428A Russell Senate Office Building, Washington, DC 9:30am EST
Chairman David Vitter
Good morning and thank you for joining me today for the Senate Small Business and Entrepreneurship Committee Hearing to examine the Obama Administration’s proposal to more than double the current salary threshold under the Fair labor Standards Act’s overtime exemption for administrative, executive, and professional employees.
We are going to hear from a diverse panel of experts and stakeholders on the impact this proposed rule will have on small businesses and organizations across the country. I want to thank all of our witnesses for being here today.
In previous hearings, this committee has focused on the need for regulatory reform in light of how federal agencies oftentimes issue new rules and regulations that cause undue burden on small businesses.
As one of the most controversial labor regulations pushed by the Obama Administration, the “white collar” overtime exemption from the Department of Labor certainly falls in that category.
Under current rules, most employees making up to $23,660 a year are automatically entitled to overtime pay when working more than 40 hours a week. The proposed rule we are discussing today would more than double the threshold to extend overtime requirements to anyone earning up to $50,440. Additionally, the proposal sets the minimum threshold at the 40th percentile of weekly earnings for full-time salaried workers—meaning the amount could increase every year going forward.
While President Obama’s administration believes this is the correct way to increase pay for workers, it will actually have the opposite effect for small businesses. It is very likely that employers will respond to higher overtime costs in several ways that will actually reduce workers’ opportunity for long-term advancement and increased pay.
Many employees could see their hours cut or limited to less than 40 hours per week and lose the benefits that come with a salaried position, such as flexible work hours and health insurance. These reactive changes would have severely negative effects in the workplace.
Along with small businesses, several different types of employers are particularly vulnerable to the negative effects of this rule, including: nonprofits, charities, state and local governments, and even colleges and universities.
My colleague and Chairman of the Senate Health, Education, Labor and Pensions Committee, Lamar Alexander, found that the new rule would increase operating costs for at least one Tennessee college by more than $1 million annually. The increased labor costs would ultimately have to be passed down to students in the form of an $850 tuition increase or result in job cuts for the college’s employees.
Senator Alexander joined our committee member, Senator Tim Scott, to author S.2707 the Protecting Workplace Advancement and Opportunity Act, which would prevent the Department of Labor from finalizing President Obama’s proposed rule. I strongly support their efforts to move forward with this bill and want to commend their work on this important issue.
Along with the Small Business Administration’s Office of Advocacy and Members of Congress from the House and Senate, I have raised several concerns about the role and representation of small businesses throughout the rulemaking process.
I strongly believe this proposal lacks adequate economic analysis and was alarmed when the Office of Advocacy submitted comments that sharply criticized the manner in which the DOL crafted the proposal. Their comments stated that the DOL’s initial regulatory flexibility analysis was inaccurate and severely undercounted the number of small businesses that would be affected by the rule.
I hope our conversation today will also touch on the impact the rule will have on small non-profit organizations. Advocacy’s comment letter referenced a roundtable discussion that was held in New Orleans where a small non-profit operating Head Start programs in Louisiana stated that this proposal would result in $74,000 in first year costs.
Since 80 percent of this organization’s operating budget comes from federal programs, which cannot be used to pay for management costs like labor, they may have to cut critical community services to reduce labor costs. This is unacceptable, especially for rural and poor areas that rely on different services provided by non-profits.
After hearing from many concerned workers and business owners, I urged Secretary Perez to extend the public comment period to allow small business owners and employees the opportunity to examine the proposed rule and comment.
Shortly after, the Office of Advocacy wrote a similar public comment letter requesting a 90 day extension of the comment period. Unfortunately, all of these requests were denied by Secretary Perez.
I have serious concerns with President Obama’s proposed changes to overtime regulations which will negatively impact the ability of small businesses and other organizations to operate effectively. While the rule is expected to become finalized in within the next several weeks, it is crucial that the administration reconsider their one size fits all approach.
Now, let’s get today’s conversation started. Again, I’d like to thank everyone for being here today and look forward to our discussion.