How Will the Overtime Proposal Impact Manufacturers?

How Will the Overtime Proposal Impact Manufacturers?

A pair of automotive and aerospace industry attorneys weigh in on Obama's new overtime proposal, and advise manufacturing employers big and small on what to do next.

In the past couple of days, Bryance Metheny, a Birmingham, Ala., labor attorney, has heard plenty from his manufacturing clients about the Department of Labor’s new proposal on overtime pay. “They’re up in arms about it,” says Metheny, who primarily represents manufacturing employers.  

Metheny says he’s been advising his clients for a while, however, that “substantial changes” were coming. “We’ve been hearing about it for over a year, the new minimum salary threshold.”

Adds Michael Moschel, an aerospace and automotive industry attorney, “You would have to have your head stuck in the sand not to know this was coming."

The rule change, which President Barack Obama announced yesterday, would require employers to pay overtime to salaried employees who make less than $50,440 per year.  Previously, the threshold was $23,660.

“It hasn’t gone up since 2008, and those were Bush administration regulations,” Moschel says, adding that the current salary overtime threshold is out of whack with the cost of living. Poverty wages for a family of four are $24,250, he points out.

Metheny says the battle over the rule, which includes a four-month comment period, is “far from over,” but is advising his clients not to expect big changes in the proposal. It could be implemented in early 2016. “There could be some compromise, perhaps, on the number. But it’s going to be substantial. And it’s going to be a lot higher than the $23,660 we’re currently dealing with—which, frankly, is absurdly low.”

Yesterday the National Association of Manufacturers blasted the Obama-administration proposal, declaring that it would lead to the “demotion of at least 5 million Americans.”

“Manufacturers are proud of the modern workplaces and high salaries they offer their workforce, and this proposed regulation is another in a long list of regulatory roadblocks to healthy and robust economic growth and job creation,” NAM said in a statement. “We will continue to pursue policies that allow manufacturers to create high-paying, good jobs and vigorously oppose policies that are counterproductive to achieving that goal.”

Metheny actually sees the law having less of an impact on the manufacturing industry, which requires more skilled workers and tend to pay higher wages, than on industries like restaurant and retail where supervisors often make in the high 20s or low 30s. (“Get ready for $7 burgers,” he quips.)

Metheny represents automotive suppliers in his practice, as well as Mercedes, Honda, and Hyundai. For the OEMs, “this is really not that big a deal,” he says. “Even their hourly employees make more than $50,000 a year.”

The auto suppliers, however, should feel the change more, especially for their front-line supervisors who are salaried. “They’re either going to have to move them to hourly plus overtime or raise their comp level to get them to exempt status,” he says.

He thinks that most will choose to raise front-line supervisors’ salary to the $50K threshold to keep them exempt from overtime. “There’s such a big advantage to an employer to have those positions as exempt, because if the machine goes down and chaos ensues and it takes a lot of time to put it back together, they don’t have to worry about how much overtime they’re going to have to pay.”

For the rule to become law, it will depend on whether the DOL deems it to be a fundamental rule under the Fair Labor Standards Act, “or something they can actually do without having to go through Congress,” Metheny says. “In the past, they have attempted to simply impose those rules. They have the authority to do that. But I think they will impose the rule and there will be a challenge to it, from organizations like the National Chamber of Commerce and employer groups.”

Metheny says he’s advising his clients in the interim to take a step back and audit their salaried positions. “A lot of manufacturers have historically made mistakes” and misclassified hourly employees as salaried, he says. Front-line supervisors, lead men, bookkeepers, and inside sales people are among the most commonly misclassified. “Our most significant recommendation is there’s never been a better time to do payroll audits and make sure we’re paying people properly.

“For all of my clients, the thing I’m recommending, is you’ve got to look at every single salaried position to ensure that you’re paying them enough and that they’re legitimately exempt in the first place.”

Moschel says don’t expect that misclassifications will go unnoticed. In the past, the Department of Labor has been understaffed, but that’s changed as the DOL has hired 2,000 additional investigators beginning in 2009. “Tremendous enforcement is going on,” he says.

Metheny says that having more hourly employees and fewer salaried ones could actually lead to more hiring in certain industries, but in manufacturing, “I see it as a little bit more complicated. Most of the time we’re talking about positions that require a certain skill level and the training that goes into it, the investment that you have to make in these employees is a little bit higher.

“A manufacturer will just have to answer for themselves—‘Would I rather have more trained personnel, or would I rather just have to pay overtime every once in a while? Which is going to be most cost-effective for my business?’ They’re going to have to look at that on a case-by-case basis."

Metheny sent out emails yesterday to groups of clients recommending that they use the comment period to develop a strategy. “You’ve got to look at your individual workplace and say, ‘How many employees do I have that this impacts?’” he says. “What’s the best way to resolve this with the employees that it does impact?"

Depending on the employee's role and salary, the answer may be raising the salary above the $50K threshhold, or it may mean splitting the job duties between two hourly workers to avoid overtime, says Metheny. And the solution may be different for different departments within a company. 

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