ELLSWORTH — With some area businesses scrambling just to keep fully staffed this summer, few have given much thought to a major change in a U.S. Department of Labor rule that goes into effect Dec. 1.
The adjusted rule will raise the threshold for salaried employees who are currently exempt from overtime pay from $23,660 to $47,476.
In other words, unless a salaried employee is paid at least $47,476, a company must pay him or her overtime if that person works more than 40 hours a week.
A casual arrangement some companies and organizations might now use whereby employees work longer hours one week and take time off the next would be illegal.
In the meantime, a group of Democrats is challenging the Obama administration change with a bill seeking to phase in the change.
Under the bill submitted by Democratic Reps. Kurt Schrader of Oregon, Jim Cooper of Tennessee, Henry Cuellar of Texas and Collin Peterson of Minnesota, the threshold would be raised over three years.
There would be a 50 percent increase the first year to $35,984. Each year following, the threshold would be raised $74 per week until Dec. 1, 2019.
Sen. Angus King (I-Maine) said raising pay scales is laudable, but might backfire due to the burden it could place on small business owners in Maine.
“It could end up having the unintended consequence of threatening their financial stability,” King said.
He said he was investigating how the rule could be implemented in a way that works for Maine employers while providing overtime pay for those who deserve it.
U.S. Labor Secretary Thomas Perez said in opposing the delay that workers have been waiting years for the change.
“The President and I think that American workers have waited long enough for a fair day’s pay for a long day’s work,” Perez said.
The Labor Department said employers can comply with the new rule by paying overtime, raising workers’ salaries to the new $47,476 threshold to maintain their overtime-exempt status, limiting workers’ hours to 40 per week, or some combination of the three.
The overtime rule broadens the definition of salary to allow nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary test requirement.
Gretchen Wilson, executive director of the Ellsworth Area Chamber of Commerce, said the issue is at the “simmer stage” locally while employers focus on their busiest season.
“Once we hit the fall, we’ll see a lot more interest in how do we do this,” Wilson said.
She said the chamber is planning information sessions for members and will offer the legal perspective from attorney members.
Wilson said one employee at the chamber will be affected by the change.
She expects the new rule to have an impact on many businesses in the area.
“It’s a big stretch to keep a manager or supervisor at that salary,” Wilson said. “For urban areas, that is not quite such a leap.”
She said some of the smaller nonprofit agencies have directors who are not paid $47,476 but are expected to work more than 40 hours.
Most retail businesses, she said, are already on a 40-hour week with scheduled shifts and many are hourly, not salaried, workers.
Wilson said employees who most likely would be covered by the change in the labor rule are chefs and hotel workers such as front desk managers and supervisors.
David Clough, state director of the National Federation of Independent Business, said his organization estimates 44 percent of small businesses in America will have at least one employee who will be affected.
Like Wilson, he said the issue likely will get more attention this fall.
He expects some employers will make their employees hourly, not salaried workers.
“Restaurants are already concerned about the minimum wage that would phase out the tip credit,” Clough said. “It certainly would be an issue that has to be examined by the restaurant owner.”
He said the Department of Labor has estimated that 16,000 workers would be affected in Maine.
“I think that’s quite a low estimate,” Clough said. “I don’t know where they came up with that number.”
Quoting an article in Modern Healthcare, Clough said the change will affect millions of health care workers.
The article stated that health care professions likely to be affected by the overtime threshold increase are nurses, medical and physical therapist assistants, medical and pharmacy technicians and paramedics.
“That includes approximately 4.1 million workers, according to 2015 data from the U.S. Bureau of Labor Statistics,” said the article in Modern Healthcare.
The Department of Labor said the so-called white collar exemption, for which the threshold was set, was originally meant for highly paid workers who had better benefits, job security and opportunities for advancement.
The last time the threshold was increased was in 2004 and it was outdated even at that time, according to the Department of Labor.
That increase to $455 per week, or $23,660 a year, meant even workers earning less than the poverty line for a family of four might earn too much to automatically qualify for overtime, according to the department.
Ellsworth YMCA CEO Peter Farragher said the rule change will have a significant effect on the organization.
“A lot of our directors are not at that level and we put a lot of time in,” he said. “Now we have to really look at how we are doing our schedules and how much extra time our staff puts in.”
Farragher said the YMCA has directors who are coaches and work seven days a week.
“They love the job,” he said. “I’m sure we will get through this, but it will cost the organization more money.”
U.S. Sen. Susan Collins (R-Maine) said when the rule was announced that it would be “extremely damaging” to small businesses, universities, nonprofit organizations and service industries, particularly in rural states such as Maine.
The University of Maine System, she said, has 700 employees who would be affected by the dramatic increase and lead to an estimated $14-million increase in annual operating costs if salaries were restructured.
“Likewise, small businesses could be forced to cut hours, benefits and employees,” she said. “The effect of this increase will be repeated at nonprofits and small businesses across the country.”
She has co-sponsored legislation to nullify the rule and require the Department of Labor to take into account the outcome of any future rule changes on industries and organizations and in various regions with different costs of living.