Late last month President Obama proposed a change to the long standing “overtime rule” for salaried employees. He proposed increasing the current minimum salary of $23,660 to a new minimum of $50,400. This will undoubtedly be challenged in court, but there are a lot of people in favor of this rule change. I think it is worth discussing.
If we are to get the best rules possible, we should each strive to understand the benefits and potential hazards of such policy decisions.
Why do many feel this is an issue that needs to be addressed?
The most compelling example for me was told by PBS Newshour about how a man, Gassan Marzuq, who missed his son’s graduation because he was a salaried employee
and required to work overtime. Here is an excerpt:
“Missing his son’s graduation, however, was just the salt in the wound. A salaried employee, Gassan had regularly worked 75 hours a week without receiving a dime in overtime pay. His employer would call on him to cover shifts and work extra hours, and unlike the hourly employees, they didn’t have to pay him for it. Why? Because Gassan earned more than the salary threshold of $455 a week (or $23,600 a year) below which all workers are eligible for overtime. And because Marzuq was a manager, his employer classified him as an executive and thus exempt from overtime pay. So, he missed his kids’ activities, their parent teacher conferences, their sports games. He missed their growing up, but he was never paid for all those hours he spent away at work.”
I’ve owned a business for many years and I’ve always determined whether or not a person was salaried based on job function, not pay. That said, paying someone $23,600 for working 75 hours a week isn’t right, regardless of where you live.
The Fair Labor Standards Act (FLSA) of 1938 was designed to prevent such a thing from happening. But over time (no pun intended), the threshold hasn’t been adequately increased. According to Ross Eisenbrey, Vice President of Economic Policy Institute, the current amount is “worth less than half what it was 40 years ago.”
So, I understand the desire for an overtime rule change. That said, I have some concerns.
Since my business, in most cases, is already exceeding the proposed minimum, it doesn’t really impact us as much as others. But for many organizations, public and private, this policy change represents a HUGE increase, and if it winds up becoming the rule, there will be a number of unintended consequences.
First, many businesses have a lot of flexibility and benefit arrangements built into compensation packages for salaried employees, and those may go away or dramatically change. This is particularly true for small businesses like mine that strive to come up with creative ways to retain employees.
I’ve always found total compensation to be a very personal matter. Salary is just one component of whether or not a person is happy with their job. In addition to flexibility in hours, what is the health care benefit package? Dental? Life Insurance? Disability Insurance? How much access does an employee have to ongoing training? Does the company provide a wellness package and pay for gym membership? Do employees receive a company vehicle, company laptop, company phone, etc.? Do they receive time off for community service? You see what I mean? It can get complicated.
When the federal government dictates major compensation changes, it seems to me they don’t take flexible arrangements into account. Forcing everyone to increase minimum salaries will, in many cases, lead to a reduction in the other flexible benefits. I don’t subscribe to the notion that people will lose their jobs, (although that’s always a possibility), but I do think it is logical to assume other benefits may be reduced, some of which employees value more. Schedule and compensation flexibility for salaried employees will be the biggest casualties.
Secondly, I believe national minimum wage discussions are problematic for smaller states/regions like ours because we have a much lower cost of living. A salaried employee in New York or California might make between $60,000-$80,000 per year. That same employee in our region might make between $40,000-$60,000 per year. But that makes sense because, for example, homes in our area are worth much less in value. While homes are worth less, they have a lot more space, are much closer access to world class amenities (professional sports, ballet, art, Broadway shows, great resteraunts, etc.), and home improvement, maintenance, and electric costs are less. Because our cost of living is lower, a reduced minimum salary for us is not unfair.
In my opinion, forcing businesses and organizations in our area to adhere to a much higher national minimum puts an unfair burden on organizations in our community.
It seems to me that taking the full benefits package into account, as well as considering costs of living, needs to be part of any “overtime rule” equation.
We also need to be aware that, when rules like this change so dramatically, costs can go up and the end results can wind up hurting the very people the rule is intended to help.
There are some businesses/organizations abusing the current rule and that needs to change. At the same time, there are businesses doing things the right way that, on the face of it, don’t adhere to the newly proposed standard.
My hope is that both labor and business will strive to understand concerns on both sides of the issue, and ultimately create employment policies that make sense and are fair to everyone.
Brent Cooper is the president of C-Forward, an IT firm in downtown Covington. His columns appear frequently in The River City News
