[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE 21ST CENTURY WORKFORCE: HOW CURRENT
RULES AND REGULATIONS AFFECT INNOVATION
AND FLEXIBILITY IN MICHIGAN'S WORKPLACES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN LANSING, MI, MARCH 29, 2016
__________
Serial No. 114-44
__________
Printed for the use of the Committee on Education and the Workforce
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______
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
------
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
----------
Page
Hearing held on March 29, 2016................................... 1
Statement of Members:
Bishop, Hon. Michael D., a Representative in Congress from
the State of Michigan...................................... 3
Prepared statement of.................................... 5
Walberg, Hon. Tim, Chairman, Subcommittee on Workforce
Protections................................................ 1
Prepared statement of.................................... 3
Statement of Witnesses:
Belman, Dr. Dale, Professor, School of Human Resources and
Labor Relations, Michigan State University, East Lansing,
MI......................................................... 31
Prepared statement of.................................... 34
McKeague, Ms. Nancy, Senior Vice President and Chief of
Staff, Michigan Health and Hospital Association, Okemos, MI 7
Prepared statement of.................................... 9
Meyer, Mr. Jared, Fellow, Economics21, Manhattan Institute
for Policy Research, Washington, D.C....................... 19
Prepared statement of.................................... 21
Thomas, Ms. Laurita, Associate Vice President for Human
Resources, University of Michigan, Ann Arbor, MI........... 38
Prepared statement of.................................... 40
Wilson, Mr. D. Mark, Vice President, Health and Employment
Policy, H.R. Policy Association, Washington, D.C........... 43
Prepared statement of.................................... 45
Additional Submissions:
Wilson, Hon. Frederica S., Ranking Member, Subcommittee on
Workforce Protections:
Questions submitted for the record....................... 71
Ms. Thomas:
Response to questions submitted for the record........... 73
THE 21ST CENTURY WORKFORCE:
HOW CURRENT RULES AND REGULATIONS
AFFECT INNOVATION AND FLEXIBILITY
IN MICHIGAN'S WORKPLACES
----------
Tuesday, March 29, 2016
U.S. House of Representatives
Subcommittee on Workforce Protections
Committee on Education and the Workforce
Lansing, MI
----------
The subcommittee met, pursuant to call, at 9:59 a.m., in
Rooms M119-M120, Lansing Community College West Campus, 5708
Cornerstone Dr., Lansing, Michigan, Hon. Tim Walberg [Chairman
of the subcommittee] presiding.
Present: Representatives Walberg and Bishop.
Staff Present: Jessica Goodman, Legislative Assistant;
Tyler Hernandez, Deputy Communications Director; John Martin,
Professional Staff Member; and Eunice Ikene, Minority Labor
Policy Associate.
Chairman Walberg. Good morning. A quorum being present, the
subcommittee will come to order.
We welcome you today. This is a real live subcommittee
hearing, but it sure feels much better in a way, being back in
my district for the field hearing.
I would like to thank our witnesses for joining us. I would
also like to thank the staff here at the Lansing Community
College for their hospitality. This is a great facility. It
kind of evidences what the Education and the Workforce
Committee is all about in addressing real-world needs for real-
world working environment, as well as people trained and
prepared for real-world jobs. And living around Washington, at
times, real world is not the expression we all know all that
much about, so it is good to be here.
It is good to be here and have the opportunity to learn
more about how policies and proposals coming out of Washington
are affecting workers and employers both in Michigan and across
the country. Discussions like this, one, are important because
they inform the work we do as lawmakers. They help us, as your
representatives in our nation's capital, better understand your
concerns, your struggles, and your successes. And they help us
ensure your priorities remain our priorities.
I don't have to tell you that in this economy, which is
still struggling to recover, a lot of Americans continue to
face significant challenges. Millions of men and women are
struggling to find jobs. Millions of others are working part-
time jobs when what they really need and want is full-time
work. Family incomes across the country remain flat. People are
hurting, and as policymakers, we have a responsibility to do
everything we can to help. One important way we can do that is
by taking a close look at the rules and regulations governing
our workplaces.
For almost 80 years, the Fair Labor Standards Act has been
the foundation of our wage and hour standards, 80 years. The
law plays an important role in the lives of millions of working
Americans. The problem is that a lot has changed in our
workplace over the 80 years. We have even gone beyond bag
phones, and the Federal wage and hour rules have not kept up.
Today, the regulations guiding the law's implementation are
rigid, outdated, and simply are not working for the twenty-
first century workforce. Millennials are now the majority of
the workforce, and they, like most in the workforce, do not
want a flawed regulatory structure that constrains flexibility
and innovation by creating confusion and uncertainty in today's
workplaces. Unfortunately, the current law raises more
questions than it provides answers.
That is why Republicans have long supported improving and
updating the rules surrounding Federal wage and hour standards,
modernizing them to account for advances in technology and to
better reflect the innovative, flexible economy we have today.
We remain willing and ready to work toward that goal.
However, we also remain insistent that we do so
responsibly. It is not enough to simply change the rules. We
have to improve them. And we have to do so in a way that does
not place additional burdensome requirements on small business
owners, does not stifle job creation and wages, and does not
limit opportunity and flexibility for workers.
Unfortunately, the administration is taking a different
approach to updating workplace rules and regulations. In fact,
the Department of Labor is in the process of finalizing an
overtime rule that is anything but responsible. Instead of
making changes to address the complexity of current
regulations, the proposal will impose significant burdens on
employers, limit workplace flexibility, and make it harder for
workers to advance in their careers. The administration's
regulatory proposal will ultimately hurt the very people who
need help.
There are better ways to update and modernize current rules
and regulations, and we owe it to the American people to
explore them. That is the purpose of today's hearing. We want
to hear about your experiences and understand your concerns.
What is working? What is not working? What changes need to be
made to ensure Federal policies support rather than discourage
the economic growth our nation desperately needs? How can we
help you and others in our communities pursue the personal
opportunity you are working to achieve?
[The information follows:]
Prepared Statement of Hon. Tim Walberg, Subcommittee on Workforce
Protections
It's good to have the opportunity to learn more about how policies
and proposals coming out of Washington are affecting workers and
employers both in Michigan and across the country. Discussions like
this one are important because they inform the work we do as lawmakers.
They help us as your representatives in our nation's capital better
understand your concerns, your struggles, and your successes; and they
help us ensure your priorities remain our priorities.
I don't have to tell you, that in this economy which is still
struggling to recover a lot of Americans continue to face significant
challenges. Millions of men and women are struggling to find jobs.
Millions of others are working part-time jobs when what they really
need and want is full-time work. Family incomes across the country
remain flat. People are hurting, and as policymakers, we have a
responsibility to do everything we can to help. One important way we
can do that is by taking a close look at the rules and regulations
governing our workplaces.
For almost 80 years, the Fair Labor Standards Act has been the
foundation of our wage and hour standards. The law plays an important
role in the lives of millions of working
Americans. The problem is that a lot has changed in our workplaces
over the 80 years, and federal wage and hour rules have not kept up.
Today, the regulations guiding the law's implementation are rigid,
outdated, and simply not working for the 21st century workforce.
Millennials are now the majority of the workforce, and they like most
in the workforce do not want a flawed regulatory structure that
constrains flexibility and innovation by creating confusion and
uncertainty in today's workplaces. Unfortunately, the current law
raises more questions than it provides answers.
That's why Republicans have long supported improving and updating
the rules surrounding federal wage and hour standards modernizing them
to account for advances in technology and to better reflect the
innovative, flexible economy we have today. We remain willing and ready
to work toward that goal. However, we also remain insistent that we do
so
responsibly. It's not enough to simply change the rules. We have to
improve them. And we have to do so in a way that does not place
additional burdensome requirements on small business owners, does not
stifle job creation and wages, and does not limit opportunity and
flexibility for workers.
Unfortunately, the administration is taking a different approach to
updating workplace rules and regulations. In fact, the Department of
Labor is in the process of finalizing an overtime rule that is anything
but responsible. Instead of making changes to address the complexity of
current regulations, the proposal will impose significant burdens on
employers, limit workplace flexibility, and make it harder for workers
to advance in their careers. The administration's regulatory proposal
will ultimately hurt the very people who need help.
There are better ways to update and modernize current rules and
regulations, and we owe it to the American people to explore them.
That's the purpose of today's hearing. We want to hear about your
experiences and better understand your concerns. What's working? What's
not working? What changes need to be made to ensure federal policies
support rather than discourage the economic growth our nation
desperately needs? How can we help you and others in our communities
pursue the personal opportunity you're working to achieve?
______
Chairman Walberg. I look forward to hearing from each of
you on the panel, so I am going to yield to my distinguished
college from Michigan, Congressman Mike Bishop, for his opening
remarks as well.
Mr. Bishop. Thank you, Chairman Walberg, and thank you to
our panel for being here today.
I want to make a special acknowledgement to Chairman
Walberg for his dedication to this cause and for his steadfast
leadership on this Committee to address this issue.
I want to thank you for being here, everybody, for
participating in this hearing. These discussions are very
helpful to all of us, very valuable. They help us deliver
meaningful solutions to the many challenges facing Americans
right now, including those facing our workers and job creators.
In fact, when it comes to updating rules and regulations
related to workforce protections and wage and hour standards,
having the opportunity to hear your perspectives and
experiences are particularly important. Because when we are
talking about these issues, it is not about public policy; it
is very personal. It is personal for the workers who need the
flexibility to care for their loved one. It is personal for the
parent who wants to make it to their child's school or game.
And I can relate completely with that. It is personal for the
working mom or dad who is helping an aging relative. Workplace
flexibility is incredibly personal and important to a lot of
people.
It is also personal for the low-wage worker trying to seize
opportunities to move up the economic ladder. At a Committee
hearing last year, we heard from a witness, Eric Williams, who
worked his way up from crew member at a fast-food restaurant to
become the chief operating officer of a major U.S. corporation.
On top of that, he also owns and operates several restaurants
of his own. This is the American dream. It is also what is at
stake if we miss the mark when it comes to updating regulations
related to wage and hour standards.
As Chairman Walberg did say, the rules and regulations
guiding the implementation of the Fair Labor Standards Act are
too complex. They are burdensome, and they are outdated. They
no longer provide the kind of protections and opportunities
that they could and should for workers and employers. I think
that is something Republicans and Democrats can clearly agree
upon. Where we disagree, seemingly, is the best way to update
them.
During the same hearing in which Eric Williams shared his
inspiring success story, he also raised some troubling concerns
with the consequences one of the administration's recent
regulatory proposals had, and that was the Department of
Labor's overtime rule, which the good Chairman shared a little
bit of his concern about earlier. It will create for workers
and small businesses significant concerns, despite the fact it
was intended to help.
Mr. Williams explained that the rule will be detrimental to
workplace flexibility, how it will negatively impact pay and
bonuses, and how it will severely limit hardworking, talented
Americans from recognizing and realizing their dreams.
Workers and small businesses are not the only ones
concerned about the administration's proposal. Those in higher
education worry the rule could have unintended consequences for
them as well, leading to higher costs and forcing schools to
restrict hours for certain employees.
Here in Michigan, we are very fortunate to have an
abundance of incredible universities that serve students from
our State and from States across the country. Two of our
witnesses are joining us from some of them: the University of
Michigan and Michigan State University. Under no circumstances
should we be making it harder and more costly for students at
these universities, or any university, to receive a quality
education.
Americans deserve better than the changes that led to these
kinds of consequences. That is why we will continue our efforts
to promote and encourage reforms that clarify current rules and
regulations, modernize them, and make them better - reforms
that won't stifle innovation, flexibility, and opportunity.
These things are essential in allowing our workforce to grow
and change to better meet the needs of workers, job creators,
and consumers; and they will continue to help us push the
limits of what we are able to accomplish.
I look forward to hearing from all of you, all your
comments, and look forward to working with all of you along the
way as we accomplish our goals. Thank you. I yield back.
[The information follows:]
Prepared Statement of Hon. Michael D. Bishop, a Representative in
Congress from the State of Michigan
These discussions really are valuable to us. They help us deliver
meaningful solutions to the many challenges facing Americans right now,
including those facing our workers and job creators.
In fact, when it comes to updating rules and regulations related to
workforce protections and wage and hour standards, having the
opportunity to hear your perspectives and experiences are particularly
important. Because when we're talking about these issues, it's not just
public policy it's personal.
It's personal for the worker who needs the flexibility to care for
a loved one. It's personal for the parent who wants to make it to their
child's school play or little league game. It's personal for the
working mom or dad who is also helping an aging relative. Workplace
flexibility is incredibly personal and important to a lot of people.
It's also personal for the low-wage worker trying to seize
opportunities to move up the economic ladder. At a committee hearing
last year, we heard from one witness, Eric Williams, who worked his way
up from a crew member at a fast-food restaurant to become the chief
operating officer of a major U.S. corporation. On top of that, he also
owns and operates several restaurants of his own. That is the American
Dream. It's also what's at stake if we miss the mark when it comes to
updating regulations related to wage and hour standards.
As Chairman Walberg said, the rules and regulations guiding the
implementation of the Fair Labor Standards Act are too complex,
burdensome, and outdated. They no longer provide the kind of
protections and opportunities they could and should for workers and
employers. I think that's something Republicans and Democrats can agree
on. Where we seem to disagree is the best way to update them.
During the same hearing in which Eric Williams shared his inspiring
success story, he also raised some troubling concerns with the
consequences one of the administration's recent regulatory proposals
the Department of Labor's overtime rule will create for workers and
small businesses. He explained how the rule will be detrimental to
workplace flexibility, how it will negatively impact pay and bonuses,
and how it will ``severely limit hardworking, talented Americans from
realizing their dreams.''
Workers and small businesses are not the only ones concerned about
the administration's proposal. Those in higher education worry the rule
could have unintended consequences for them as well, leading to higher
costs and forcing schools to restrict hours for certain employees. Here
in Michigan, we're very fortunate to have an abundance of incredible
universities that serve students from our state and from states across
the country. Two of our witnesses are joining us from some of them: the
University of Michigan and Michigan State University. Under no
circumstances should we be making it harder and more costly for
students at these universities or any university to receive a quality
education.
Americans deserve better than changes that lead these kinds of
consequences. That's why we will continue our efforts to promote and
encourage reforms that clarify current rules and regulations, modernize
them, and make them better reforms that won't stifle innovation,
flexibility, and opportunity. These things are essential in allowing
our workforce to grow and change to better meet the needs of workers,
job creators, and consumers; and they will continue to help us push the
limits of what we are able to accomplish.
I look forward to hearing from all of you about how we can best
accomplish those goals.
______
Chairman Walberg. I thank the gentleman.
Pursuant to Committee rule 7(c), all Committee 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. Ms.
Nancy McKeague is senior vice president of employer and
community strategies and chief human resources officer for the
Michigan Health and Hospital Association and is testifying on
behalf of the Society for Human Resource Management. She is
responsible for internal human resources and is a staff lead
for the Michigan Health and Hospital Association's Business
Advisory Council and not a stranger to this subcommittee and
hearing process. Welcome.
Ms. McKeague. Thank you.
Chairman Walberg. Mr. Jared Meyer is a fellow with
Economics21 at the Manhattan Institute. He conducts research in
microeconomic theory and the effects of government regulation,
and is kept busy doing that. Welcome.
Dr. Dale Belman is a professor with the School of Labor and
Industrial Relations and adjunct professor with the Department
of Economics at Michigan State University. Much of his work has
focused on collective bargaining, labor relations, and
compensation in the public sector and government regulation of
labor markets. Welcome.
Ms. Laurita Thomas is the associate vice president for
human resources at the University of Michigan. And we have no
wall in between these two schools right here. It is not
football game day. Ah, the handshake.
Chairman Walberg. In this capacity she is responsible for
human resource policy for all University of Michigan campuses
and a full range of comprehensive, integrated human resource
services, products, and operations- a full plate. Welcome.
Mr. Mark Wilson is vice president and chief economist for
H.R. Policy Association. He previously served as deputy
assistant secretary for the Employment Standards Administration
at the Department of Labor. His work is focused on providing
research and analysis of employment impacts and cost of
workplace-related litigation and regulations, and is no
stranger to this Committee as well and also to this area since
this is your home area.
Mr. Wilson. Yes.
Chairman Walberg. He grew up in East Lansing. Welcome back.
I will now ask our witnesses to stand and raise your right
hand, as is the process in this Committee.
[Witnesses sworn.]
Chairman Walberg. Thank you. You may be seated. Let the
record reflect the witnesses answered in the affirmative.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. And I am looking for oh,
there it is. There is our lighting system. It is fairly self-
explanatory. If you know the stoplights on the roadway, it is
pretty much the same. With the green light on, you have five
minutes of testimony. When you see the yellow light come on,
that means there is a minute left in those five minutes. And
then when red, finish up your sentence or short paragraph to
the best of your ability.
In a field hearing like this with the amount of time that
we do have and the limited number of members of the Committee
here, we are not going to hold with great strictness to that,
but we would appreciate it because we will have opportunity to
ask questions relative to your testimony.
And so let me recognize our witnesses now, beginning with
Ms. McKeague for your five minutes of testimony.
TESTIMONY OF NANCY MCKEAGUE, SENIOR VICE PRESIDENT AND CHIEF OF
STAFF, MICHIGAN HEALTH AND HOSPITAL ASSOCIATION, OKEMOS, MI,
TESTIFYING ON BEHALF OF THE SOCIETY FOR HUMAN RESOURCE
MANAGEMENT
Ms. McKeague. Thank you. I am Nancy McKeague. I'm senior
vice president and chief of staff for the Michigan Health and
Hospital Association, and I am appearing before you today on
behalf of the Society for Human Resource Management.
Thank you for the opportunity to testify before the
subcommittee again at this time in our home state on how
federal regulations affect innovation and flexibility in the
workplace.
As you mentioned, Mr. Chairman, few regulations impact the
workplace more than those that implement the Fair Labor
Standards Act. While employers of all sizes work diligently to
classify employees correctly and remain in compliance with the
FLSA, classification decisions are particularly challenging
because they're based on both objective and subjective
criteria. Therefore, on occasion, an employer acting in good
faith could mistakenly misclassify employees as exempt who, in
reality, should be nonexempt or vice versa.
Let me tell you a little bit about the MHA. We're a
nonprofit association, and we advocate for hospitals and the
patients and communities they serve. We're an employer of
choice, having received workplace awards which are referenced
in my written statement. Yet even some of the best employers
face practical challenges with the FLSA.
It's not uncommon for employers to face high legal costs
for complying with the statute, costs that are particularly
difficult for an organization like the MHA with a tight budget.
Unfortunately, increased litigation related to alleged FLSA
violations leads to less funding for the nonprofit's core
mission, whether that's providing patient treatment, caring for
children, or conducting research.
Nonprofits like MHA must make challenging employee
classification determinations, as our employees are often
performing a mix of duties which includes both exempt and
nonexempt functions. For example, sometimes we'll find that one
of our employees will fit all of the executive employee
exemptions under the FLSA with the exception of supervision of
two or more employees. Take the instance of our MHA Foundation.
The executive director for the foundation supervises only one
employee, so that made our determination of her status a little
bit more challenging. But in the end, we determined that she
should be classified as exempt because of her autonomy, her
experience, and our confidence in her judgment.
Given those sorts of ambiguity, the stakes in improperly
classifying employees are high. Planning for an increase in
litigation can be particularly difficult for the nonprofit
sector and small employers. When the 2004 changes to the Fair
Labor Standards Act overtime regulations were enacted, the MHA
had to allocate additional funding to retain counsel in order
to assure our practices were compliant. In the end, a nonprofit
hospital's decision to direct limited funding to defending
against lawsuits means less money for patient care and
treatment.
As an employer in the health care sector, our member
hospitals are working 24 hours a day, seven days a week,
providing critical treatment and care to patients. Because of
the nature of our work, we must have the ability to respond as
quickly as possible and utilize flexible hours, especially for
clinicians.
The FLSA makes this difficult for certain employees. While
nonexempt employees can receive time-and-a-half pay, they can't
be afforded the same workplace flexibility benefits as exempt
employees. The FLSA actually impedes workplace flexibility by
prohibiting private sector employers from offering nonexempt
employees the option of paid time off rather than overtime pay
for hours worked over 40 per week even though all public sector
employees are offered this type of flexibility, which is
commonly referred to as comp time.
SHRM has long supported the Working Families Flexibility
Act to provide employees with the option of comp time to
businesses and their hourly employees. Mr. Chairman, today's
examination of the FLSA is particularly timely given the
administration's overtime proposal is under final review after
they received more than 290,000 comment letters in response to
the proposal.
SHRM has repeatedly stated that an increase to the salary
threshold for overtime pay is warranted but the DOL's proposed
113 percent increase is too much, too fast. Using a salary
threshold at the 40th percentile of average weekly earnings,
which is estimated to be more than $50,000 for 2016, presents
significant challenges for small employers, nonprofits, and
employees in lower cost-of-living areas. If the salary
threshold is doubled, many employees will lose their exempt
status and the workplace flexibility it affords, not to mention
the professional status and autonomy that go with it.
Mr. Chairman, thank you for protecting for introducing the
Protecting Workplace Advancement and Opportunity Act, which
would nullify the DOL's overtime proposal. SHRM strongly
supports this legislation to require the department to conduct
an economic analysis of how changes to the overtime rules will
impact nonprofits, small businesses, and others before they
issue a new rule. This is a reasonable response to the current
overtime proposal, and SHRM encourages all members of Congress
to support it.
In closing, SHRM and its members are committed to working
with the members of this Committee to address the FLSA in a
manner that balances the needs of both employees and employers
and does not produce requirements that could limit workplace
flexibility. Thank you, Mr. Chairman.
[The statement of Ms. McKeague follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Walberg. Thank you.
I now recognize Mr. Meyer. And it is good to have a
millennial--
Mr. Meyer. Yes.
Chairman Walberg.--on our witness panel here to hear
perspective. You have five minutes.
TESTIMONY OF JARED MEYER, FELLOW, ECONOMICS21, MANHATTAN
INSTITUTE FOR POLICY RESEARCH, WASHINGTON, D.C.
Mr. Meyer. Well, Chairman Walberg and Representative
Bishop, thank you for the opportunity to give testimony on how
new administrative interpretations of the Fair Labor Standards
Act of 1938 fail to reflect the realities of today's workforce.
I'm a fellow at the Manhattan Institute and I'm the co-
author with Diana Furchtgott-Roth of Disinherited: How
Washington Is Betraying America's Young. I'm also the author of
the forthcoming Uber Positive: Why Americans Love the Sharing
Economy.
The American economy is changing, and millennials'
attitudes about work and their careers are changing with it.
The rapid rise of the so-called sharing economy embodies many
young Americans' new economic ideal, one driven by technology,
convenience, and flexibility.
Companies such as Uber and Airbnb offer the technical
platform and support to allow transactions between buyers and
sellers to easily take place. For this reason, these types of
companies are often referred to as ``intermediaries.'' Those
who partner with intermediaries are classified as independent
contractors, not employees.
The flexibility that independent contractor status offers
workers is vital to the success of the sharing economy. While
some workers use these platforms full-time, the vast majority
use them for part-time work and supplemental income. About
eight in 10 Lyft drivers work under 15 hours a week, and over
half of Uber drivers use the platform for less than 10 hours a
week. Furthermore, half of Lyft drivers work another job while
partnering with the company, and two-thirds of Uber drivers
work another job as well.
Independent contractor status allows the decision of when
or for how long to work to be controlled by workers, not
companies. And this opportunity to smooth out earnings to do
everything from meeting rent to paying down student loans or
funding a new business venture is a benefit of the sharing
economy that must be protected. This is especially critical for
the 70 percent of Americans ages 18 to 24 who experience an
average monthly change of over 30 percent in their monthly
incomes.
But the sharing economy's rise obscures a troubling
economic trend. Once dynamic, the American economy is growing
slowly and entrepreneurship is actually falling. Even though
two-thirds of millennials want to work for themselves at some
point, less than 4 percent of private businesses are even
partially owned by someone under the age of 30.
One reason for this is government policy, particularly in
regards to labor regulation, ignores the realities of a twenty-
first century economy and continues to hold back millennials'
economic opportunity. For example, the Labor Department
recently issued an Administrator's Interpretation, effective
immediately, to clarify the definition of independent
contractors. It states, ``most workers are employees,'' not
independent contractors. Because it was termed ``guidance,'' it
didn't have to go before the public for comment, even though it
has the potential to upend the sharing economy.
Currently, workers are either classified as employees or
independent contractors. Employees are given many protections
and benefits under the Fair Labor Standards Act that are not
available to contractors. In exchange, employers are able to
set the terms of workers' employment. On the other hand, the
independent contractor status provides workers with more
control and flexibility.
The Labor Department's new interpretation formally accepts
the six-part ``economic realities'' test for determining
whether workers are employees or independent contractors. At
the same time, it downplays one of these six criteria a lack of
control over workers' hours as a determinant in employment
status. This could be devastating for sharing economy companies
as they do not control their workers' hours.
Unlike employees, independent contractors are not entitled
to minimum wage, overtime pay, unemployment insurance, or
workers' compensation, but extending these employment
protections to independent contractors makes no sense. When
debating the future of worker classification, lawmakers should
resist calls to extend employee wage and hour protection to
independent contractors.
Since intermediaries, again referring to sharing economy
companies, do not control workers' hours, and determining how
much someone is actually working only for that intermediary is
very difficult, if not impossible. Minimum wage and overtime
pay requirements are inapplicable to these companies' business
models.
Additionally, one of the benefits of the sharing economy is
that supply can easily fluctuate to meet an ever-changing
demand. Because of the option of flexibility, independent
contractor work for intermediaries is often transient or done
in addition to other work. Think back to the statistics I used
earlier. This is why there is little reason to compel employers
to fund unemployment insurance benefits.
Intermediary workers are also usually completing jobs
offsite and using their own materials. For these reasons,
workers' compensation systems should remain optional, not made
mandatory for intermediaries.
But most importantly, the worker classification question
needs to be sorted out by federal legislators, not by courts or
unaccountable executive agencies. The alternative is the
crippling of the sharing economy by executive agencies that are
set on incorrectly classifying the vast majority of new economy
workers as employees.
Millennials want to be entrepreneurs and they desire
employment that is flexible, mobile, and individualized. The
Department of Labor's attempts to stifle the rise of the
promising new business models seen in the sharing economy
through regulation is no way to help millennials achieve their
vision of the American dream. In order to promote an
entrepreneurial workforce, Congress needs to use its power to
rein in the Department of Labor.
Thank you again for the opportunity, and I look forward to
continuing the discussion.
[The statement of Mr. Meyer follows:]
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Chairman Walberg. Thank you.
Dr. Belman--
Dr. Belman. Thank you.
Chairman Walberg.--I recognize you for your five minutes.
TESTIMONY OF DR. DALE BELMAN, PROFESSOR, SCHOOL OF HUMAN
RESOURCES AND LABOR RELATIONS, MICHIGAN STATE UNIVERSITY, EAST
LANSING, MI
Dr. Belman. Fifty, 40, maybe as close as 30 years ago,
there was broad agreement that the U.S. economy was based on
shared prosperity. Firms prospered. Employees and employers
worked together, learned how to do work better, increased
productivity. They shared those gains not equally but they
shared in the gains from doing things better, from improved
prosperity. This resulted in better pay, better benefits,
improved economic security, investments in employees and in
employee training.
For example, George Romney, president of American Motors in
the late '50s and early '60s both limited the pay to top
managers and instituted profit-sharing, the first of the auto
companies to do that. Even major retailers such as Sears prided
themselves on good salaries and benefits and a career path for
diligent employees. Sears, of course, was nonunion.
A belief in shared prosperity was also expressed in the
implementation of protective labor legislation. The Fair Labor
Standards Act was extended to cover wholesale and retail trade,
to cover hospitals and the public sector. We improved the
security of private pension plans through ERISA. Under the
Nixon administration, we created OSHA to create a safe and more
healthful workplace.
This path to shared prosperity has significantly been
abandoned for much more of a winner-take-all economy, one that
too often pits employers against employees. We can see this in
stagnant real wages over the last 35 years, only slow
improvement in family incomes, and that only because families
are working more hours largely by moving women into the labor
force. Likewise, levels of income and wealth and equality have
risen to levels that rival the 1920s and the Gilded Age.
Abandoning the path to shared prosperity appears not only
in outsourcing, offshoring, tax inversions, and other headline-
grabbing changes, but also in the details of protective labor
law. Under the rubric of economic necessity, several States
have reduced U.I. coverage to 12 to 20 weeks from 26 weeks.
This comes on top of a long failure to modernize the U.I.
system to address issues of working women and reduced careers.
Currently, only one in three of the unemployed worker receives
U.I. benefits. Two States have allowed for worker compensation
opt-outs which deprive injured employers of many of the
protections they had under State systems. A number of other
States are currently considering this.
The Supreme Court in emphasizing the use of private
arbitration of employee rights, under terms established by the
employer, has substantially reduced employees' ability to
pursue their legal rights with their employers.
Recent steps by the Department of Labor to update the
salary standard for an employee to be considered exempt is long
overdue. Since 1938, DOL and the courts have recognized the
single best test of exempt status is a salary high enough to
demonstrate that the employee is highly valued.
In 1975, an individual who was exempt from the overtime had
an annual earning of 110 percent of U.S. median family
earnings. In contrast, at the current level of $455 per week or
$23,660, individuals earning 45 percent of U.S. median income
are exempt. If we had a family, one earner, four members, this
amount, $23,660, would place them below the U.S. poverty
threshold, they would be eligible for Medicare, for food
stamps, and other income maintenance programs.
The current threshold also provides strong incentives for
employers to classify low-wage workers as salaried managers and
essentially obtain uncompensated work by having them work
unpaid overtime.
The DOL proposal would just raise the overtime threshold to
just below 100 percent of U.S. median family income. So it
would basically not quite restore where it was in 1975. In 1975
companies dealt with it successfully, small businesses and
large businesses. So I'm not sure that there are going to be
disastrous effects. In fact, I'd argue that there would not be
disastrous effects.
Some brief observations on the gig economy. This is new,
this is exciting, this is different. It's not particularly new.
Most of my research is on construction, and construction looks
a lot like the gig economy. Employees not tied to a single
employer, they regularly move between employers and projects.
Because of that gig structure and the lack of a strong
relationship between employer and employee, wages fluctuate
greatly with immediate demand.
There's a lot of economic uncertainty. Benefits such as
medical coverage and pensions and 401(k)s are rare to
nonexistent. Employer-provided training is also rare to
nonexistent outside the union sector. Owners and employers
regularly complain about a lack of sufficiently skilled craft
workers. Southern Power and Curt have been arguing about this
for years and trying to find a way to have more trained
workers.
There is rampant misclassification of employees as
independent contractors. As a result, employees are deprived of
workers' compensation, unemployment insurance coverage, as well
as the employers' share of FICA. State and Federal Governments
lose tax revenues. Employers who play by the rules, classify
their employees correctly, are substantially disadvantaged in
bidding on construction projects.
What this suggests is that creating some sort of new
structure, independent worker or something, which has reduced
benefits is a problem because it's hard enough to get
enforcement of current relatively clear concepts of independent
contractor versus employer/employee. You add another status, it
becomes virtually impossible. The U.I. system isn't going to be
able to cope with it, and they do most of the misclassification
of work.
To summarize, the proposed provisions of the overtime
threshold aren't keeping with the history of the Fair Labor
Standards Act. It restores that threshold to a reasonable
income level. It provides businesses flexibility and employment
of highly valuable employees, while protecting lower-paid
employees from being required to work extended hours without
compensation.
Thank you.
[The statement of Dr. Belman follows:]
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Chairman Walberg. Thank you.
Ms. Thomas, we now recognize you for your five minutes of
testimony.
TESTIMONY OF LAURITA THOMAS, ASSOCIATE VICE PRESIDENT FOR HUMAN
RESOURCES, UNIVERSITY OF MICHIGAN, ANN ARBOR, MI
Ms. Thomas. Good morning. Thank you, Mr. Chairman, and
members of the House Education and the Workforce Subcommittee
on Workforce Protections for the opportunity to talk about the
proposed changes to the Fair Labor Standards Act.
In addition to my role at the University of Michigan, I am
also a member of the National Board and the Public Policy
Committee of the College and University Professionals
Association for Human Resources. It represents human resource
leaders at 1,900 U.S. colleges and universities.
I know I'm joined by many of my human resource colleagues
when I say that I appreciate your willingness to hear and
consider the unique impact of these proposed changes on higher
education.
The University of Michigan supports an increase to the wage
threshold, which has not been adjusted since 2004. However, we
believe that closing that gap without adequate time for
implementation could be counterproductive. Specifically, the
new rules call for an increase from the current wage threshold
of $23,660 a year to $50,440 a year with a very short
implementation timeline and outside of the annual budget
planning process through which we plan for new expenses.
There are limited ways to raise revenue outside of tuition,
so adequate time for planning and implementation is very
important. If this change were to occur abruptly, it would be
cost-prohibitive for schools like Michigan to raise the
salaries of those affected to the proposed new minimum in order
to maintain the Fair Labor Standards Act exemption status for
that the workers have today.
The University of Michigan is the largest higher-ed
employer in the State, and these changes would affect more than
3,100 people in roles critical to our missions.
The proposed implementation cost at the University of
Michigan is as high as $34 million. Early statewide estimates
from the Michigan Association of State Universities total more
than $60 million for 11 of the 15 member institutions
reporting. If salaries were raised just for those employees
close to the threshold, most of the remaining affected
employees would need reclassification to nonexempt status.
Since many jobs in higher education, health care, and
research are not well suited for hourly compensation, the
change would result in reduced autonomy, fewer flexible work
arrangements, and diminished opportunities for needed business
travel for these employees.
Benefits could also be affected when tied to the exemption
status. In some institutions, differentials in professional
development funding, tuition assistance are also in play.
Reclassifying them to nonexempt Fair Labor Standards Act status
could represent a loss of total compensation for some employees
with greater complexity for their employers.
Additional consequences include reducing opportunities for
part-time employment, including roles that involve business
event planning and onsite administration in which staff work
longer hours for a limited number of days or weeks in exchange
for reduced work hours in subsequent weeks. This serves a
business need for our university but would no longer be
possible.
University research activities could also be inhibited.
Agencies providing research grants like the National Institutes
of Health often set stipends for postdoctoral researchers well
below this new threshold. Since research often requires
extended attention to experiments at various times and outside
of regular hours, postdocs are not compatible their roles are
not compatible with the new rule.
I want to reiterate that we do support an increase to the
wage threshold. What we suggest are changes in the way in which
an increase is implemented. First, consider lowering the
threshold so that the immediate goal is reduced. Or
differentiate that for economic sectors by establishing a
separate threshold for organizations in the nonprofit and
public sectors. In either case, the University of Michigan
advocates for a phased implementation over years to allow for
proper planning.
Second, if a more measured approach to increasing the
threshold is not adopted, we believe the Department of Labor
should consider broadening the existing teaching exemption to
include additional positions that are unique to higher
education. That means recognizing exemption status in the
regulations for not only those who teach and tutor but those
for those who advise students, conduct scientific or
professional research, provide student counseling, and offer
services for residential life.
Third, we support a periodic review tied to the cost of
living and to occur not more frequently than every five years
with at least a one-year notice period to employers of pending
increases for planning purposes outlined previously.
Finally, unrelated to the wage threshold itself, we believe
that any changes to the duties test for exemption should be
made available to the community of employers for review and
comment before enactment.
Thank you.
[The statement of Ms. Thomas follows:]
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Chairman Walberg. Thank you, Ms. Thomas.
Mr. Wilson, I recognize you for your testimony.
TESTIMONY OF D. MARK WILSON, VICE PRESIDENT, HEALTH AND
EMPLOYMENT POLICY, H.R. POLICY ASSOCIATION, WASHINGTON, D.C.
Mr. Wilson. Chairman Walberg, Congressman Bishop, thank you
for the opportunity to discuss the twenty-first century
workforce and how current rules and regulations affect
innovation and flexibility in today's workplaces.
Perhaps the best illustration of how the FLSA has failed to
keep up with the rapidly evolving workplace is its computer
professional provision. Much like the discussion we're seeing
now with the gig economy and the sharing economy, in 1990,
Congress directed the Department of Labor to publish
regulations to treat computer employees as exempt under the
FLSA. But then in 1996 Congress froze the regulatory definition
of computer professionals in place when less than 40 percent of
Americans owned a cell phone, less than 3 percent of U.S. homes
had broadband access, and Facebook didn't even exist.
Today, over 90 percent of Americans own smartphones, over
70 percent of households have broadband. Needless to say, the
FLSA rules for computer professionals are woefully outdated.
Even the most traditional industries have undergone
dramatic transformations in how and where work is done. For
example, workers in old coal power plants were typically
divided into several different job categories with many
performing largely physical tasks throughout the plant. Today,
newer power plants are run almost entirely by a small group of
employees working primarily in one single room filled with
computers. The employees are multi-skilled, technically
educated, highly paid professionals who take on a variety of
duties ranging from operating equipment to handling purchasing,
documentation, scheduling, and working with vendors.
Yet, despite all these changes within the American
workplace, during the last half-century, the basic structure of
the FLSA has never been fundamentally re-examined. It is
increasingly having a negative impact on workplace flexibility
and innovation.
The preference of today's workforce for greater flexibility
as to when and where they perform their work is universally
acknowledged. And it goes without saying that the desire is
often possible only through the digital technology that was
unavailable when the FLSA was enacted. In fact, the
overwhelming majority of today's employees embrace the digital
workplace.
A recent Gallup poll showed that full-time employees are
upbeat about using their computers and mobile devices to stay
connected to the workplace outside their normal work hours.
Nearly eight in 10 workers view this as somewhat or strongly
positive development. According to Gallup, nearly all workers
say they have access to the internet based on at least one
device, and they appreciate the freedom this technology offers
them to meet their family needs, knowing they can monitor their
email while out of the office, or log in later to catch up with
work if needed.
Yet, the FLSA deters and often prevents an employer from
providing this flexibility to nonexempt employees by requiring
employers to track all hours worked, which poses a challenge if
the employees wish to perform some or all of their duties away
from the workplace.
Even when nonexempt employees confine their work activities
to within normal working hours, they may occasionally check
their smartphones outside of those hours at work for work-
related emails and meeting invitations. When they do, it raises
questions as to whether the time is counted towards hours
worked. And some attorneys have argued that it could such
activity could also mark the beginning and ending of the
workday, requiring time spent commuting to be also counted as
time worked.
Because of these challenges and the potential threat of
litigation, many employers have taken steps to prevent their
nonexempt employees from doing any work outside the workplace
by denying them employer-provided smartphones and denying
access to their email accounts and other parts of the company's
information systems.
Regrettably, this inability to take advantage of the
virtual workplace inconveniences employees, reduces workplace
flexibility, and makes it more difficult for employees to
manage their work-life balance.
But large employers simply cannot risk exposing themselves
to potentially multimillion-dollar class-action lawsuits. And
the number of lawsuits has exploded over the past 15 years,
increasing almost 450 percent from 2000 to 2015.
FLSA also restricts training opportunities. At the time
when upgrading the skills of the American workers is a
priority, the FLSA's regulations discourage employers from
offering training to their employees. Since many training
opportunities are considered compensable time under the FLSA
and where training could put a nonexempt employee into an
overtime situation, their access to that training may be
limited. Nonexempt employees may also be routinely excluded
from offsite meetings and trips that could be both beneficial
to them and their employer.
Because of the administrative difficulty of determining
what time is compensable and the actual cost of that time, this
inability to participate in off-hours or offsite events can
stunt the growth of the career growth of nonexempt employees
who lose the benefit of those activities.
In conclusion, the disconnect between the FLSA and the
modern workplace will continue to grow if the law is left
unchanged. It will increase tensions among employers,
employees, and regulators with the only true beneficiary being
the plaintiff's bar. Congressional attempts at incremental
reforms stalled in the 1990s, and many policymakers are
reluctant to make another attempt for political reasons. Yet
the pressure to update the FLSA will steadily increase, and it
will become a problem that is increasingly more difficult to
ignore.
Thank you for the time, and I'd be happy to answer any
questions you might have.
[The statement of Mr. Wilson follows:]
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Chairman Walberg. Thank you, Mr. Wilson, and thanks to the
panel. You have laid the foundations here for our discussions,
and now I recognize Mr. Bishop for his five minutes of
questioning.
Mr. Bishop. Thank you, Mr. Chairman. So many questions, so
little time. Mr. Wilson, since you just finished, I would like
to ask you a follow-up question on your statement. Can you give
us some indication as to how your members are preparing for
this rule change now? How is it impacting that environment now?
Mr. Wilson. They are looking at their workforces. They are
trying to determine what impacts a salary level threshold of
around $50,000 would have on their employees in terms of which
employees would have to be reclassified as nonexempt. They're
looking at the hours that those employees typically are
performing or the duties that they're performing to see if they
that they're reviewing their duties more carefully, concurrent
duties.
There's a number of things that they're doing to make sure
that they're complying as best that they can with the vague and
somewhat ambiguous duties test that surrounds the executive and
professional and managerial administrative duties exemptions.
And they're trying to get a gauge as to what impact it's going
to have on their company and the training that they can
provide, the types of benefits that they can provide. As was
mentioned, some of the benefits and bonuses are structured,
their compensation systems are structured in such a way that
some of the bonuses are much easier to provide to salaried
employees as opposed to paid hourly.
Mr. Bishop. So employers are bracing for impact right now?
Mr. Wilson. Correct.
Mr. Bishop. And the impact is potential but they still have
to prepare for it. What kind of impact does that have on their
behavior as an employer? Do they freeze their hiring process?
Do they freeze any kind of movement within their company such
as maybe even promotions or any movement within their salaried
employees?
Mr. Wilson. That's a great question. I haven't seen that
amongst our members yet. They're hiring where hiring is needed
and necessary.
To the degree that it is having an impact on hiring, I
would say that it's pulling resources devoted to reviewing and
analyzing how they may implement this rule when it becomes
final, given the short time frame that they're expected to have
between when the final rule comes out and when they have to
actually comply with it. The amount of time and effort that's
being put into that is actually reducing their ability to hire
and extend hours for current employees.
Mr. Bishop. There is so much to ask there. I would like to
spend more time with you, but I have a very small amount of
time and I would like to move on to Ms. Thomas if I could,
please.
You indicated in your testimony that it would cost the
University of Michigan $34 million to comply with this rule.
That is what you suggested the cost is going to be. In fact,
$60 million for all the other universities together, the cost
to implement this rule. I can't imagine I know it is difficult
for the University of Michigan and Michigan State University to
absorb that kind of cost, but I can't imagine how a smaller
university, and Olivet or an Albion or some of these other
universities will absorb that cost.
My question to you is we already see skyrocketing costs of
tuition in this country. Is this going to impact the tuition?
Will this be passed on to the student?
Ms. Thomas. It's inconceivable to me that it would not
impact tuition.
Mr. Bishop. So we can see this rule this is to me the
ultimate in the law of unintended consequences. This proposed
rule has put into place something that is inconceivable to me,
that we would change public policy that would actually have
that kind of impact on students who already see skyrocketing
costs of tuition, and on top of that, skyrocketing costs with
their financing and their debt ratio, and these are the very
people that are least likely to be employed right now, which
leads me to Mr. Meyer.
Your testimony to me is most impactful because you
represent the future of our country. And this whole discussion
about the gig economy and the sharing economy and talking about
Airbnb and Uber and Lyft was never even contemplated back in
the '60s and '70s when Governor Romney was around or Richard
Nixon. So we have got to somehow fashion the law to comply with
today's world. And technology has taken us in a different
direction.
There are too many things for you to talk about here, I
know, because your head is about to explode about how this
could impact the people in your world, your millennials. Could
you share with us a little bit about this economy, what folks
you are age are doing? I know that they are engaged with all
kinds of online activity, part-time activity. Does this deter
them from their future, from gainful employment, from making a
future for themselves?
Mr. Meyer. Well, just to speak on the overtime rule, which
I didn't touch on in my testimony but I've looked at, I know
for me personally when I started working at the Manhattan
Institute, I was making under what the threshold would be, but
I was able to put in many hours, I was able to travel to
conferences and do all of this to work up from a research
assistant to fellow. If this rule was in place, I would not be
a fellow at the Manhattan Institute right now.
Mr. Bishop. Is it possible that the law ever contemplated
the idea that we would have smartphones one day or internet
connections where we can work from anywhere? I sit in an
airport all the time, I am working my smartphone, responding. I
am typing emails. It clearly is work. But did the law ever
contemplate that? And do you think that the intent of Congress
was to somehow grab all of these different things that we do as
part of our job?
Mr. Meyer. You can definitively say that the law did not
foresee all the changes we've had in the workplace. So what I
would like to see is, moving forward, realize that these new
opportunities, in addition to the sharing economy, it's working
on your own, it's working on extra hours, it's working on your
smartphone at the airport, that the law doesn't constrain this.
Workers are choosing to do this to advance their careers or to
work part-time. We need to get rid of the antiquated notion
that it's a master-servant relationship, which was the language
used in the 1930s to describe employer-employees. It's not how
it is anymore.
Chairman Walberg. The gentleman's time is expired but we
will have other opportunities. You and I control this process
right now but we are going to try to keep some semblance, I
guess, here of our normalcy.
Dr. Belman, going back to the issue of exempt status and
the system by which or the formula that was put in place back
in 1975, 2004, using that formula, would that bring us to the
$50,000?
Dr. Belman. That would actually put us up above the
$50,000. In 1975, the threshold was at 110 percent of the U.S.
family median income. The reset has left it slightly below 100
percent. So the answer is it would be higher.
Chairman Walberg. Would the 2004 standard?
Dr. Belman. No, the 2004 standard was at around 53 percent
of U.S. median family income.
Chairman Walberg. Mr. Wilson, coming from your background
in dealing with that, give me some background on the reason and
rationality for the 2004 standard in placing it at the $23,000
level, which I think arguably we could say is too low for now?
Mr. Wilson. Yes, I think--
Chairman Walberg. But where would it be now if you used
that standard and formula?
Mr. Wilson. Well, the history of the Department of Labor in
setting the salary level threshold from 1938 to 1975 was
typically set at 10 percent of the salaried employees, the 10th
percentile of the salaried employees in the United States,
roughly in that--
Chairman Walberg. Of the total--
Mr. Wilson.--at that level. Of all salaried employees, it
came in at about the 10 percent level. In 1975, the decision
was made to preliminarily and it was supposed to be only on an
interim basis adjusted for inflation, which is hasn't been done
since, and it was raised. In 2004, we took a look at the number
of salaried employees in the United States and took, by
industry and region, and determined that the best place to set
it at was the 20th percentile. We were going a little bit
higher than it had traditionally been done. We didn't adjust it
for inflation, but we set it at the 20th percentile, taking
into account the impact it would have on small businesses, on
retail industries, particularly in rural areas, which is
critically important in terms of the impact it would have
because it was a relatively large increase at that point in
time.
Chairman Walberg. Different than New York or San Francisco?
Mr. Wilson. Exactly. Right. And so that's the methodology
we used in 2004. Using that methodology today would, off top of
my head, set it at around $35-$40,000 a year in terms of the
salary level threshold instead of the $50,000 that's currently
being proposed.
Chairman Walberg. Significantly less impact but still would
you say in a lot--
Mr. Wilson. Substantial but significantly less impact,
yes--
Chairman Walberg. Okay.
Mr. Wilson.--in terms of the unintended consequences it
would have.
And also want to add, Congressman Bishop, that our members
are large members, and so they have the ability to adapt to
this regulation much easier than a lot of the smaller
businesses do. They're for-profit companies as opposed to
universities that have much tighter budgets, and they're more
easier can more easily increase the prices of their goods,
which, to the extent there's an impact and a cost of the bottom
lines for our employers and our HR policies, association
members, it'll just be passed on to consumers.
Chairman Walberg. Okay. Ms. McKeague, you discussed in your
testimony the overtime regulation proposed by the Obama
administration and its potential impact on employee morale,
which is an important issue, especially from the testimony you
heard from Mr. Meyer about the millennials as well. The
proposed regulation would convert many current management
employees into hourly employees even though many employees
prefer to be in the exempt classification. What do you see as
the biggest concern for employees who are exempt now but would
likely be reclassified as nonexempt?
Ms. McKeague. Their largest concern as articulated to me is
the loss of flexibility in setting their work hours and
accommodating a work-life balance. We use very minimal overtime
at MHA, and I've been proud to be able to work with new
generations of employees in order to put together schedules
that allow them to meet their priorities. And I have eight
employees on our association side who I will have to demote and
reclassify if this law goes through the way it is. I--
Chairman Walberg. Demote is the appropriate term?
Ms. McKeague. Obviously, Dr. Belman disagrees with me, but
if you ask my eight employees whether moving from exempt status
to nonexempt status was a demotion, they would tell you yes,
and they would be in different bonus pools and they would be in
different benefit programs than they were as exempt employees.
I don't have employees coming to me and asking to work more
overtime. I have employees coming to me to ask for help in
putting together a flexible schedule that accommodates their
life balance needs.
Chairman Walberg. Okay. My time is expired. I now recognize
for a second round Representative Bishop.
Mr. Bishop. Thank you, Mr. Chairman.
And just to follow up, Ms. McKeague, so this rule on
overtime and expanded overtime eligibility will not necessarily
result in a windfall of overtime income for newly classified
nonexempt employees, is that correct?
Ms. McKeague. That is correct.
Mr. Bishop. You see demotions and changes in the
characterization of their work, maybe what they do. What other
impact does it have other than I think the idea is that again,
I am trying to get to the reason for the rule. Mr. Meyer said
it makes no sense. I grab that quote and I think that best
illustrates how I feel about what I am hearing. But what is the
reasoning behind it? We are not going to see an increase in
pay. I know that is what the intent, I think, is to try to
increase pay and to grab whatever time employees spend working.
But the overall net effect is not that at all?
Ms. McKeague. I would agree with you that is not the
overall net effect. You asked an interesting question I thought
earlier also, and I'm in the position of having so much to say
with so little time. But you asked what we were doing to get
ready for this rule because we anticipate, of course, a very
quick turnaround on that.
SHRM established a six-step process that they recommended
all of us follow to become prepared for this, and that ranges
from identifying which jobs right now would fall under these
thresholds, whether we have a zone within those thresholds,
whether people who are close to the threshold will receive
increases or whether it will actually move some people down,
what we do with their training opportunities. And this is
without discussing the changes that will occur due to wage
compression when we move these employees up as well. So
there'll be changes to job duties and to schedules and perhaps
to staffing levels.
You also asked a question about the percentiles, and we did
take a look at that because past administrations, both
Republican and Democratic, have taken a look at this. And they
were the proposals were between 10 and 20 percent. At the 30th
percentile, this the wage would move to $40,196. At the 35th
percentile, it would be $44,304. And this proposed threshold,
of course, is $50,440. I have eight employees at this threshold
who would be impacted by that.
And I love working with my millennial employees. I realize
that might sound odd to other HR professionals, but, I mean,
the whole concept of a gig economy is something that's on my
mind. I have people like Mr. Meyer on my staff I want to keep,
working in jobs that didn't exist when I came to work for the
hospital association 12 years ago. And this is the kind of
give-and-take I need in order to keep them.
Mr. Bishop. I agree. Mr. Meyer, that was directed at you,
and I would agree that much of this is about you and your
millennial generation. The unemployment rate is high for your
area of the workforce, and we ought to be doing everything we
can to encourage growth in employment in that sector of the
economy. And while in this case we live in a world where I am
looking at a statistic here where only 3.6 percent of private
businesses are at least partially owned by some under the age
of 30, the lowest proportion in the last 25 years.
Mr. Meyer. Ever since the data began being collected, it's
at its lowest level.
Mr. Bishop. So is this a direct reflection of how we are
interpreting the law and how we have failed to accommodate this
generation into our workforce?
Mr. Meyer. I think to stay with the focus of this hearing,
I'll look at the overtime rule, but imagine a startup. No one,
even experienced people in startups are making $50,000 a year.
And anyone who's worked there I know I worked at a startup in
college you are working much more than 40 hours a week. So
you're doing it for equity or you're doing it because it's
something you really love and your investing in this company.
So you're not doing it for the salary and you want to put in
those extra hours to make your product work so it can come to
market.
Putting in this threshold, which really would be
prohibitive for startups, again, telecommuting, all these
things that now you would need to keep track of workers' hours
when most young people I'd say the vast majority want to work
from home at least some days a week, work while they're on the
road, do all that. It's again, some large businesses, it's
going to create a lot of confusion and some shakeups in their
pay, but this is going to really negatively affect startups.
Mr. Bishop. Thank you.
Chairman Walberg. I recognize myself for five minutes. It
is getting to be a pattern.
[Laughter.]
Ms. Thomas, you mentioned employees who advised students
who provide counseling and offer services in residential life.
How would the services provided to students be affected by the
proposed to change in the overtime rule?
Ms. Thomas. There are a number of ways where that effect
would be realized. Under our current application of the duties
test, we have employees that make above and below the proposed
threshold providing services to students. When you want to
serve students well, you want to be available when students are
available, and so you have flexibility in your workforce
regarding being available for counseling and supporting
students when they're likely to come to you for services.
Chairman Walberg. It could be around the clock, couldn't
it?
Ms. Thomas. It could be around the clock, but we don't
expect anyone to work around the clock. We want them to be
flexible, to be available to their students and to be available
when the student is most likely to seek that assistance. Some
is going to be during the day, some is going to be at the end
of the day, some is going to be well into the evening as it
relates to residential life.
Chairman Walberg. When you take into consideration,
especially in the counseling area, whether it is guidance
counseling for careers or whether it be mental health guidance
counseling--
Ms. Thomas. Absolutely.
Chairman Walberg.--that goes on a major university campus
like your own, relationships mean a lot. And so while you can
program certain hours to be effective in working, generally
speaking, with student body, there are times when you can't.
Have you costed out or considered the impact financially to
institution to care for those types of needs where the student
wants to have that relationship and that is important for
carrying on the counseling aspect by the employee to the
student?
Ms. Thomas. I believe that would be very difficult to cost
out because across the University of Michigan as well as the
other universities in our country, we are driven to serve
students to the very best of our ability. They're part of the
reason why we exist, if not the major reason why we exist. And
so individuals have the flexibility to be responsive in
creating that relationship and sustaining that relationship,
and not only student life but in the academic affairs
counseling that our students need to receive.
Chairman Walberg. Well, going away from the purpose and the
function just to the hard-core facts of dollars, you indicated
in your testimony there could be reductions, significant
reductions in pay level, salary level, and wages. Could you
elaborate further on that?
Ms. Thomas. I think in order to ensure that we have the
resources because of our federal grants process and the various
stipulations for that, we would not be able to employ as many
individuals as we currently do and meet the requirements of the
regulations as proposed. So the instance of we have a number of
postdoctoral researchers, we have a number of individuals that
work part-time in order to serve the needs of our experiments
in our research arena with less funds available to pay them
because of the requirement to maintain their exempt status. In
order to do their work, we will employ less people in those
areas.
Chairman Walberg. Our postdoctoral, they are considered
professionals?
Ms. Thomas. They are considered professionals today.
Chairman Walberg. Okay.
Ms. Thomas. Yes. And not all of them make above the
proposed threshold.
Chairman Walberg. Okay.
Ms. Thomas. In fact, most don't.
Chairman Walberg. Dr. Belman, it seems to me that
reclassifying from exempt salaried status to nonexempt hourly
status as proposed in the overtime rule would cause a number of
problems. As Ms. Thomas notes, this would result in reduced
autonomy, fewer flexible work arrangements that employees
prefer, and fewer opportunities for business travel. The
subcommittee has also received testimony that reclassified
employees from salaried to hourly would cause significant
morale problems for employees who would see this as a demotion.
Do you agree that more than doubling the salary threshold would
have some negative impacts on employees?
Dr. Belman. I'm sure there will be employees who believe
they've been negatively impacted. However--
Chairman Walberg. If you could pull yourself closer to the
microphone.
Dr. Belman. Oh, I'm sorry. I'm sure there are some
employees who will feel themselves been negatively impacted.
However, under this requirement, you although they legally move
from exempt to nonexempt status, that doesn't mean they have to
move from salaried to hourly. They can retain that it they can
retain all the benefits which they currently have. They can get
the same travel and so on.
Our problem is this: Essentially, once someone is moved
into exempt status, and they can be in exempt status at low
incomes oh, by the way, this is quite different when you use a
10 percent or 20 percent or whatever the salary and say, well,
this is way too high, of course, we have many more salaried
workers today in a sense and much than we did, let's say, in
1975 in the following sense. In 1975, there were very few
people at fast food restaurants who were considered managerial
and therefore exempt. Now, this is a way of evading--
Chairman Walberg. But that is all changing.
Dr. Belman. What?
Chairman Walberg. That is all changing since the 1938,
almost 80 years ago--
Dr. Belman. Right, but I'm saying that while your witnesses
are claiming there have been huge changes in the economy, they
go back and act as if who is considered salary is identical to
what it was in 1975, and that's changed. People at much lower
levels of education, at much lower pay levels get classified as
salary in part to avoid paying overtime.
So what I'd say is there will no doubt be problems in
adjusting to this, as there are with all these rules. We hear
the same thing. Minimum wage, it's going to be disastrous if
you raise it. It turns out for lots of research in my most
recent book from Upjohn What Does the Minimum Wage Do? suggests
that employment effects are de minimis.
Chairman Walberg. Well--
Dr. Belman. So what I would say is that--
Chairman Walberg. I look forward to taking my time is it--
Dr. Belman. We tend to--
Chairman Walberg. My time is expired here, and we will have
further opportunity to discuss this.
Dr. Belman. Oh, good.
Chairman Walberg. I know this is the key issue we are
facing here dealing with a 1938 law trying to be applied and
upgraded in ways that are challenging to say the least and
difference of opinion on that.
Dr. Belman. We deal with the Constitution--
Chairman Walberg. How you make it work today--
Dr. Belman.--which is over 200 years old, we seem to do
okay.
Chairman Walberg. I will hold myself back on that one. We
will have a chance to talk about that later on after the
hearing. I yield now to my colleague, Mr. Bishop.
Mr. Bishop. No, I won't. I want to engage that one. To me,
the world out there reacts to laws and the changes in laws. It
does not react well when you have a bunch of unaccountable,
unelected boards and departments and agencies promulgating
rules that have dramatic impact, they may even impact long-
existing law and precedent.
This is the concern that we have, and we do have
opportunity to address issues that impact current law and the
Constitution, but we do so through Article I of the
Constitution, which has to do with Congress and the right of
Congress, which has exclusive jurisdiction over the passage of
laws.
Are you concerned at all, Dr. Belman, that departments and
these unelected boards have so much authority to make such a
dramatic change in the way we operate in our daily workplace?
Dr. Belman. I first have to admit I was born inside the
Beltway before there was a Beltway, so I may be biased on that.
Mr. Bishop. Well, that explains that.
Dr. Belman. Yes, absolutely. I would say that there are
actually fairly substantial procedures to make sure that
administrative rulemaking is reasonable, and if it appears not
to be reasonable, parties who are concerned can sue to have
those procedures overturned. So we have a pretty elaborate
system of due process to address these things. I do not see in
my own view that the most of the regulation I see are terribly
unreasonable. There are parties who are negatively affected by
them, just as there are parties who are positively affected,
and in the hurly--
Mr. Bishop. Can I ask you a question right there?
Dr. Belman. What?
Mr. Bishop. Can I ask you a question right there because I
don't have a lot of time.
Dr. Belman. Okay. Go ahead.
Mr. Bishop. I want to capture that thought because you have
got four people around you that have raised some really serious
concerns. And I have heard, we have heard dramatic stories of
impact. And this is not coming from Congress, this is coming
from these agencies and departments and Department of Labor
specifically here changing law overnight, overnight that has
dramatic impact.
So our concern is how we change that, that we can collect
this information before the and the back to the old way, the
way the Constitution intended it to be where we actually
publicly discussed this, we debated, and we vote on it, and
that is the process that we once knew. But now we have a
different process, and it is creating havoc at every level of
government, every level of business. And that is the problem
that we have and that is what has created this and that is why
the good Chairman is walking the earth here taking us with him
to address this issue. So--
Dr. Belman. I would have to say that I respectfully
disagree about the process. First of all, this isn't overnight.
We have a fairly long, slow procedure for making rules.
Mr. Bishop. But you heard from Dr. Wilson that it--
Dr. Belman. And secondly, I would say--
Mr. Bishop.--immediately impacts people because of--
Dr. Belman.--these are--
Mr. Bishop.--the suggestion that it could go into effect.
As a business owner--
Dr. Belman. Would you agree that you have hand-chosen
witnesses here--
Mr. Bishop. As--
Dr. Belman.--20 percent of whom are speaking in favor of
the rule. If we did--if we had a representative group--because
the squeaky wheel gets the grease, you want testimony which is
favorable to your point of view, you've got testimony which is
dependably favorable--
Mr. Bishop. I am engaging you right now. That is why. And
if you--
Dr. Belman. What?
Mr. Bishop. I am engaging you right now.
Chairman Walberg. Mr. Belman, this is the normal process--
Dr. Belman. I agree with that.
Chairman Walberg.--regardless of who is in the majority.
And so it is what we deal with. We are delighted to have you
here. You were invited here and you are holding your end--
Dr. Belman. And I'm delighted to be here.
Chairman Walberg.--of the bargain.
Mr. Bishop. I just want the record to reflect--
Dr. Belman. If I--
Chairman Walberg. Mr. Bishop?
Mr. Bishop.--that I like Mr. Belman. I like his input
because you provide a necessary part of this conversation. We
need to know where this is coming from and the other side of
this. So your testimony is very important.
My concern is for members of Mr. Wilson's organization or
these other folks out there and maybe people in the audience
today who are directly impacted. Even by the suggestion of a
rule, it causes a freezing effect for employers out there when
rules like this get passed. And I may be wrong, Mr. Wilson, but
that has a really serious impact on the economy.
Mr. Wilson. It can. I would just add in terms of Dr.
Belman's characterization that there are these the there's an
administrative procedure here in terms of how rules are
published, proposed, and published as final, that works well in
this particular area. I would argue that in the case of the
proposed overtime rule that there's a really big problem with
that and that is their request for comments on potential
changes to the duties test. They didn't propose specific
language that the public could respond to in terms of this is
what we're going to this is how we're going to change the
duties test, which are very vague, somewhat subjective,
somewhat arcane, certainly dated when it comes to the
professional computer professionals. And they didn't propose
anything. They just asked a series of questions and said, so
what you think we should do with the duties test?
The problem is that they didn't by not proposing a specific
thing, employers have no idea what the final rule is going to
look like. And there's some serious unintended consequences of
just the misplacement of a comma in the duties test for
managerial or executive employees can have a significant impact
on litigation. And so without publishing specific proposals,
they're sort of circumventing the traditional Administrative
Procedures Act here and getting around it, which is of great
concern to, I think, all employers that are out there.
Chairman Walberg. The gentleman's time is expired. Mine has
come back. Let me carry on with Mr. Wilson on that train of
thought.
I would like to get your feedback on the Wage and Hour
Division's change and this method of providing guidance. The
Obama administration made a decision to provide so-called
``administrator interpretations'' to assist in clarifying the
law as it relates to an entire industry, a category of
employers. To quote from the Department of Labor's Web site,
they say, ``The Wage and Hour Division believes that this will
be a much more efficient and productive use of resources than
attempting to provide definitive opinion letters in response to
a fact-specific requests submitted by individuals and
organizations where a slight difference in the assumed facts
may result in a different outcome.''
Although opinion letters had been issued previously for
decades, the administration decided it would self-select issues
and make broad policy pronouncements. Has the Department of
Labor frequently utilized administrative interpretations under
FLSA to provide clarification of employers, and what impact has
that had?
Mr. Wilson. No, it has not. This it's new. The
administrator interpretive letters is new to this current
administration. They suspended actually issuing opinion
letters, which are authorized under the Fair Labor Standards
Act. And the administrator interpretive letters are more akin
actually to regulations that are not that don't go through
notice and public comment.
And it's hard to say what deference these interpretation
letters will get in the courts in the future, and there's
always the threat by not going through notice and public
comment that there's always the possibility that a future
administration could simply resend the interpretive letter and
you end up with a law that goes back and forth or the rules and
regulations that ping-pong back and forth over the course of
four or eight years, which is really no way to run a
government, let alone try to set the rules for an economy.
Chairman Walberg. It doesn't provide certainty.
Mr. Wilson. It certainly doesn't, and that's what employers
are really desperate for this point in time.
Chairman Walberg. Mr. Meyer, while the Department of Labor
seems intent on making it more difficult for workers to
participate in the sharing economy, I would like to discuss
what Congress might do to make it easier for these workers.
According to your testimony, many of these workers would like
portable benefits such as health costs and retirement savings.
However, if sharing economy firms were to offer much benefits,
this might endanger the independent contractor status of online
users. What could Congress do that would assist in spurring on
this sharing economy--
Mr. Meyer. Well--
Chairman Walberg.--and encourage the benefits that are
necessary and wanted as opposed to one-size-fits-all?
Mr. Meyer. Well, there is actually a letter signed by the
CEOs of over 30 sharing economy companies bringing up the
portable benefits or something they want to provide to their
workers because, again, this work is transient, it's done in
addition to other work, but hey, some workers really want this.
And in the sharing economy, just as any other part of the
economy, you have to compete for the best workers. And if you
can't get them, your company is not going to succeed. But the
more they offer, the more they start to resemble employers
under the law.
And there's really no trust with the Department of Labor
right now because they can just, through a blog post, decide
that one of the six criteria for determining if someone is an
employee doesn't matter anymore. So they don't have really any
trust in the Department of Labor, and they're worried it that
if they start giving workers access to these benefits that they
want while workers don't want all the wage and hour protections
something that comes up over and over again is the portable
benefits, if they start doing that, next thing you know, they
could be liable for providing all the wage and hour benefits.
Chairman Walberg. With no choice in intermediate--what does
it do to the intermediaries in this process?
Mr. Meyer. So what it would do for the intermediary is
completely destroy their business model. I mean you could
imagine an Uber driver signing onto the app and just sitting in
the car getting paid minimum wage while they're also driving
with another phone for Lyft. I mean, it's actually impossible.
Alan Krueger, the Princeton University professor, he
released a paper where he agrees with me on all the wage and
hour, that these are completely inapplicable. We disagree over
the collective bargaining and some of the other protections,
but wage and hour, it's really uncontroversial that these do
not apply to intermediaries.
Chairman Walberg. Just stifle?
Mr. Meyer. Yes. It would destroy the sharing economy.
Chairman Walberg. Okay. Mr. Bishop, I yield to you.
Mr. Bishop. Thank you, sir.
I wanted to pick up with Ms. Thomas and a question that you
asked earlier. You indicated that your postdocs and research
fellows consider themselves professionals. I mean, they are
considered professionals. Do they consider themselves
professionals?
Ms. Thomas. Absolutely.
Mr. Bishop. Sure.
Ms. Thomas. Learned professionals, absolutely.
Mr. Bishop. Would research at U of M I am concerned about
the research grant system. You have a very important system in
place, especially in Michigan with the three big research
universities. Does this have an impact on the research grant
system in our state?
Ms. Thomas. It does have an impact in how we would conduct
the work on an exempt or nonexempt basis in order to conduct
the research. The work of a research assistant or associate,
the work of a primary researcher, the work of the postdocs who
are being trained for higher-level work in the academy is not
subject to a 40-hour week. All of the nature of that work is
performed as described by the researcher, by the grant itself,
by the level of experimentation that they're doing. And so to
impose nonexempt standards of hourly reporting, it's just
incompatible with the work of research.
Mr. Bishop. What is the net effect?
Ms. Thomas. The net effect, as we are predicting, because,
for instance, the NIH sets our stipend level, which is below
the proposed threshold, would be the employment of fewer
individuals in this area in order to ensure that they could
remain exempt.
Mr. Bishop. Mr. Chair, I don't know how long you would like
us to go, but I am prepared to wrap up if you are.
Chairman Walberg. Well, I am prepared to ask a few more
questions.
Mr. Bishop. Okay. I will yield back to you then.
Chairman Walberg. Okay. Thank you. I appreciate that. I am
just reveling in the fact of having more than five minutes of
questioning. And that is nothing on my Chairman, Chairman
Kline, who was with you yesterday. That is just the rules of
the process and the time frame, but here we have a little bit
more time. And I know you have a meeting to go to following, as
do I. But while we have these people here, I would certainly
like to ask a few more questions on my own.
Ms. McKeague, your written testimony highlights how FLSA
hampers employers and their ability to provide workers with
greater flexibility, and yet employees are increasingly
demanding greater flexibility and control over how, when, and
even why they work.
That is something, Mr. Meyer, I have been impressed with
learning more about the millennial. There is a why to why you
work beyond simply put food on the table, care for my family.
There are soft, soft values that really are important and that
we ought to be considering.
But back to Ms. McKeague here, the laws of prohibition on
the use of comp time, for instance, in the private sector is
one example of how the law curtails flexibility. Are there
legitimate reasons for treating the public sector and the
private sector differently in this regard?
Ms. McKeague. Not in my opinion. We're competing for the
same employees often in the same field of knowledge. It puts us
on an uneven footing.
Chairman Walberg. And so you could use comp time very well?
Ms. McKeague. I would argue I could use compensatory time
off perhaps more efficiently than the public sector could.
Chairman Walberg. Dr. Belman, let me just turn to you to
give you the opportunity to answer that as well. Is there a
difference in public and private sector employees relative to
things like this, compensatory time as being part of the
benefits that would be offered?
Dr. Belman. I would say that the allowing compensatory time
for public employees was very specifically done because at the
time they had not had fair labor standards coverage. And so as
a result, this was partially an adjustment to the concept that
they were sovereign, that this was an extension of protections
into a sector where it hadn't existed.
And particularly, the real the issue driving this was
public safety employees who worked irregular hours, or
potentially worked firefighters and so on very long hours in a
given week. So in my view, comp time two issues, one, public
sector different, and there's a reason why the extension of the
fair labor standards into the public sector came with comp
time.
The other thing which I would point to is it becomes almost
unenforceable. You know, public sector we can be reasonably
sure that they keep good payroll records and that they're very
thoughtful about this, particularly in public safety. Private
sector, a lot harder. I'm not saying that any particular
organization, but from construction we know that there are a
lot of employers who push the limits of the law and perhaps
push well over it so that trying to administer comp time in a
system in the private sector would be it would essentially gut
the overtime provisions.
Chairman Walberg. Mr. Wilson--
Mr. Wilson. Yes.
Chairman Walberg.--there are differences between public and
private sector employees. I think you accurately talked about
some of the inception of the idea with public safety. But we
have now gone beyond just thinking of safety but thinking of
benefits, thinking of life values, thinking of flexibility for
employees, thinking of single-parent families, we are thinking
of advancement opportunities for females that frankly we didn't
think about in the past, that we are considering right now, and
rightly so. Mr. Wilson, respond to that, and then I will
probably come back to Ms. McKeague on that issue of--
Mr. Wilson. Well, I would just add yes.
Chairman Walberg.--the assertion that the private sector
won't keep the records as well as the public sector.
Mr. Wilson. Well, I would just add in terms of public
safety that, you know, in terms of hospitals, you know, the
nurses, the technicians, there's a very key public safety
component to that, particularly in an emergency situation that
where comp time could be very useful in that particular
industry.
So in the sense of, you know, voluntary for both employers
and employees and the comp time arrangement and the private
sector would be a beneficial change to the law and would allow
the private sector to have the same flexibility of benefits
that the public sector employees currently enjoy.
Chairman Walberg. Ms. McKeague?
Ms. McKeague. I'd like to give you a really clear example
on the value of compensatory time off in the private sector. I
work with a young woman, a recent hire at MHA who works in our
human resources department. She was trained and educated very,
very well at Michigan State University in the Broad School. I
have a great deal of regard for Dr. Belman's work. So she's
come to work with us. She worked with us first as an intern,
then as a fellow, same sort of opportunity Mr. Meyer got. Now,
she's a full-time, regular employee at the MHA.
In the last couple of weeks she's been working on closing
on her new house, moving. I never have to wonder whether she's
putting in the hours that she should put in, and I really don't
care if she wants to work 10 hours today and six hours tomorrow
because she needs to meet with the loan officer. She's the one
who put together some of the research behind my testimony
today. She's in the audience, Tori Martin, and she is one of
the employees that, under these guidelines, I would have to
move back to nonexempt status. And it would undermine
everything she told me she values about working at MHA.
And, while I would agree with Dr. Belman that there are
industries that have required greater scrutiny than others,
we've worked really hard in the private sector to be an
employer of choice. I wouldn't even be affected by these laws
if the change had been 30 percent increase or under because we
try to stay ahead of it and provide these sorts of
opportunities. That's what those of us who are involved with
SHRM do.
What really offends me is legislation like this that starts
from the premise that none of us can be trusted to treat our
employees correctly.
Mr. Wilson. I would also add that large employers keep very
good records, most employers, nearly all employers. There are
some that don't. And the Wage and Hour Division, their
enforcement is appropriately focused on some of those
industries. And where they go out and have directed
investigations and they find that, you know, they take action
against those employers that don't keep good records.
But the vast majority of employers keep records primarily
for tax purposes because they have to comply with the IRS.
Nobody wants the IRS coming down on them. And also primarily
for potential litigation that may ensue. If you're not keeping
good records, you're opening yourself up to litigation that
could be very, very costly.
Chairman Walberg. Well, compliance costs today, the most
recent I have seen is about $1.9 trillion to businesses for
just compliance, white paper costs of regulatory issues. So,
Dr. Belman--
Dr. Belman. My answer to that is Walmart, the largest
employer in the U.S., maybe was involved in a few wage and hour
violations, seems to fall exactly into your category and
clearly basically didn't care about that law. So I'm not sure
what large employer--
Mr. Wilson. Well, actually, they did. They actually Walmart
actually came to us to help them with what they referred to as
their arcane and somewhat outdated bonus structure system. And
they came to us and we worked with them to work out the
particular issues that they had with their between their
exempted nonexempt employees. We worked it out to a mutual
benefit of both the employer and the employees and the federal
government on a satisfactory basis.
Dr. Belman. So how did you deal with locking employees into
their stores for uncompensated overtime? Did you come up with a
policy for that?
Mr. Wilson. That was after that those alleged violations
were after I was there, after the I was out of the Department
of Labor, so I can't address those particular issues. I'm just
particularly speaking of the wage and hour investigations we
conducted on Walmart back in 2005, 2006, I believe.
Dr. Belman. Okay. So--
Mr. Wilson. I can't address that.
Chairman Walberg. There are certainly bad actors or
mistakes both that take place. Our concern, though, in the
governmental entity is making sure that we don't just regulate
on the basis of the small number of bad actors or mistakes that
take place, but we do something that fosters the growth of
those that are doing the right thing for their employees.
Let me ask one final question, and I am glad there are no
lights left so I can ask that final question. And I am going to
go back to Mr. Meyer again. When individuals who provide
services through online platforms are deemed to be employees,
this can have a number of consequences for both the sharing
economy company and the platform users. What has been the
experience of sharing economy companies when they have shifted
from an independent contractor model to an employer-employee
model? And secondly, was this a good thing for the independent
contractors?
Mr. Meyer. Well, one company I can speak of, Homejoy, it
actually had to shut--
Chairman Walberg. What was that?
Mr. Meyer. Homejoy. So think an Uber of housecleaning.
Chairman Walberg. Okay.
Mr. Meyer. You can bring in find someone who's an
independent--
Chairman Walberg. Man alive, I am finding more all the
time. Where are you guys coming up with these things?
Mr. Meyer. But so they had to shut down actually over
employment classification questions. And the reason for this is
the CEO said their labor costs went up about 40 percent. So
their costs, because of added labor costs, it increased 40
percent. And this is right in line with what the Department of
Labor's employment cost index shows, which is about a 30
percent increase to move to classifying employees.
And I just want to point out when you're working for
multiple companies I mean, I have friends who work for
Postmates, work for Uber, and have a full-time job also so why
do you need these other companies then paying for your workers'
comp or your unemployment? I could start I could do one ride
for Uber this afternoon as a driver and then not work for four
months, then do another ride. How does unemployment insurance
figure into that?
So it just shows that this is a different nature of work
where it's really entrepreneurial. You are working for
yourself. We can't apply the same standards to a completely
different model of work.
Chairman Walberg. Yes. It was interesting, just last week,
I took an Uber ride from my office downtown, and the driver
that I had, very articulate, come to find out in the course of
conversation he has four degrees, two doctoral degrees. And I
asked what in the world are you doing driving Uber? Are you
writing a book on experiences?
He says, you know, that might be an idea, he says, but no,
I am paying off my student loan debt.
So there is an economy there that serves.
Well, I appreciate it. I don't want to belabor this,
getting toward the end of the time, and I know that my
colleague has to get to a veterans event of great importance.
And we are going to spend a little bit more time here in this
community college looking at what is going on here. But I would
offer to my colleague an opportunity for any final comments
that you would like to make.
Mr. Bishop. Well, I had the opportunity to research, to be
in the practice of law, to do what I have done over the years
and see some of this firsthand for 25 years now. Before I came
to Congress I was in the private sector. I was actually in the
compliance officer arena. I was the chief counsel for a small
company in the financial world. And we had the opportunity to
face many, many compliance issues. And it was very difficult.
It was very difficult for us to survive.
But the impact that every single law they came down,
compliance issues, was to freeze what we were doing so that we
could assess whether or not we could withstand what the new
rule was. We didn't want to stick our neck out too far because
we knew and when I say stick our neck out meaning we would like
to hire more people, we would like to expand, but we're not
going to until we can figure this whole thing out.
And now, Mr. Chairman, we live in a world where it is not
government, seated government anymore that is doing this. It is
agencies and the departments and different boards of unelected
officials who don't face re-election, who don't have to face
the reelection process and face, ultimately, voter
accountability.
And to me that has raised all new problems in this country,
especially in an economy that is just absolutely handcuffed
right now, being choked out, and especially in the small
business environment which is the backbone of our economy. We
see small business holding on for life. They want to grow, they
want to create jobs, but they just won't do it because this
world is too crazy and there is too much government, too much
regulation.
The rules that we have talked about tonight were created in
an environment that did not give the people that really have to
live with it the opportunity to weigh in, and they don't make
sense. And it is embarrassing to a certain extent for members
of Congress to be told that by constituents and by a panel like
this and not be able to do a thing about it because we don't
have the proper oversight to do so.
I am grateful to you and this Committee for bringing these
issues forward so that we can discuss them in a public
environment and so that we can raise awareness to those that
are promulgating these rules as to why rules like this should
be given more consideration, more vetting, more public debate
because in the end we are seeing more of the unintended
consequences than we are of the actual intent of whatever the
promulgating organization is that put the rule forward.
So, again, I am grateful for what you have provided us
today, the time and those that have weighed in on this subject,
thank you all for your testimony. I am hoping that in the
future that Congress will have the opportunity to address this
in a meaningful way so that we can bring some sense of calm and
clarity to the law and that we can grow and expand this economy
and that people will get hired and students that are in debt
won't have to deal with this anymore and that maybe one day you
and I can look at and be Uber drivers.
[Laughter.]
Chairman Walberg. There is always that option, isn't it?
Mr. Bishop. Or Homejoy, too, that sounds like a good idea.
Chairman Walberg. Well, thank you. And thank you to the
panel for taking your time to come here, and I hope it was a
little bit do except for at least well, two of you this was
closer to your home site as well doing it in the field hearing.
I, like my colleague here, had a life before Congress, and
one of those areas was as a division manager in an institute of
higher education, specifically in the area of development. And
I had a whole team, national team that were salaried, every one
of them. And every one of them had flexibility of being away
from me most of the time but doing great work for the
institution and stewardship in providing resources for major
projects, too, over the course of to the tune of about $35
million over the course of time projects raised. And they spent
a lot of time in the field. They needed flexibility.
I can't envision what impact this overtime reg would have
on their functioning, which was amazing, the opportunities that
they brought forward to students, faculty alike by their
ability to serve the people that would provide the resources
for international as well as national projects for this
institution.
We certainly don't ever want to let it be said that there
is a divide in the minds of this Committee or Congress on the
fact that employers and employees ought to be treated well. We
ought to encourage employers to expand, to be more successful,
in turn, to be able to hire more people but to take care of the
people they have, developing greater opportunities for them.
And I think that is why we wrestle with a 1938 law, almost
80 years, 80 years where it really hasn't been changed all that
much. And every time we attempt to go into areas where I think
would foster growth for employees as well as employers, the
landmines begin to develop on issues that go no place in
extending the successful opportunities for both sides. It
becomes partisan.
And I have appreciated some of the efforts of issues we
have talked with on our subcommittee and wish we could expand
it still further to the full Congress to put aside the partisan
politics issues and make sure we upgrade a law that could be
very effective to expand the opportunity of this great country
using free enterprise, using the market economy, using the
creativity that is developing within our new generations coming
forward with the tools that they have and the flexibility that
can make for a better life and not hold people back. And so
that will continue to be our effort.
I would like to think that the bill that I have introduced
would just do one simple thing, let's look at the economics.
How does it truly impact both the employee and the employer and
then find a way whereby we might upgrade the law but do
positive things on both sides of the ledger to make sure that
we continue to advance?
Any opportunities that we have had to travel
internationally on our Congressional Delegation trips and see
the competition that is out there, they are not sitting back.
They are aggressively moving forward. We don't have that luxury
anymore. In our DNA we have everything necessary to stay at the
head of the pack unless we hold ourselves back. And my
contention is that over a large bureaucracy allowed by
unlimited government takes away the unlimited opportunity back
in the districts.
So I appreciate this hearing today and thank you for each
of you attending. I thank Lansing Community College again for
giving us the opportunity for a great facility.
And with that, I will close the hearing. It is adjourned.
[Questions submitted for the record and their responses
follow:]
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[Whereupon, at 11:43 a.m., the subcommittee was adjourned.]
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