For decades, Alpin Haus has used a salary plus incentives pay plan for many of its workers.
“We try to have very few positions that are straight salary or straight hourly. We try to figure out a mechanism to reward them for performance,” Aplin Haus President Andy Heck said.
Soon that may need to change. On Dec. 1 more than 4 million U.S. workers being paid on salary will become newly eligible for overtime pay under rules issued recently by the Obama administration.
The rule seeks to bolster overtime protections that have been eroded in recent decades by inflation. A diminishing proportion of workers have benefited from overtime regulations, which date to the 1930s and require employers to pay 1 times a worker’s wage for work that exceeds 40 hours a week.
In the fast-food and retail industries in particular, many employees are deemed managers, work long hours but are paid a flat salary that barely exceeds the income of the hourly workers they supervise who receive overtime pay.
Under the new rules, released in draft form last summer, the annual salary threshold at which companies can deny overtime pay will be doubled from $23,660 to nearly $47,500. That would make 4.2 million more salaried workers eligible for overtime pay. Hourly workers would continue to be mostly guaranteed overtime.
The White House estimates that the rule change will raise pay by $1.2 billion a year over the next decade. Some employers, though, might choose to reduce their employees’ additional hours to avoid paying overtime, thereby making the workers’ schedules more consistent.
Heck said he doubts the new overtime rules will cost his business any money.
“I think some people have misread this and they think automatically people are going to get these big raises, and I don’t think that’s the case at all. I think maybe the government thinks that, but at the end of the day, everybody is just going to change how they pay their employees,” Heck said. “For us, I think this is going to be expense neutral. We’ll make it happen. Any time the government throws something at us – I mean taxes we don’t have control over – but any [new regulation] you just have to figure out how to work it. At the end of the day we want to take care of our employees, and we feel like we always do, but I think the market kind of drives what wages and pay plans are, more than the government ever will.”
New rules, same pay
Business groups have argued that the changes will increase paperwork and scheduling burdens for small companies and force many businesses to convert salaried workers to hourly ones to more closely track working time. Many employees will see that as a step down, they said.
“With the stroke of a pen, the Labor Department is demoting millions of workers,” David French, a senior vice president for the National Retail Federation, said. “Most of the people impacted by this change will not see any additional pay.”
Heck said his employees that are only paid on commission, like his RV sales personnel, will not change, but his salarly plus commission staff, such as his customer service representatives, will change. His said his customer service reps can make anything from $300 to $500 per week on salary, but they also get commision based on sales volume.
“We have to redesign some pay plans for some positions in our company. I think that’s kind of the bummer part of it,” he said. “In our world, we’ve got a lot of merit- based pay plans and incentive-based or performance-based pay plans, where if employees are more successful they can make more money. The way some of these rules are they are forcing us in a direction where it will be more hourly plus overtime and less incentives.”
The overtime threshold was last updated in 2004 and now covers just 7 percent of full-time salaried workers, administration officials said – down from 62 percent in 1975.
The higher threshold will lift that ratio back to 35 percent, Labor Secretary Tom Perez said. Perez has spearheaded the administration’s effort and has worked on formulating the rule for the past two years.
The new rule is intended to boost earnings for middle- and lower-income workers, Perez said, which have been stagnant since the late 1990s. Overtime pay hasn’t received as much attention as nationwide efforts to increase the minimum wage, but it could have a broad impact.
“This, in essence, is a minimum wage increase for the middle class,” said Judy Conti, federal advocacy coordinator for the National Employment Law Project, an advocacy group.
Fulton Montgomery Regional Chamber of Commerce President Mark Kilmer said his members don’t like the change.
“I’m not hearing anything good about it. It changes a lot of how they were doing their staffing. I’ve talked to a lot of businesses that are just changing the way they are paying their employees, changing people who were salaried now to regular hourly pay rates,” he said. “They are paying them overtime based on what they have to do on that basis. I’ve heard nothing positive about it. I haven’t heard that it’s costing them much – it’s just adding aggrevation.”
The Associated Press contributed to this story.