Overtime Rule Sent to OMB

March 16, 2016

AA017956On March 15, the U.S. Department of Labor (DOL) sent the long-awaited—and ahead of schedule—overtime rule to the White House’s Office of Management and Budget (OMB) for final approval. OMB review typically takes a month or two, which in this case means the final rule, would likely be made public in April or May, several months ahead of the previously expected release date of July.

The terms of the final rule submitted to the OMB for review will not be disclosed until it is released to the public, but the proposed rule from last July called for all workers who make less than $970 a week, or $50,440 a year—more than double the current threshold of $23,660—to be paid time and a half for any overtime they work.

Currently, only hourly paid workers and those earning $23,660 a year or less in salary are guaranteed overtime pay – one and a half times their regular pay – for any hours beyond a standard 40-hour workweek.  President Barack Obama called for the revamped regulations in March 2014, driven by a view that compensation paid to exempt employees had not kept up with inflation since the DOL last revised the regulations in 2004. In particular, the president noted that the $455 a week ($23,660 a year) salary threshold was below the poverty line for a family of four.

Under the DOL’s increased eligibility proposal, millions of U.S. workers will now qualify for overtime that had previously been exempt from overtime pay. The DOL estimates that in the first year as many as 4.6 million workers would need to either be reclassified as non-exempt and paid overtime, or receive an increase in their salary to meet the new minimum threshold requirement. According to the White House, this will increase the incomes of 5 million workers while strengthening overtime protection for another 10 million.

The speed of this final rule may have something to do with the Congressional Review Act, a 1996 law that gives Congress 60 legislative days to review on an expedited basis any major new regulation before it takes effect. If Congress does not like the regulation, it can nullify it with a resolution of disapproval. Ordinarily that doesn’t pose much threat to a sitting president, since he or she can always veto the resolution. But if the 60 legislative days extend past the inauguration of the next president, and if the new president is of a different party, he or she might well let the resolution of disapproval stand. Given the shortness of this year’s legislative calendar, any regulation issued after mid-May risks reversal in this manner under Donald Trump, Ted Cruz, Marco Rubio or John Kasich.

Last summer, NSBA submitted comments and among the key issues raised were the cost of compliance for small businesses will be much greater than the DOL estimate; changes to the duties test are likely to miss the fact that there is no bright line between “exempt” and “non-exempt” in the typical small business workplace; the creation of new hourly reporting and tracking requirements are likely to be a disproportionate burden on smaller firms; the rule could force struggling small firms to reduce employee hours; and employee morale will take a significant hit where employees must be  “downgraded” from exempt managers to non-exempt workers.

Please click here to download NSBA’s comment letter.