New overtime regulations from the U.S. Department of Labor that take effect Dec. 1 will increase the number of employees eligible for overtime pay by raising the cutoff point from $23,600 — a pay rate that hasn’t changed since 2004 — to $47,476 annually.
“This is a real ambition killer,” says Zach Pawlosky, owner and president at Candeo Creative, a creative marketing agency in Oshkosh. “When you have creative people, putting time limits on them is difficult.”
More than doubling the salary range of those covered by the overtime requirement is a huge jump and doesn’t fit the realities of Wisconsin, the manager adds.
The White House said that the proposed rule would affect more than 4.2 million workers nationwide, nearly 69,000 in Wisconsin, though Citizen Action of Wisconsin estimates the rules could impact as many as 198,000 people in the state.
Annie Eiden, an attorney in the labor practice at Godfrey & Kahn in Green Bay and Appleton, says the changes in regulations will require employers to look at the staff whose earnings fall below the new threshold. Raising salaries above $47,476 would exempt them from the overtime rules. Companies paying employees less will be required to implement strict record keeping to prove they work no more than 40 hours or pay them time-and-a-half.
“Punching a time clock isn’t necessary, but they will have to track their hours, which is a big shift for employees,” she adds. “Being salaried is viewed as having some prestige.”
Using outside contractors removes the issue of paying overtime, but it creates another set of issues. Misclassification of contractors has been a target of federal regulators. If a contractor whose work ends files for unemployment and wins, that information will be shared among agencies and can lead to investigations and fines from the workers’ comp provider and the Department of Revenue, Eiden says.
Manufacturing production workers, who are generally paid by the hour, won’t see an impact.
“I think the employees who will feel this change are concentrated in the Millennial group, the new graduates, people coming out of school and receiving jobs that pay between $23,000 and $47,000,” Eiden says.
The rules will also have an impact on managers who have grown accustomed to sending emails or texts at odd hours and expecting an immediate response. Now that time must be recorded as part of the work week. Firms may have to impose limits on the time worked remotely, and they may need policies to restrict managers’ use of off-hours communications to emergencies.
In announcing the change, President Obama said that four decades ago, more than 60 percent of American workers qualified for overtime pay based on their salary level compared to 7 percent now.
Myles Dannhausen Sr., managing owner at Bay Point Inn in Egg Harbor, says the change will have a big impact on the hospitality industry, whose managers and assistant managers often work long and unpredictable hours for pay under the $47,000 cap.
“You have to be there when a crisis occurs,” he says. “One way to get around it is to hire management companies.”
Calling the changes long overdue, Stephanie Bloomingdale, Secretary-Treasurer of the Wisconsin AFL-CIO, says the new regulations will help a lot of working people get the paycheck they deserve.
“This will create more jobs and bolster the middle class,” she adds. “When you put more money into the economy, the economy grows, and that creates more jobs. If you have a salaried worker making up to $47,500 a year, they would be eligible for overtime protection. That makes it more fair for workers who should have overtime protection, just like any hourly worker who is making middle class pay.”
Companies, especially in retail, have been giving workers managerial titles, even though they didn’t have the authority to set or change rules, so they could avoid paying them overtime, she says.
Chris Reader, director of health and human resource policy at Wisconsin Manufacturers & Commerce, wrote that the rule imposes an increase beyond inflation; if adjusted for inflation from 2004 to 2016 the new level would be just under $30,000. He estimated the new rule would cost employers over $1 billion across the country.
On the Department of Labor website, Dr. David Weil, administrator of the Wage and Hour Division, takes issue with some of the criticisms.
“There is nothing in the overtime rule that would require an employer to shift an employee from salaried to hourly, or to part-time, or to eliminate bonuses which can now be counted towards the salary threshold for the first time. Employers can continue to pay overtime-eligible workers a salary if they choose, and they can continue to provide the same level of responsibilities, benefits, flexibility, training and advancement opportunities as they do now.”