or 
additional flex time or employees that are developed to take 
your place, those sorts of things.
    Mr. Rokita. And again, the simple law of supply and demand 
that Ms. Fudge rightly points out handles this.
    Mr. Williams. Absolutely.
    Mr. Rokita. Everything you are describing right now. Thank 
    Mr. Williams. Absolutely. I would agree with that.
    Mr. Rokita. Ms. Hays, the President's March 2014 memorandum 
to the Secretary of Labor directed him to, quote: ``simplify 
the regulations to make them easier for both workers and 
businesses to understand and apply.''
    As an H.R. professional, do you think this rule succeeds in 
simplifying the FLSA's overtime regulations or do you see this 
rulemaking as really a missed opportunity to help employers 
comply with the law?
    Ms. Hays. We don't generally have a great deal of 
difficulty with the overtime regulation in that respect, as it 
relates to the memorandum. We are managing it fine.
    We are a very flat organization. Nonprofits tend to be so. 
So, you know, there isn't a lot of creative interpretation that 
we have to manage to assign exempt versus nonexempt status.
    Mr. Rokita. Okay. Thank you.
    My time is expired, Mr. Chairman.
    Chairman Walberg. I thank the gentleman.
    Now I recognize the gentlelady from Oregon, Ms. Bonamici.
    Ms. Bonamici. Thank you very much, Mr. Chairman.
    And thank you, Ranking Member, for allowing me to 
participate even though I do not serve on the subcommittee, but 
I am on the full committee and this is an important issue.
    Thank you, to all of our witnesses, for being here today.
    And this hearing is about the administration's proposal to 
update overtime rules. And it is going to be important to 
actually hear from the Department of Labor about the proposed 
rule and why it is needed, and I look forward to those 
conversations. But I am glad we are having this discussion 
    I want to sort of--I am a big-picture person and I want to 
point out that the issue, as I see it, people are working hard. 
Too many people are working hard and barely making ends meet.
    They are worried about whether they can save for their kids 
to go to college, retirement security, whether their children 
will do better than they did. I mean, that is everybody's dream 
that, you know, their kids will be able to do better. People 
are worried about that now because there are too many families 
that are just barely making ends meet even when they are 
working full time.
    So it is important that we have this discussion not only 
about overtime but also about other workplace policies that 
have not kept up with our changing workforce--things like fair 
scheduling practices, paid sick leave.
    You know, hourly workers often face unpredictable and 
irregular work schedules, and in many cases they have very 
little say about the dates and the times that they work. We 
have heard about employees getting to work and then being told 
that they are not needed but they don't--they have cleared 
their day and then they don't get compensation for that. This 
all adds to the challenges that working families have trying to 
balance their responsibilities at home and at work.
    I am proud to be a cosponsor of the Schedules that Work 
Act, that give workers more of a say in scheduling and provide 
more predictability in scheduling practices and certainty and 
financial security for families. I want to note that there have 
been advances in technology that really make that feasible now, 
more so than it has been in the past.
    My home state of Oregon has been a leader. Legislature just 
passed a comprehensive paid sick leave law that allows workers 
to earn sick time that can be used not only for their own but 
for immediate family's illness, preventive care in instances of 
domestic violence.
    I mean, those are important policies. We don't want people 
coming to work sick. We don't want people stressed out and 
sending their sick kids to school.
    Family-friendly policies like this actually help businesses 
recruit and retain. They have good, loyal employees, and it 
decreases turnover and the costs associated with that.
    There is a young man in Oregon who told a quick story. He 
said he is in high school in the 12th grade. He said, ``I live 
with my mom and three siblings. Whenever one of my siblings 
gets sick I have to stay home and take care of them because my 
mom has to go to work to provide us with what we need.''
    He said, ``It is my last year in high school, and having to 
skip school and stay home to take care of siblings affects me. 
I need to complete all my homework and projects. I want my mom 
to be allowed to have paid sick days so I can complete all my 
work as a student.''
    That is just an example about the need for our updated 
policies. That kind of situation is unacceptable.
    Paid sick leave will help his family and others like 
theirs, just like the overtime proposal will help working 
families across the country. It is past time that we update the 
rule to keep pace with our changing economy, our changing 
    Mr. Eisenbrey, I wanted to ask you to discuss the--what you 
see as the effect of this rule on workers' hours and wages. 
Now, there was a suggestion in some of the testimony that 
workers may be reclassified from salaried to hourly, and then 
as a result see their pay reduced if they need to take time 
off. For example, if they are not in a place where they have 
paid sick leave or if--they want to attend a school function 
with their child, for example.
    Do you see this rule being used to actually change salaried 
employees to hourly, and then they may lose pay because they 
need to take time off?
    Mr. Eisenbrey. All of the studies that have--that I have 
seen so far--the National Retail Federation, Goldman Sachs, the 
Department of Labor's analysis, and our own--suggest that 
employers will respond to this in different ways.
    You know, Mr. Pocan, as a small business person, would just 
give the people overtime pay who are earning less than the 
threshold. Other employers will, as Mr. Williams said, probably 
convert some of their people to hourly, people who were 
salaried. And when those people now work overtime, if they do, 
they will be paid time-and-a-half.
    People who are close to the salary threshold will have 
their salaries raised. So if you are making $48,000 a year and 
the threshold is $50,000, an employer--it will be in the 
employer's interest to raise your salary to be above the 
threshold so they can continue to work you overtime hours 
without time-and-a-half pay.
    It is certainly the case--all of the studies suggest that 
employers will convert some salaried people to hourly. Most 
importantly, they will shift hours from people who are 
currently managers, let's say working 20 hours a week extra.
    If they had to pay time-and-a-half to them they will say, 
``No, I will switch those hours to new people--to part-timers, 
to people who are on my payroll now working reduced hours.'' 
The hours will be shifted to them.
    The Goldman Sachs suggests 120,000 jobs will be created 
through that process. The Retail Federation said over 110,000 
jobs--just in their sector, and they are only 20 percent of 
American employment. So you can imagine that--and the 
Department of Labor is closer to Goldman Sachs.
    But I think hundreds of thousands of jobs are likely to be 
    Ms. Bonamici. Thank you. I see my time----
    Chairman Walberg. The gentlelady's time is expired. 
Appreciate it.
    I now recognize the gentlelady from New York, Ms. Stefanik.
    Ms. Stefanik. Thank you, Mr. Chairman. I yield my time to 
you, Chairman Walberg.
    Chairman Walberg. Oh. Thank you. I certainly can use it.
    Let me continue on with that statement by Mr. Eisenbrey.
    Mr. Williams, it is indicated Goldman Sachs and others 
indicate increased jobs. Does that bear out in your life 
experience that this change in rule on overtime rules would 
increase jobs in your business? And how would it, if it does?
    Mr. Williams. Well, it could increase lower-level jobs at 
the low----
    Chairman Walberg. Lower-pay, lower-level jobs.
    Mr. Williams. Lower-pay, lower-level jobs, yes.
    Chairman Walberg. With less opportunity?
    Mr. Williams. With less opportunity. Because after the 20 
hours that was mentioned--it has to pass through the test of, 
is there anything in those 20 hours that we can get rid of? Is 
there anything in those 20 hours that we can outsource? Is 
there anything in those 20 hours that we can move to employees 
to make them more productive by eliminating those same things 
out of their jobs?
    So after you have passed through that test then what is 
left might be those lower part-time jobs at the lower--in the 
lower pay scale.
    Chairman Walberg. Ms. Hays, would you concur?
    Ms. Hays. I would absolutely----
    Chairman Walberg. With your employees?
    Ms. Hays. I would absolutely concur with that. You know, 
the trick to this is that either way in the nonprofit sector--
notably, in the human services sector--we have to be afforded 
increased funding to support additional jobs, be they manager-
level positions in one case, or, as Mr. Williams is discussing, 
the front-line positions.
    You know, most human services organizations, and 
ourselves--MHY included, don't have that luxury. We can't just 
add positions. We can barely fill the positions that we have 
right now.
    So, but, you know, they would be front-line jobs, by and 
large, to relieve managers of anything that we could in their 
job responsibilities.
    Chairman Walberg. Could this impact on MHY's mission of 
promoting safety, health, education, spiritual well-being of 
the youth and families under your care?
    Ms. Hays. Yes. Significantly so around safety. One of the 
things that our managers and supervisors are so good at--and 
what they have been--their experience brings to the table is 
when we have crisis situations with our kids, their leadership, 
their experience, their education, their training helps to de-
escalate those situations a great deal. Now, certainly our 
staff are trained in those areas as well, but they don't have 
the experience that a manager line does.
    Diminishing their ability to stick around on, you know, 
really dicey days to help manage new admissions and the 
emotions and the behaviors that come with that, or a bad family 
visit in which, you know, kids could spend the rest of the 
evening in an escalated state and be very unsafe to themselves, 
to the other clients on the unit, or to the staff, really is 
enhanced by a manager's presence. So safety would be a 
significant concern.
    Chairman Walberg. Mr. Williams, you mentioned ambition 
rewarded. In your experience as well as those people that you 
have had the opportunity to manage and move up along the chain, 
how does this impact on ambition rewarded, or I guess I would 
say ambition frustrated?
    Mr. Williams. The reduction in the number of management 
persons, as Ms. Hays said, creates a vacuum. So in other words, 
you would not have those management positions available for 
those who are ambitious and want to see their careers rise. 
They would have to wait until those other positions were 
vacant, and by that time they may find other employment or may 
find something else to do.
    But the ability to accelerate through an organization would 
be stifled as a result of that because you just couldn't afford 
    Chairman Walberg. Thank you, and I yield back my time.
    The gentlelady's time is expired. Thank you.
    I now recognize Mr. Russell, the gentleman from Oklahoma.
    Mr. Russell. Thank you, Mr. Chairman.
    And thank you for your testimony here today. It is a very 
important issue.
    As a small business owner I find myself in not having 
flexibility for people that could be salaried, to give them the 
opportunity to work for a mission, to get something 
accomplished, and then later be compensated for time, which 
they consider valuable, to take care of their families or their 
needs. Many times these labor laws that we cite as protecting 
the worker I would argue many times put business owners in a 
difficult position because they cannot give the workers the 
flexibility that they need in a modern age.
    Mr. Eisenbrey, I would like to ask you a few questions. 
Does salary make a person more efficient or less on the job, as 
opposed to workers with overtime?
    Mr. Eisenbrey. I don't think it really makes a difference, 
that a worker will be as productive as, you know, his or her 
desire and skills.
    Mr. Russell. So, but you contend here in your testimony 
that salaried workers are being unfairly compensated because 
they work more hours than if they were on some hourly wage with 
overtime. Is that correct?
    Mr. Eisenbrey. Absolutely.
    Mr. Russell. Okay. Well, with that in view, do you think 
working long hours on a set salary is unfair? And if so, do you 
think it makes the business more effective and workers more 
effective, or does it make them less effective?
    Mr. Eisenbrey. Well, you know, the stories that I have 
heard from people like Dawn Hughey are that they worked 90 
hours a week sometimes and there was nothing good about that. I 
mean, the store was productive but her life was ruined by it.
    Mr. Russell. So nothing good about it, and you said in your 
testimony that government should use every tool at its disposal 
to help America's working class. Do you realize that every 
uniformed worker in the military is salaried? So their life 
just must be miserable, and that organization must be very 
inefficient because it is filled with salaried workers. Is that 
your contention?
    Mr. Eisenbrey. It is not my contention.
    Mr. Russell. Well, then why do you think that the 
President, who has not provided raises to our military--in 
fact, the numbers that you cite are really greater than what 
the President has provided in raises to the military when he is 
asking them for all kinds of missions that we send across the 
globe and new missions that are unfunded with the dollars that 
we have at hand. And yet he has even threatened that he will 
veto the National Defense Authorization, which calls for raise 
for these salaried workers. Well, if you think that the 
President's initiative is so good, then how do you account that 
he doesn't care about the salaried workers that he can control?
    Mr. Eisenbrey. I don't think that that is true. You know, I 
don't know all of the details of the budget negotiations, but 
they probably involve, you know, a compromise that one side now 
wants to break and have more money for defense and not more 
money for the enforcement of environmental regulations, and 
health, and welfare, and education. I imagine that that is what 
is going on, and if the President had the ability to increase 
the budget and increase taxes to pay for it, he would give 
salary raises----
    Mr. Russell. Well, he has that ability. In fact, when you 
look at the cost of free cell phones, and the cost of his free 
Internet proposal, and the cost of so many other things, why 
that could be put directly into the wages of privates and our 
seamen and airmen that are out there on the front lines.
    But yet, he thinks that these entitlements are far more 
    And what I would offer to you is that salaried worker in a 
company that they take pride in, such as Carl's Jr., or 
Hardee's, or something where they have a path to work their way 
up, or they enjoy it--I served 21 years in the military. I 
didn't get rich off of that. I moved 15 times in 21 years and 
raised five kids in uniform. That is not a way to the rich 
house, I can assure you.
    But there wasn't a time that I didn't take pride in my job, 
and I was a salaried worker. And as a commander, a 90-hour work 
week? I would have welcomed that. I would have welcomed that.
    And so what I offer to you is that you need to take a step 
back and look at that the salaried workers are not out there to 
punish employees. They are not out there to somehow make their 
life draconian and exact slave labor and sweat and blood out of 
these workers. It is giving them opportunities to grow.
    And I am sure we have illustrations and testimonies today 
where people started as a fry cook and ended up as franchise 
owners and highly successful people. And so I tend to disagree 
with the whole premise of your testimony today on salaried 
    And with that, Mr. Chairman, I yield back my time.
    Chairman Walberg. I thank the gentleman. With a little fear 
and trepidation I mention that the commander's time is expired, 
but thank you.
    I now recognize myself, since I am a nonexempt, for my five 
minutes of questioning.
    And I appreciate the witnesses being here today.
    Let me ask Ms. McCutchen just to think through your 
background experience, your understanding of the issue a bit, 
and dream a little bit. How would you structure the duties test 
for the 21st century workplace?
    And also, speak to what suspicions you might have 
concerning the Department of Labor's intentions on the duties 
test subsequent to their questioning.
    Ms. McCutchen. Thank you. I think we did a pretty good job 
in 2004, and I think we heard today from one of the witnesses--
    Chairman Walberg. Is your mic on, or maybe closer? Yes.
    Ms. McCutchen. Let me move it closer.
    I think we did a pretty good job when we updated the duties 
test in 2004, and we have--I have heard from my own clients and 
we have heard from the witnesses today that employers are able 
to apply those rules. The concern is that when and if we have 
another major change to the duties test we will see even more 
litigation as employers adjust and try to apply new ones.
    In particular concern is the executive exemption, where the 
Department of Labor has suggested that they might adopt a 
California rule, to require 50 percent of an exempt employee's 
time to be spent only in exempt work, which is not the 
realities of the workplace today.
    We are not in a 1930s industrial economy where you have 
union work and nonunion work. We have exempt employees who, for 
employee morale and to make sure that businesses are running 
effectively, pitch in and do nonexempt work, and you shouldn't 
lose the exemption when you walk to the copy machine and do 
your own photocopies rather than asking your secretary to do 
    So those types of changes I think would be very concerning 
and not reflect the modern workplace if there are changes.
    I am concerned that we have not seen any regulatory 
language. In 2004, when we did our comments, you know, we would 
take out a word here and there that we thought were not--didn't 
add any meaning; we would change--drop a comma for grammatical 
purposes. And in the comments what we heard was, ``No, dropping 
that word is significant. You can't drop it. Moving the comma 
is significant. You need to put it back in.''
    And because DOL has not given us any regulatory text to 
react to, we cannot be meaningfully engaged in----
    Chairman Walberg. Give us a little more example on what 
that comma might mean.
    Ms. McCutchen. Right. Right. It could, well, or an ``and.'' 
If you change a word from ``or'' to ``and,'' that is 
significant. And since we are not going to be able to see the 
regulatory text before the final rule, there is--the process--
the rulemaking process is not--won't function like it should in 
giving the public an opportunity to tell the Department of 
Labor that they have moved the--they shouldn't have changed it 
to ``and,'' or they have moved the comma inappropriately.
    Chairman Walberg. Ms. Hays, you mentioned in your opening 
comments and your testimony that scary phrase, ``This could put 
us out of business.'' Could it?
    Ms. Hays. I am going to go back----
    Chairman Walberg. Or is that hyperbole?
    Ms. Hays. No. I am going to go back to my testimony and use 
the words quite literally. We have approximately 50 employees 
who fall into an exempt status that would be affected by this 
regulation change--professionals; therapists, largely; and 
    To deliver services to the extent that we are obligated to 
and contracted to, at the rate of which we are funded, with 
this imposition on our ability to deliver those services and be 
required to restrict so that we could stick to a budget that 
is, again, already underfunded, is almost an impossibility.
    Therapists and these managers need to have the ability to 
deliver services in a manner in which we are obligated per 
regulation and in compliance with requirements from third-party 
insurers to Department of Human Services.
    So, you know, it is going to be very difficult for an 
organization like MHY to make good on its commitments--its 
continuity of care obligation--without going over those 40 
hours for people who are making $40,000, $45,000, $50,000 a 
year. We are borrowing from our foundation right now just to 
keep the lights on.
    Chairman Walberg. So we are talking here about not only 
potential loss of employment, but significant loss of service 
to people who need it who aren't connected with overtime issues 
or duties issues, but simply need the care that you receive.
    Ms. Hays. We serve approximately 1,000 clients a year in 
our education program, our residential program, and our 
community services program. Like I said, if we are fully 
employed we employ about 160 people. More realistically, we 
employ about 140 jobs in Mars, Pennsylvania.
    Chairman Walberg. Okay. Well, thank you.
    My time is expired, and I appreciate so much the 
questioning of my subcommittee as well as the answers, the 
comments that have been made all across the spectrum today. And 
it is an important issue. We take it seriously here.
    And so now I will recognize the Ranking Member for her 
closing comments.
    Ms. Wilson of Florida. Chairman Walberg, I want to thank 
you again for holding this hearing and giving us an opportunity 
to discuss the Department of Labor's proposed overtime rule.
    I want to thank the witnesses for being here today.
    And every time we have these hearings I want to remind my 
colleagues that what we discuss during these hearings affects 
the lives of working people in our districts. These proposed 
overtime rules will truly change the lives of millions of 
Americans and make good on the promise of a fair day's pay for 
a fair day's work.
    This proposed rule will mean more mothers and fathers will 
have time to care for their children and be involved in their 
lives. Think what that will mean for the next generation of 
children for them to have their parents home just a little more 
to help them with their homework; teach them to throw a 
baseball; to give them the discipline, the supervision, the 
support, and the love they need to grow into strong, smart 
    This proposed overtime rule will mean more American workers 
will find a new job because employers will be encouraged to 
hire more workers instead of overworking a few. It will mean 
more part-time workers will find more hours as employers spread 
around hours.
    Think what that will mean for our economy if more workers 
had jobs and more money to spend. Think what it will mean for 
our country if we get one step closer to guaranteeing a fair 
day's pay for a fair day's work for all Americans.
    This overtime rule is for the millions who struggle under 
the circumstances we have heard discussed today--who work 
excessive hours with no extra pay, who are tormented by the 
impossible choice of keeping the job with absurdly long hours 
or being unable to provide for their families. For all those 
who are trying as hard as possible to make ends meet and to get 
ahead, this proposed overtime rule is for you.
    We are the Workforce Protections Subcommittee. Our job is 
to protect the workers who are the workforce.
    And I want you to know that the Democrats on the Workforce 
and Education Committee, more than 150 Democratic members of 
Congress, and many advocates and organizations represented here 
today will fiercely and fervently fight to defend this much-
needed update to overtime protections. We will fight to ensure 
that this proposed overtime rule reclaims the fairness owed to 
millions of American workers.
    We will not only fight for this rule, but fiercely defend 
against attempts to erode any existing overtime protections. We 
will fight against efforts to strip workers of their overtime 
pay that takes the insidious form of comp time.
    Allowing employers to give workers paid time off or comp 
time in lieu of overtime may sound great but for the fact that 
it is the employer who gets to choose when and if the employee 
can take that time off. Bills like this amount to more work and 
less pay for families who are struggling to make ends meet 
because comp time can't pay the bills, buy bread, or help build 
our economy.
    Mr. Chairman, I ask unanimous consent that letters from the 
following organizations be entered into the hearing record: the 
Center for American Progress, the Center for Economic and 
Policy Research, the National Employment Law Project, the 
National Partnership for Women and Families, the United 
Steelworkers 9to5. These letters express support for the 
Department of Labor's proposed rule to increase the overtime 
salary threshold.
    [Additional submissions by Ms. Wilson follow:]
    Ms. Wilson of Florida. Thank you, Mr. Chairman.
    Chairman Walberg. I thank the gentlelady. And these letters 
have already been received and part of our record.
    Well, again, thank you for this hearing. Thank you for the 
input that you all put in.
    In closing, I would just say that we, as well, are 
committed to making the workplace of the 21st century something 
that is growing and expanding of opportunity.
    I am not going to use the words that we will fight for it. 
I want to work with all sectors and both sides of the aisle, as 
well, to make sure that we have a workplace that is expanding 
and growing for opportunity--with opportunity for people; that 
we have certainly ambition rewarded and not frustrated; that we 
have a workplace that encourages people with all aspects of 
their life.
    But understanding the realities, that means we must work 
together. We can't have a one-size-fits-all plan. That won't 
work. Doesn't work in my marriage, I can tell you that. Doesn't 
work with my kids or grandkids. We have to have the flexibility 
that moves us forward.
    The duties test. I would hope that the Department of Labor 
would give us a stronger indication--in fact, I would hope and 
will be making strong suggestion and request that they extend 
the time of implementation; that they take time to listen to 
what was said here today, and read the information put in our 
other hearings as well and look to the reality of what is going 
    Sixty, 70 hours without overtime is a vast overstatement if 
you just take in the context that was pushed out today in so 
many ways, and I hope without intention. But that is the 
rarity. That is not every week. But it deals with the realities 
of what the workplace entails.
    With an economy that has been very sluggish--with a work 
growth economy that has been very sluggish and is aimed toward 
low income, minimum wage, and not the living wage that we want 
to see take place as a result of the growing economy that is 
done by government getting out of the way as much as possible 
and letting the grass roots grow what can and has grown in this 
country in the past.
    Employers will adjust. A statement was made here today in 
testimony. Yes, employers will adjust. We know that. That 
    But how will they adjust? Will they adjust by expanding 
opportunity for more people to grow and find their sweet spot? 
No. They will adjust to meet the needs of staying alive and 
viable, and that doesn't always work in the best way.
    And so then the next question ought to come: Will employees 
adjust? Be much more difficult for them if they don't have the 
job, if they don't have the opportunity to expand.
    And so I promise to my ranking member as well as my 
committee and all in the room that we will work toward finding 
a solution and encouraging the Department of Labor to take a 
second look at a solution that is not a one-size-fits-all, that 
doesn't go beyond the reality of the workplace and the 
workforce in the world today and in this country, and to make 
sure it fits; and we move forward, but we move forward in a way 
that doesn't break but rather expands opportunity.
    We will talk about this in the future, I am sure, and we 
look forward to that.
    Having no further business to come before this 
subcommittee, it is adjourned.
    [Additional submissions by Chairman Walberg follow:]
    [Whereupon, at 12:01 p.m., the subcommittee was adjourned.]