The Federal government often
makes decisions for states, local governments and private
citizens without our input. Agencies, Congress and often, the
President, send down mandates or make far-reaching decisions that
have dramatic impact for a variety of reasons.
Eye-catching headlines often make people feel good, but the true
implications and impacts of feel good changes can have extremely
detrimental outcomes. It’s easy to make a blanket change without
fully thinking through, and taking responsibility for, the actual
and practical application of the change. Several degrees of
separation enable decision-makers to take credit for a positive,
feel-good message while separating themselves from painful
In May 2016, President Barack Obama announced publication of the
United States Department of Labor’s (DOL) final rule that makes
changes to overtime regulations. This agency rule change (not a
change that went through Congress), automatically extends
overtime pay to more than 4 million workers in its first year.
According to the DOL, the Final Rule focuses primarily on
updating the salary and compensation levels needed for Executive,
Administrative and Professional workers to be exempt. The rule:
Sets the standard salary level at the 40th
percentile of earnings of full-time salaried workers in the
lowest-wage Census Region, currently the South ($913 per week;
$47,476 annually for a full-year worker);
Sets the total annual compensation requirement for
highly compensated employees (HCE) subject to a minimal duties
test to the annual equivalent of the 90th percentile of full-time
salaried workers nationally ($134,004); and
Establishes a mechanism for automatically updating
the salary and compensation levels every three years to maintain
the levels at the above percentiles and to ensure that they
continue to provide useful and effective tests for exemption.
Additionally, the Final Rule amends the salary
basis test to allow employers to use nondiscretionary bonuses and
incentive payments (including commissions) to satisfy up to 10
percent of the new standard salary level. https://www.dol.gov/whd/overtime/final2016/
The bottom-line is that many salaried workers making less
than $47,476 per year will be eligible for overtime pay.
This sounds good – right? To some, it might. To employers and
taxpayers, it is concerning.
On the surface, this may sound (and feel) good. However,
this rule change, thrusts the Federal government into the
employer-employee relationship with huge financial implications
that could greatly impact our economy, businesses, jobs and
taxpayers. These rules apply to both the public and private
In order to understand the impact of these changes on taxpayers,
I asked the non-partisan Legislative Fiscal Bureau (LFB) for an
analysis of the potential impact of the Federal Overtime Pay
Administrative Rule Change on Wisconsin.
It is important to note that there are three ways to manage this
Make all of our “white collar” employees “exempt”
from the overtime pay requirements.
Prepare (as best we can) to pay overtime to newly
non-exempt employees at an undetermined cost.
Strictly limit our non-exempt employees to 40
hours of work per week.
According to the LFB, it is
estimated that 1,101 full-time, executive branch employees would
need to have their salaries increased by $4.3 million annually to
avoid the final federal overtime pay requirements. In addition,
17.2 part-time executive branch employees would have to have
their full-time equivalent salaries increase by approximately
$100,000 annually. The maximum possible fiscal impact to
executive branch agencies is estimated to be $5.1 million
As the steward of your taxpayer dollars, this rule change
concerns me. We have intelligent, talented state employees who
work hard every day for pay that is commensurate with their
duties and roles. These rule changes would force us to either pay
our employees more than we currently do or strictly limit their
hours of work per week simply because the Federal government
changed the rules.
I am also very concerned about private employers and small
business owners who will be forced to comply with this change.
How will they manage overtime rules? Will an employee be
asked to end their work day, whether or not a project is
completed? Will an employer incur unreasonable costs? Will
they have to lay-off staff members and/or expect more from those
they have in order to balance the books? How will currently
“exempt” workers feel when their classification becomes
“nonexempt”? Why should employers be forced into uncomfortable,
unreasonable situations with long-time staff who have no problem
with the way things currently operate?
Once again, the Federal government has thrust itself into
relationships between employers and employees without considering
the full impact of the change – or maybe they don’t care.
We see evidence of this same situation when it comes to
phosphorus regulation. For more information on the
phosphorus issue, please reference my 5/20/16 column.
As your State Senator, I will monitor the impact of this rule
change on private and public sector employers and employees as it
takes effect December 1, 2016. It will be an interesting
discussion as we look toward the next state budget in 2017.