[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE COSTS AND CONSEQUENCES OF
THE ADMINISTRATION'S OVERTIME PROPOSAL
=======================================================================
HEARING
before the
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, JULY 23, 2015
__________
Serial No. 114-23
__________
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
------
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
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
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Page
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
EXAMINING THE COSTS AND CONSEQUENCES OF THE ADMINISTRATION'S OVERTIME
PROPOSAL
----------
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
stifle.
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
workforce.
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:]
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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:]
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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.
Welcome.
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.
Welcome.
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.
Welcome.
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.
TESTIMONY OF MS. ELIZABETH HAYS, DIRECTOR OF HUMAN RESOURCES,
MHY FAMILY SERVICES, MARS, PENNSYLVANIA (TESTIFYING ON BEHALF
OF THE SOCIETY FOR HUMAN RESOURCE MANAGEMENT)
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
lower.
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Walberg. Thank you.
I now recognize Mr. Williams for your five minutes of
testimony.
TESTIMONY OF MR. ERIC WILLIAMS, CHIEF OPERATING OFFICER, CKE
RESTAURANT HOLDINGS, INC., CARPINTERIA, CALIFORNIA
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
work.
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:]
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Chairman Walberg. Thank you.
Mr. Eisenbrey, I recognize you for your five minutes.
TESTIMONY OF MR. ROSS EISENBREY, VICE PRESIDENT, ECONOMIC
POLICY INSTITUTE, WASHINGTON, D.C.
Mr. Eisenbrey. Thank you, Mr. Chairman, and members of the
Committee. I will make five points and then I will elaborate on
them.
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
pay.
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:]
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Chairman Walberg. Thank you.
I now recognize the Honorable Tammy McCutchen for your five
minutes of testimony.
TESTIMONY OF HON. TAMMY McCUTCHEN, PRINCIPAL, LITTLER MENDELSON
P.C., WASHINGTON, D.C. (TESTIFYING ON BEHALF OF THE U.S.
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
FLSA.
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
Midwest.
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
off.''
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
bonuses.
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Walberg. I am going to have to start paying you
overtime----
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
compensation.
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
Committee.
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
covered.
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
industries.
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
job----
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
hours?
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
compensation?
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
overtime.
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
all.
Mr. Scott. Any right to overtime pay or any extra pay at
all?
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
mind.
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
before.
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
percent.
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
game.
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
month.
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
cetera.
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
range.
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
mission?
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
costs.
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
foremost.
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
services.
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
exemption.
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
exemption.
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
economics.
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
that.
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,
correct?
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
Labor.
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
something?
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
else----
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
you.
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
today.
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
workforce.
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
created----
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
it.
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
important.
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
workers.
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
it.
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
managers.
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
citizens.
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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
on.
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
happens.
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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Whereupon, at 12:01 p.m., the subcommittee was adjourned.]
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