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Business Owners Fear Proposed Overtime Rule Change

As the Obama administration moves to unilaterally add additional requirements on overtime pay, business owners pleaded with lawmakers Wednesday to oppose the changes.

Last year, President Barack Obama signed a memo compelling the Department of Labor to change the Fair Labor Standards Act (FLSA) so that more managers could qualify for overtime pay. The changes are expected to raise the salary exemption threshold and force businesses to better track what tasks their managers do. Republicans and business leaders, however, warn the changes will made the positions far less flexible while adding huge costs.

“While the bulk of our restaurant managers’ days are spent performing management tasks, they also multitask, stepping in to help serve diners during busy times, and leading and training team members by working side-by-side with them, when necessary,” Jamie Richardson, the vice president of government relations at White Castle, said before the House Subcommittee on Workforce Protections.

To be exempt from overtime, a manager must perform tasks the government deems managerial in nature, known as the Duties Tests, and have an annually salary of more than $23,000. The proposed rule change will likely affect both areas by raising the salary threshold to $52,000 annually while requiring businesses to track exactly how much time managers spend on specific tasks as opposed to just what tasks they do.

“If the Labor Department proceeds with a regulatory change from the current rules adopted in 2004 in which the overtime exemption is tied to a manager’s specific tasks, and moves to a percentage based analysis of the time spent performing duties, such an alteration would mark a dramatic step back to a time when such a percentage based scheme was used 50 years ago,” Richardson continued.

While speaking on behalf of White Castle, Richardson also spoke for the National Council of Chain Restaurants and the National Retail Federation (NRF), two leading industry groups that have noted concern over the rule changes previously.

“Such a modification would curb a manager’s critical ability to multitask in a busy restaurant setting, undermine customer service, limit training opportunities for team members, diminish morale and force complicated assessments of time spent ‘managing’ in a restaurant setting,” Richardson added.

Richardson also argued against increasing the salary threshold by noting it will cause a significant increase in the cost of operating a business. According to a study by Oxford Economics, which was commissioned by the NRF, increasing the overtime salary threshold to just $42,016 annually would affect 1.7 million retail and restaurant workers and would cost business owners $5.2 billion per year.

The increased costs, Richardson noted, will force businesses to cut hours and jobs while leaving less money to invest in employee benefits and training programs.

Seth Harris, the deputy to the secretary of labor, however, didn’t agree. While also speaking before the committee, Harris argued the impact of the changes will just mean more workers will get paid more which is both good for the worker and the economy.

“The myth that the FLSA is perfectly inflexible is just that, a myth,” Harris declared. “There is a great deal of flexibility.”

Harris also argued that low wages in the United States pose a significant problem and must be addressed. On top that, FLSA must be updated to better reflect the realities of the current economy. Harris argues that the exemption was once used by those employees who had significant enough control over negotiating their compensation but now is simply being used to avoid paying overtime to employees that truly need it.

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