Del. biz, labor leaders debate proposed OT rule change

Business groups and labor unions are deeply divided about how the Obama administration's proposed change to the federal rule governing overtime pay could impact Delaware.

The proposal would change a long-standing exemption that allows employers to avoid paying overtime wages to executive, administrative or professional employees.

The Obama administration says the proposed change would boost pay for up to 5 million workers who are currently excluded from receiving one-and-a-half times their regular pay for working more than 40 hours a week.

"Right now, too many Americans are working long days for less pay than they deserve," President Barack Obama wrote in an op-ed published Monday in The Huffington Post. "That's partly because we've failed to update overtime regulations for years."

Richard Heffron, president of the Delaware State Chamber of Commerce, said the rule change could have a chilling effect on future job growth while convincing businesses to limit pay offered to new hires. Those hardest hit will be small businesses that employ about half of the state's private workforce, he said.

"The biggest cost for any company is labor and when you add to that, businesses — especially small ones — will struggle," he said. "The economy is slowly recovering but profit margins are still slim for most small businesses. Now here comes another burden on top of all these other requirements."

The Delaware State AFL-CIO, on the other hand, praised the proposal as a way to help struggling workers earn more pay.

"There are a lot of working poor out there who will be helped by this," said state union President Samuel E. Lathem. "People who say this will hurt business make the same argument about minimum wage but that's not true either."

Current threshold was set in 2004

Currently, U.S. businesses can avoid paying overtime to certain salaried employees who earn more than $455 a week by classifying them as a "manager." At an annual salary of $23,660 a year, that pay would put a family of four below the federal poverty guideline with no means of earning extra income by working extra hours.

The U.S. Labor Department is proposing to more than double the minimum threshold to $970 a week. That would mean salaried employees who earn less than $50,440 a year – from fast food and retail supervisors to bank branch managers and insurance claims adjusters – would be assured overtime for working beyond 40 hours per week.

The proposal also would peg the salary threshold at the 40th percentile of income to keep us with future inflation and wage growth.

The current threshold set in 2004 – combined with vague language used to define the job duties that qualifies a position for the overtime exemption – have led to widespread abuse of the system, said Mike Sweeney, a partner with the New York-based law firm Getman Sweeney.

His office has represented workers in several class action suits filed against major corporations under federal and state wage-and-hour laws, including Chase Bank, Bank of America and Wells Fargo.

"There are quite a few Fortune 500 companies who are gaining a competitive advantage by classifying workers as managers and requiring them to work 60 to 70 hours a week," he said. "If you go to any big box store, chances are you'll see assistant managers stocking shelves and pricing items, while making less than hourly employees doing the same type of work."

Sweeney said companies skirt the classification requirements because the cost of settling a lawsuit can be less than the cost of paying overtime.

"Employees can only collect back wages going back two years," he said. "And most people don't challenge their employers because they fear losing their jobs. Collecting back pay means nothing if it means you're no longer able to put food on the table."

Bob Older, president of the Delaware Small Business Chamber, said he's conflicted about the proposal because of those abuses.

"I have a friend who works for a company where everyone works crazy hours but doesn't get overtime because they're all salary," he said. "So from that perspective, I understand how this change could help."

But, he said, Delaware small businesses are already dealing with higher heath care costs and a 50-cent hike in the minimum wage that raised the state's bottom wage to $7.75 on June 1 – the second half-dollar bump in a year.

"Now you add overtime costs and it all adds up to a lot for these businesses to absorb in a short amount of time," he said. "It's feels like we're being nickel-and-dimed to death."

Trade group: Restaurants will shift to part-time workers

The proposed rule change will have a more profound impact than simply requiring employers to limit hours or pay more in overtime, said Carrie Leishman, president of the Delaware Restaurant Association.

"What it's going to do is disincentivize full-time work and halt career advancement dead in its tracks," she said. "Flexibility in worker hours is so important to our industry and this will force restaurants to cut hours and cut jobs."

Leishman said restaurants – which have an average profit margin of 5 percent – will likely adjust by converting more positions to part-time work to avoid triggering the proposed overtime rule.

The National Retail Federation raised similar concerns in a statement released Tuesday.

"Turning managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and jobs creators that are the true path to middle-class success," said David French, NRF's senior vice president for government relations.

Meanwhile, Stephan Lehm said he doesn't see a problem with paying employees for overtime work, no matter how much they might already earn. The president of the Wilmington-based engineering and planning company Vandemark & Lynch said the firm had been paying overtime to any employee who works more than 40 hours for at least the last 25 years.

"We pay everyone hourly except the two owners, whether they're a laborer, a draft person or an engineer," he said. "And if they have to sacrifice time away from their families and work a weekend because of our deadline, they get overtime. It just seems fair and it's worked very well for us."

The White House's proposed changes will be open for public comment and finalized sometime in the next year. They can be enacted without approval from Congress.

The Associated Press contributed to this article.

Contact Scott Goss at (302) 324-2281, sgoss@delawareonline.com or on Twitter @ScottGossDel.

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