Proposed Overtime Rules Further Complicate Construction Labor Issues
Originally published by: ProSales Magazine —
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Building material dealers, contractors, and specialty firms are gearing up to fight an Obama administration proposal that could force the construction industry to give overtime pay to a huge new subset of its white-collar workforce.
Industry letters protesting the proposed rule already have been sent to the Department of Labor (DOL) well before the Sept. 4 deadline for comments, and organizations such as the National Association of Home Builders, Associated Builders and Contractors, and the National Association of Wholesaler-Distributors have joined a new industry group called the Partnership to Protect Workplace Opportunity to battle the idea.
The proposed rule raising such alarms basically would double, to $47,892 a year, the minimum salary that a worker would have to earn in order to qualify for the so-called white-collar exemption in the Fair Labor Standards Act--the exemption that lets employers avoid paying time-and-a-half for working more than 40 hours a week. The current threshold under the exemption, known as EAP, is $23,660 a year.
Ostensibly, the exempt employee status is supposed to apply to people who are supervisors or have a large amount of leeway in how they manage their day; outside salespeople are one example. Non-exempt employees, by contrast, work in white-collar jobs under supervision and under set constraints, such as requirements they do a particular task or work in a particular location. But because it's so hard to discern exactly when a position qualifies under EAP as exempt from overtime rules, the Labor Department says it "has long recognized the salary level test as 'the best single test' of exempt status."
The trouble with this philosophy, DOL says, is that the salary level hasn't been updated since 2004. Its increase would reset the salary level to a point equal to the 40th percentile of earnings for full-time salaried workers today, and from here on out the number would be adjusted automatically to remain at that 40th percentile level.
Roughly 21.4 million out of the 144.2 million wage and salary workers in the U.S. in 2013 were exempt employees, DOL estimates. The agency believes the rule change could affect 4.6 million of those currently exempt workers the first year the rule is implemented and result in their being paid an extra $1.18 billion to $1.27 billion a year, or an extra $256 per person. Expect the business community to challenge those numbers: A white paper issued by the Partnership to Protect Workplace Opportunity says more than 10 million people will be affected, and it referenced a National Retail Federation estimate that the retail and restaurant industries alone will see an increase in cost of more than $9 billion a year.
The rule's impact will vary by region and by economy. A Los Angeles Times analysis pointed out that California law says you need to make at least $37,440 a year, not the federal standard of $23,660, before you can qualify to be an exempt employee.
It's not known how many of those people work in construction or construction supply, but it's clear that the industry does consider the idea important enough to warrant protests.
"While we understand the desire to increase the standard salary level under this rule, we believe that the staggering increase of 113% may be more than many small businesses, such as those represented by NRLA, can afford," Joe Miles, chairman of the Northeastern Retail Lumber Association, wrote in his association's comment letter. "... Dramatic and unparalleled increases such as this cannot be easily compensated or adjusted for by small businesses often working on very thin margins and with little room for error or dramatic cost increase."
Dwayne Webber, president of EBS Building Supplies in Ellsworth, Maine, seconded NRLA's view that the current standard is too low but that the proposed increase "is too rich for our business to absorb. I will guarantee you that layoffs are going to occur in our company if these proposed rules are enacted without any compromise."
Another commenter said the change would affect 75% of the 15 salaried staff positions at his construction materials manufacturing company. "In 2009, we kept all these salaried people with insurance benefits when sales dropped to 25% of normal," he wrote. "By raising their salaried pay to this high of a guaranteed rate, we will need to move most of them to hourly, reduce insurance contributions, and become a clock watcher to minimize padding overtime. Oh yeah, when we encounter a recession again we will have to lay them off instead of carrying them so we have enough left to pay the other salaried people we have to increase to meet the minimum."
A dealer in South Carolina told ProSales he worried about how the rule would affect staffers such as those who handle inside sales. His counters are staffed for 9 1/2 hours each workday, so it's quite easy for a staffer to put in 45 hours a week, even with a lunch break.
NRLA asked for the increase in the threshold to be stretched over three years. Webber, said nondiscretionary bonuses should be included in considering whether an employee's pay falls below the proposed $47,892 standard. Others, such as Associated Builders and Contractors as well as the Associated General Contractors of America, appear to be seeking to slow the proposal's momentum by asking DOL to extend its Sept. 4 comment period deadline by 60 days.