Protecting Workers and Small Businesses from Misguided Federal Regulations

Federal regulations can impose unexpected and costly requirements on small businesses, educational institutions, and non-profit organizations.  A prime example is a new U.S. Department of Labor rule on overtime pay that could harm the very workers it intends to help, cause small businesses to curb hiring, and force universities and colleges to either raise tuition or cut programs.

The new rule, scheduled to take effect this December, will double the current annual salary threshold from $23,660 to $47,476 for mandatory overtime.

While it is time for a reasonable update in the threshold, doubling it will have negative consequences.  I have spoken with small businesses, educational institutions, and non-profit organizations across our state, and it is clear that this huge and sudden increase in the threshold is far too much and too fast.  Rather than producing bigger paychecks, this new rule is likely to produce reduced hours, benefits, and flexibility for Maine workers.

Many small employers in Maine have told me that they do not have the margins to pay overtime to salaried employees earning up to $47,476.  Some will have to shift their employees to hourly jobs at rates that account for potential overtime.  Formerly salaried employees used to flexibility in their work schedules will have to track closely each hour they work each week, instead of being able to leave work to pick up a child at school without worrying about the impact on their paycheck.

Although the regulation is touted as a means of boosting employees’ pay, a study commissioned by the National Retail Federation found that most employees would see no change in net pay. Instead, many employees would see their hours reduced to avoid overtime, while others would see their base wages, benefits or bonus pay decreased in order the offset the added payroll expense.

Moreover, the National Federation of Independent Business – a leading voice for small business – has noted that the new overtime rule would particularly hurt small businesses in rural areas. The Maine Department of Labor believes that the rule would have a disproportionate economic effect on Maine businesses, where salaries and the cost-of-living are not as high as in other regions of the country.  For instance, the cost of living in Bangor is roughly 37 percent lower than in Washington, D.C.  While $47,476 might seem like a reasonable threshold for an employee living in a high-cost area like Washington, D.C., it’s the equivalent of a salary of more than $74,000 in Bangor. 

Some of Maine’s businesses are highly seasonal.  Workers understand that their salary involves extra work during the summer and fall months and a more relaxed schedule for the rest of the year.  The new overtime rule would result in many workers being moved from salaried to hourly positions or even being let go during winter months.  This will make it harder for workers to make ends meet and harder for employers to retain high-quality employees.

Businesses are not alone in their concern.  Non-profit organizations are also struggling with the impact on their workers and those whom they serve.  The Executive Director for Habit for Humanity in Great Portland states that the “new overtime rules will so drastically change our current compensation obligations that we may no longer be able to give our workers the benefits, schedules and other incentives that drew them to us in the first place.”  And he notes that “services to those in need will be reduced and organizational funding will decline as resources are spent on overhead instead of programs.”

Indeed, non-profit organizations would be among the hardest hit by this rule.  Operation Smile, which provides vital oral surgeries around the world, estimates that the rule would cost the equivalent of more than 4,100 cleft-palate operations.  Similar cutbacks in essential services are predicted by the Salvation Army, youth services providers, home health care services, and blood centers throughout the country.

In addition, higher-education groups nationwide are urging the Department of Labor to take a more measured approach.  The University of Maine system, which has worked so hard to freeze tuition and make higher education affordable, estimated that the new overtime rules could increase its costs by as much as $14 million.

To prevent this rule from going into effect, I have joined a number of my colleagues in urging the Department of Labor to consider the negative impacts on small businesses and non-profits and reconsider its rule.  In addition, I am a cosponsor of legislation that would nullify the current draft of the rule and would require the Department to take into account the effects of the rule on small businesses, differences in geographical regions, and impacts on lower-wage industries, startups, and workers. 

The overtime threshold has not been increased in a number of years and should be raised, but doubling it will be extremely costly and damaging to small businesses, universities, nonprofit organizations, and so many other segments of our nation’s economy and our society.