New overtime pay rule: A poisoned chalice for workers

By Curtis Moore

The US Department of Labor's new overtime pay rule, effective December 1, 2016, will double the salary-exemption threshold of the Fair Labor Standards Act from $455 to $913 per week, which annualizes to $47,476. This salary threshold will be "updated" every three years beginning on January 1, 2020, likely resulting in additional increases to the minimum salary-exemption threshold. The DOL estimates that this new overtime pay rule will make an additional 4.2 million salaried workers eligible for overtime pay and boost wages for workers by $12 billion over the next 10 years. Based on this, proponents of these new regulations have touted them a major win for middle-class workers.

What they have failed to acknowledge, however, is that the new regulations may prove to be the proverbial "poisoned chalice" for employees-although they appear promising on the surface, ultimately they will likely bear adverse consequences for both employers and their employees. As a result of the new overtime pay rule, an employer who wishes to maintain the status quo of its workforce will face increased labor costs because the employer will have to pay higher salaries to its salaried exempt employees, or reclassify these employees as hourly and pay them additional overtime wages.

However, what happens if an employer simply cannot absorb these additional labor costs and remain competitive within the marketplace? The employer is then caught in an inevitable catch-22, faced with a choice between several unfavorable options:

1. Reduce the size of its workforce to pay for the higher salaries of its exempt employees.

2. Reclassify its salaried workers to hourly and reduce the overall base wages paid to its workforce to offset the increased overtime it must pay to the newly reclassified employees.

3. Outsource much of the work in order to limit the amount of paid overtime wages.

4. Automate some of the functions or tasks that employees are presently performing in order to eliminate employee positions and, thus, overtime wages.

5. Pass along its additional labor costs to consumers or clients by increasing the cost of its products or services.

If an employer were to choose options one or two, this would likely bear a negative impact on the workforce. Some employees could be laid off, and others could see a reduction in their wages in order to accommodate additional salaries paid to exempt employees, or overtime wages paid to reclassified employees. With the same amount of work-and fewer employees to perform it-the remaining employees could suffer longer work hours. Remaining exempt employees could see the lion share of these additional hours so the employer can keep its overtime expenditures in check.

With options three and four, employees are also unlikely to gain any benefits. If an employer was to outsource some of the tasks previously performed by reclassified employees, the employees would receive little to no overtime pay. The outsourcing and/or automation of tasks could also result in an overall reduction in the workforce, leaving some employees jobless.

Finally, option five is not likely a viable option. If an employer's competitors utilize strategies to maintain their labor costs, then an employer who attempts to pass along additional labor costs to consumers is at a distinct disadvantage in the marketplace. Consumers faced with the prospect of paying more for a good or service from the employer may turn to less-expensive alternatives.

Although this new rule was touted to expand overtime protections for middle-class workers, it is clear that its proponents have failed to consider, or have ignored, the potential negative consequences that could arise as a result. However, it's possible that opponents to the regulations may gain traction as the negative impact on employers and employees comes to fruition.

Until changes are made, employers will continue to face the inevitable task of deciding how to handle their rising labor costs while remaining competitive in the global marketplace. Ironically, it may be the very employees these regulations were enacted to benefit who may bear their negative consequences-forcing them to drink from the DOL's "poisoned chalice."

Curtis Moore is an attorney at the Columbus office of Fisher Phillips, a national labor and employment law firm.