tv Politics and Public Policy Today CSPAN May 17, 2016 1:00pm-2:01pm EDT
i strongly believe this proposal lacks adequate economic analysis and i was alarmed when the office of advocacy submitted comments that sharply criticized the manner in which the dol crafted the proposal. their comments stated that the dol's initial regulatory flexibility analysis was inaccurate and severely undercounted the number of small businesses that would be effected by the rule. i hope our conversation today will also touch on the impact the rule will have on small nonprofit organizations. advocacies comment letter referenced a roundtable discussion that was held in new orleans where a small nonprofit operating head-start programs in louisiana stated that this proposal would result in $74,000 of first-year costs. since 80% of this organization's operating budget comes from federal programs which cannot be used to pay for management costs
like labor, they may have to cut critical community services to reduce labor costs. this is really unacceptable, especially for rural and poor areas that rely on different services provided by nonprofits. after hearing from many concerned workers and business owners, i urged secretary perez to extend the public comment period to allow small business owners and employees the opportunity to examine the proposed rule and comment carefully. shortly afterward, the office of advocacy wrote a similar public comment letter requesting a 90-day extension of the comment period. unfortunately, all of these requests were denied by secretary perez. i have serious concerns with president obama's proposed changes to overtime regulations which will negatively impact the ability of small businesses and other organizations to operate effectively.
while the rule is expected to become finalized within the next several weeks, it's crucial that the administration reconsider their one-size-fits-all approach. now let's get today's conversation started. again, i'd like to thank everyone for being a part of this discussion. i'm going to go ahead and introduce our entire first panel and then each of you will have five minutes in the order in which you're introduced and of course can submit any additional written comments for the record. ms. tammy mccutchen serves as the principle at little mendelson pc, a law firm specializing in representing employment and labor law. ms. mccutchen also serves as vice president and managing director of strategic solutions for compliance hr and previously served as the administrator of the division at the u u.s. department of labor.
ms. sarita gupta served with the union rights organization focused on workers' civil rights. mr. octavio mantilla resides in new orleans and is co-owner of the besh restaurant group where he oversees operations of more than ten restaurants across the country. in addition to his responsibilities at the besh group he's a board member of the louisiana restaurant association, the louisiana hospitality foundation, the new orleans tourism and marketing corporation, and the john besh foundation. mr. ross eisenbrey has been vice president of the economic policy institute in washington, d.c. since 2003. mr. eisenbrey focuses on labor and employment law along with pension and regulatory policy. and ms. nancy duncan is the
association vice president of human resources for "operation smile," a nonprofit medical service dedicated to providing cleft lip and palate repair surgeries to children worldwide. miss duncan is based out of virginia beach and has more than two decades of hr experience. so again, welcome to all of you. thank you for being here. and we'll start with ms. mccutchen. >> mr. chairman and members of the committee, thank you for giving me the opportunity to speak with you today regarding how the department's changes to the overtime regulations will impact small businesses. of course, of most concern to small business is the department's proposal to increase the minimum salary level for exemption by 113% from the current 23,660 to 50,440. the purpose of setting a minimum salary level for exemption as the department itself has stated since 1949 is to provide a ready method of screening out the obviously non-exempt employees.
d.o.l.'s proposed 50,440 level does exactly the opposite. excluding from the exemption many employees who obviously perform exempt duties including employees found to be exempt by department investigators and the federal courts. such a large increase is unprecedented in the 77-year history. and using any reasonable method to set the minimum salary level yields a much lower number. 30,000, for example, the salary level if the department used its methodology from 2004, setting the salary level to exclude from the exemption the lowest 20th percentile of salaried employees working in the retail and the south. 32,000. the salary level if the department applied increases in the employment cost index since 2004. 34,000. the salary level if the department used its methodology from 1958. setting the salary level to exclude the lowest 10% of employees found in dol
investigations to be exempt and the lowest wage regions, the lowest wage industries, tsmallet businesses and the smallest cities. 35,000. the minimum salary required for exemption under the laws of new york. also, by the way, the salary level if the department looked to the historical percentage of increases from 1938 to 19 -- to 2004. 42,000. the minimum salary required for exemption under the laws of california. also, by the way, the starting salary for federal government employees with master's degrees. instead of using any of these reasonable methods the department arrived at 54,440, a number higher than either new york or california, both high cost of living states with very generous labor laws, by using instead the 40th percentile of all salaries nationwide. it is irresponsible, particularly with the recent disturbing economic news, to use nationwide data that fails to distinguish salaries by region, industry, size of business or size of city.
i am not suggesting that we adopt different salary levels for different regions or industries, which would be a compliance nightmare for employers. but i am stating that the minimum salary has to be set at a level that will work for high-income and low-income states, for high profit/low profit industries, for large, small, and non-profit businesses in large cities and in small rural communities. the purpose of the salary level is to exclude obviously non-exempt employees. the duties tax in the regulation then come into employ once the obviously non-exempt have been eliminated. for 77 years it has been the duties test that serves as the primary method of distinguishing exempt from non-exempt, of identifying who is the exempt administrative and professional employee. let me close with four quick points. first, thousands of small business owners and advocates and even more non-profit businesses filed comments objecting to the proposed rule including the sba's office of advocacy, the national federation of independent business and the national
association of women small business owners. second, both the nfib and the sba office of advocacy concluded that the department's flexibility analyst grossly underestimates the cost of the rule to small business. i was personally shocked by the department's lowball estimate of the amount of time business will need to spend to comply with the rule. i would never tell my client my employer clients who spend so little time on compliance. third the cost to small businesses will be even higher if the department decides to automatically increase the salary levels every year or to make changes to the duties tests. finally, increasing the salary level to 54,040 or even the 47,000 that politico recently reported will not result in giving america a raise. employees are unlikely to see higher paychecks. the small business owners i have talked to cannot afford to give a salary increase or pay overtime. so they must adjust in other ways, demoting management to
hourly workers, requiring them to clock in and out, closely monitoring the hours they work, decreasing the flexibility to take time off for family without losses in pay, taking away bonuses and other employee benefits and depriving employees of opportunities for advancement. the one thing small businesses cannot do is redistribute money they do not have. thank you. >> thank you very much. and now ms. gupta. >> chairman vitter and members of the committee, thank you for the opportunity to testify today about the administration's proposed update to the overtime rules under the fair labor standards act. my name is sarita gupta. i'm the executive director of jobs with justice. jobs with justice is an independent, non-profit organization dedicated to advancing working people's rights and an economy that benefits all americans. we bring together labor, community, faith and student voices at the national and local levels through a network of coalitions across the country. at jobs with justice, we believe
the fair labor act protections are central to insuring that all americans can enjoy the country's prosperity to which they contribute. the united states congress and president franklin delano roosevelt recognized in 1938 what today's working women and men know to still be true, that economic stability can only be achieved through family-supporting wages and hours. if today's employees are to realize the law's basic promise of reprieve from overwork in order to spend time with their families, the flsa's overtime protections must be strengthened and protected. we believe the u.s. department of labor's proposal to adjust the salary test for determining overtime eligibility will do just that. raising the salary threshold from $23,660 in annual pay to $50,440 in 2016 will broadly benefit millions of working people, whether they are newly eligible for overtime
protections or more squarely protected against overtime misclassification that can occur under the more ambiguous duties test. the current threshold covers only 8% of salaried employees today. employers are even currently within their rights to deny overtime pay to employees who earn less than the poverty level for a family of four. real lives will change for the better by updating the overtime rules. real people like wanda womack, who earned under $40,000 managing a dollar general store in alabama. wanda put in 50 to 70 hours a week, most of it spent doing nonexempt work like running the cash register and unloading merchandise from trucks. part-time hourly employees also stand to benefit from a higher salary threshold. too many people who stock the shelves, sweep the floors and serve us food are working fewer hours than they would like. in our recent study of
employers' scheduling practices in washington, d.c.'s service sector, 80% of survey respondents told us it was very important or somewhat important that they received more hours. many of these individuals will likely have an opportunity to gain additional hours as employers shift assignments from overworked low paid salary employees who were previously exempted from overtime protections. as a non-profit employer, i also have to assess -- i had to assess the proposed update to the overtime regulations. the proposed overtime rule update will require some of our local coalitions to examine and amend their employment practices. we believe this is a positive development. a higher salary threshold will require jobs with justice and non-profits like us to promote practices that allow people to spend more time with their families, likely increasing employee satisfaction and lowering burnout rates along the way. this is good for our employees, for our organizations and for the people we strive to serve.
i know some non-profit organizations have expressed concerns about the proposed overtime rule update and the impact it could have on their budgets. i also know that much of the concern for non-profits' ability to comply with updated overtime rules have been raised by big-business lobby groups that do not typically advocate for the interests of non-profits or the people served by them. these concerns are vastly overstated, and frankly, they dismiss the rights of working people. employees of non-profits deserve a fair return on their work. i know firsthand that for non-profit employees the work, while often rewarding, can be stressful, emotionally tolling and lower paying. these conditions only further substantiate the need for non-profit employees to have time away from work to recharge and to reconnect with family and friends, just as was intended by flsa. non-profits that contract with state medicaid departments can push the state to increase rates.
many states revisit their medicaid budgets throughout the year since medicaid costs fluctuate based on the economy, enrollment, eligibility and other factors. the state's investment will be less than many people may assume. the federal match for medicaid spending can range from 50% to 74%, depending on the state. regardless, no non-profit should condone a business model that only succeeds based on its ability to take advantage of its employees through lax overtime rules. the flsa was enacted with the belief that americans should earn a fair day's pay for a fair day's work. yet today the inverse is true for too many of america's salaried employees. they're putting in a fair day's work for far less than a fair day's pay. the administration's proposed update to the flsa overtime rules will serve as a crucial step to restoring the basic tenet of economic fairness, a tenet that should apply to all people no matter the industry they work in or the size of their employer. in the interest of time, i'll
reserve the remainder of my time for comments and take questions from the committee members. thank you. >> thank you very much. now mr. mantilla, welcome. >> thank you, chairman. good morning, chairman vitter and distinguished members of the committee. thank you for the opportunity to testify today on the impact that the proposed overtime regulations would have on restaurants like mine and the concerns we have with some of the ideas floated by the department of labor for final regulation. my name is octavio mantilla. i am co-owner of the besh restaurant group. i am honored to share the perspectives of my company. today my testimony will focus on some of the issues that my company and the industry have been struggling with in preparing for potential changes to the current overtime regulation. at the end of the day, i need to ensure that the besh restaurant group is fully compliant with the law while remaining economically healthy and vibrant. the three main issues that i would like to address today include adjustments to the duties test being considered,
the proposed salary level and the proposed automatic increases. i would also like to point out that the overall overtime regulatory proposal is adding to the tremendous amount of uncertainty created by the amount of federal regulations from the last five years. i was born in nicaragua. i moved to new orleans as a child. at the age of 16 i got my first job in a restaurant as a dishwasher and later waited tables. i continued to work and make my way up. i eventually moved through all managerial levels. while working in the industry, i earned a bachelor's degree from tulane university and an mba from the university of new orleans. i would not have been able to achieve these milestones without the flexibility that being a manager provided me. as a manager, while making less than many waiters, i had more flexibility to manage my work
schedule and attend classes. the flexibility of being on salary was a big help to me. i would not be where i am today without opportunity. after graduating, i helped at harrah's casino and hotel in new orleans and then worked in st. louis, missouri, as harrah's director of operations. i have opened numerous restaurants for harrah's nationwide. my story is repeated in our industry over and over. in fact, nine in ten restaurant managers started in entry-level positions. eight in ten restaurant owners also began in our industry with an entry-level position. doing away with the flexibility, entry-level salary managers have to, among other things, go back and forth from work to school with diminished professional growth and opportunities in our industry. i returned to new orleans to be reunited with my friend, john besh.
john and i became partners in besh restaurant group. since becoming john's partner, we have expanded to include several additional restaurants, one of them being shaya voted best new restaurant in america last week by the james beard foundation, modern israeli cuisine restaurant, with my partner israeli-born alan shaya, who also was an entry-level manager. as to the duties test, it is clear to operators in the industry that any reduction in litigation the department seeks to obtain with the proposed rules increase in the salary threshold would be lost if the changes being considered to the duties test becomes final. a long duties test would mandate a percentage limitation on non-exempt work than a manager can perform. the problems with the long duties test structure are well known, also acknowledged by the department of labor in 2004 overtime rule.
in the 2004, the department stated that the strict percentage limitations on nonexempt work in the long duties test would impose significant managerial requirements and record-keeping burdens. in our industries managers need to have a hands-on approach to ensure that operations run smoothly. any attempt to artificially cap the amount of time exempt employees can spend on nonexempt work would place significant work burdens on restaurants, increase labor costs, cause customer service to suffer and result in an increase in wage and hourly litigation. just imagine a manager in a restaurant not being able to fill up a glass of water for you or having to write it down during a service period. it's just not possible. as to the minimum salary threshold, the department believes the proposed salary level does not exclude from exemption an unacceptably high number of employees who meet the duties test.
however, when applied to my industry, the contrary is true. even before adjusting for regional and economic differences, most managers in our industry do not meet the proposed salary level of $970 per week. some of these employees who would qualify as exempt under the new proposed salary level only if the department allowed bonuses to be calculated the employee salary level. furthermore, the main annual salary pay to crew and shift supervisors in our industry is $38,000. it is clear that at least in reference to the restaurant industry, the proposed salary level does exclude for an exemption an unacceptably high number of employees. i think i'll stop there for the purpose of time. >> okay. thank you very much, mr. mantilla. and next we'll hear from mr. eisenbrey.
>> thank you for inviting me today, mr. chairman and committee members. in my five minutes, i'll make five points. first, america's middle class has suffered through decades of wage stagnation and rising inequality that can't be corrected without changes in a range of federal policies that have worked against them. those changes include restoring appropriate tax rates on high incomes and inheritances, raising the minimum wage, fixing overtime rules, enacting paid leave and fair scheduling legislation, ending unfair trade practices and giving employees the right to bargain collectively. two, the department's updated salary threshold will help. it's long overdue and much needed. the rule will raise wages for some employees, reduce excessive work hours for others and create jobs. no one paid less than $50,000 a year should work more than 40 hours a week without additional compensation. three, indexing the salary threshold for exemption as wages
and prices increase is critically important and well within the department's authority. four, employers will adjust to the rule as they did to the original fair labor standards act and every improvement in the law and regulations since then. california, it's important to note, the state with the highest state overtime standards, including a 50% primary duty test, has outpaced the rest of the nation in employment growth for the last five years. and in that period of time, louisiana's employment has actually fallen. five small business employees need time with their families just as much as employees of larger businesses, if not more. they tend to be paid less, and therefore, to be less able to pay for time-saving help with children, chores and home maintenance. they suffer from the same stress and health effects as anyone else. so point one, from 1979 to 2013,
inflation-adjusted wages rose only 15% for the bottom 90% of americans, less than 0.5% per year, while wages for the top 1% increased 137%. the economy in total national income grew, but most americans were left out. ceos and top executives take an oversized share of income. ceo pay for the 350 largest corporations grew almost 1,000% since 1978, while the pay of typical workers increased only 11%. corporations have relentlessly squeezed labor costs to the detriment of their employees while increasing profits for shareholders and executives with stock options. profits have been at all-time highs, while tens of millions of workers struggle to get by. the federal policies that have reduced employee bargaining power lowered labor standards and offshore jobs should all be reversed. overtime is one part of the solution. the current salary threshold, as
sarita said, is less than the poverty line for a family of four. it doesn't begin to reflect the status and financial reward that characterize executives, administrators or professionals. it covered -- the salary threshold covered 12.6 million employees, salaried employees, in 1979. today it covers 3.5 million in a workforce that's 50% bigger. three -- goldman sachs, the national retail federation, and the department of labor all agree, the rule will lead to job creation, wage increases for some employees and reduced hours for others. the history of this rule tells us that employees will be better off. and as lonnie golden's research using the general social survey shows, it's not true that employees who make less than $50,000 a year have more flexibility if they're salaried than if they're hourly.
this survey showed without a doubt that they're no better off in terms of flexibility. so they have nothing to lose when the salary level is raised, even if their employer changes from salary to hourly. to prevent the kind of neglect that led to a 29-year decline in the real value of the threshold, it has to be indexed, preferably to growth and compensation of salaried employers. the labor department for decades failed to carry out its statutory mandate to update the rules, and indexing will prevent that kind of failure in the future. finally, employers, including small businesses like mine -- we have 40 employees -- will have no trouble adjusting to the rule because our competitors all face the same requirements. and in fact, this is the easiest rule ever promulgated to comply with. you're already making determinations about whether employees are covered. now for people making less than
$50,000, it's simple. they're entitled to overtime pay. that's the end of the issue. you don't have to worry about the complicated duties test that you've heard about. the homebuilders are a perfect example of how much hype and phony melodrama surrounds the opposition to this rule. they did a survey that shows that only one homebuilder in 25 is even thinking about reclassifying salaried workers as hourly. far more will raise their salaries, but most will have to do nothing at all to comply because they're already in compliance. thank you. >> thank you. and ms. duncan, you're going to wrap us up. thank you. >> i would like to thank the committee for the invitation to speak with you today. operation smile is an international medical charity that has provided hundreds of thousands of free surgeries for children and young adults in developing countries who are born with a cleft lip, cleft palate or other facial deformities. i'm here to express concerns of
our leadership team over proposed changes to overtime exemption regulations. specifically the drastic increase to the threshold salary level of 50,400. while all employers will feel the impact of such a drastic change, there will be a tremendous negative impact on the non-profit organizations, especially taking into account the unique challenges of an organization operating globally. we have made tremendous efforts over the last years to align our salaries to be more competitive with the for-profit space. yet still, this proposed update will increase our payroll costs nearly $1 million annually, affecting over 50% of our workforce. this is not a financial cost we can absorb. considering that a cleft surgery cost an average of $240, this would mean nearly 4,200 fewer surgeries provided globally each year. let me take a moment to provide a very specific impact of the proposed increase to the salary threshold. the largest group of our
professionals affected is our program coordinators. these individuals are responsible for planning and executing our international medical missions. they travel to low and middle-income countries where we conduct medical missions, and they have the responsibility to manage our medical teams. our program coordinators are often working in mission countries with the ministers of health, leaders in local hospitals and even high-level government officials who support our cause. the program coordinator position has served as a training ground for many young professionals with a career goal to continue on to law school, medical school and many other professional careers. the experience they receive at operation smile is unprecedented and highly valued. annually we receive approximately 700 applicants for these positions. their qualifications are incredible, many graduate degrees, multiple languages, leadership positions throughout their academic life and thousands of volunteer hours. if this new policy is implemented, we fear we will have to look to other resources,
such as hiring in our mission countries. this change would unfortunately reduce the employment opportunities for recent college graduates. it would be a shame to take this opportunity away. less measurable is the impact this change will have on our support staff for a global organization that operates 24/7. many of our exempt positions have enjoyed schedule flexibility and need the ability to work with partner countries remotely at hours often outside our normal office schedule. if we have to convert these employees to nonexempt status, we will have to impose policies such as strict working hours and restrictions on e-mail and phone usage after hours. the result would be a negative impact on both our responsiveness and our effectiveness. our focus needs to be managing on programs, not overtime. there are additional obvious flaws to the proposed 102% increase to the minimum salary level. at operation smile, we offer employees a rich medical and dental plan with their employee premiums covered at 100%.
in addition, we provide a 401(k) plan with up to a 9% employer contribution. these are all areas we will have to turn to to evaluate cuts to offset increases in salary expenses. another flaw is the lack of consideration for geographic location. regional economies play a part in starting salaries. according to a website source, a salary of $54,400 in washington, d.c., equates to $34,000 in virginia beach. finally, we are extremely concerned about the impact this will have on our donations. donors evaluate the percentage of resources spent on administrative versus programmatic activity. an increase in administrative cost will have a negative impact on our revenues from donors who want their donations spent on surgeries, not salaries. we strongly urge the dol to re-examine the newly proposed salary threshold, taking into consideration the many negative impacts such a change will present.
these changes should be adjusted to reflect a better balance between employer and employee needs and non-profits' charitable mission and donor expectations. at the very least, we request the dol pursue adopting special provisions similar to those found by teachers, by allowing non-profits to remain exempt from these salary thresholds and be better able to focus on their charitable missions. thank you for allowing me to be here today to speak to you in regards to the non-profit community. >> thank you very much. and thanks to all of you. i'll start our discussion with five minutes of comments and questions. ms. mccutchen, you were a wage and hour administrator at the department of labor previously. if at that time the office of advocacy had sent you a letter similar to the one sent to secretary perez that was critical of the proposed rule and that asked for more comment time, what would your reaction
have been? >> we would have set our economists back to work. the flexibility of regular impact analysis is particularly important to the small business community. it has to be accurate. you have to be able to accurately estimate the cost, both in the cost of compliance and in wage transfers. and so, we would have gone completely back to the board. and i think if you compare the economic analysis from our regulation in 2004 to what the department of labor has put out today, you will see that we did a much better job. >> and also specifically with regard to a request for an extension of comment period. what was your experience at the department of labor? >> we did grant an extension and we gave more time to begin with. these rules were complex. there's a lot of -- there's a lot of time and study that needs to go in to determine what the impact is going to be on your business or your industry. so a 90-day comment period, which is all the department of labor gave us, was incredibly
inadequate and there were over -- from my reading of the public record there were over 3,000 requests to extend the time for comment and they were all ignored. >> okay. thank you. if we can put up the chart we have somewhere. do we have that handy? ms. mccutchen, you touched on one thing that i'm really concerned about representing the state of louisiana, which is a relatively low-wage state, and that's sort of disparate impact on low-wage areas. could you comment a little bit more on that? and as background, i want to point out that according to a study by oxford economics, louisiana would have nearly 51% of full-time salaried workers below this dollar level proposed. so what effect do you think this rule would have on potential growth for small businesses, specifically located in a state like that, which tend to be in the red?
>> i think it's going to stifle growth, job growth in an economy that's already sluggish in jobs. and in particular, full-time, good jobs, right? we might see growth in part-time jobs and jobs without health care, but not in good jobs. and just that report from the oxford -- what you see in the percentages of that report is states like louisiana. you're right, it's about 51% of salaried workers who will be impacted. contrast that to a higher-wage state like massachusetts, where only 27.3% of the salaried employees are below that $54,400. so it's not 40% if you look at state by state. it's 27% in some states, 52% in others, depending upon whether they're rubble or more urban states. and so i think that every business owner, every representative of employers and employees in states like louisiana, arkansas, mississippi
have to be incredibly concerned that their states are going to be disproportionately impacted in a way that's going to really freeze job growth. >> right. okay, thank you. mr. mantilla, thank you for your testimony. obviously, the restaurant and hospitality industry is enormously important in louisiana as in other places. do you believe these proposed changes to the overtime threshold would make it harder to attract and train new managers in your restaurants? >> yes, i do. a company like myself and most of the restaurant industry, it's entry-level managers, it's an opportunity that we seek when we're hourly employees. and by increasing that salary level so high, it forces our restaurants to put a lot more people in hourly positions.
so we lose the opportunity for people that want to grow to move into salary. that's what we look for. i mean, when i was waiting tables, i wanted to be a manager. it will be demoralizing for my entry-level positions to move them back into hourly positions. that's what we want. and we are in our industry because we have a passion for it, not because we're doing it for the sake of doing it. if you see the growth, especially in new orleans from pre-katrina, the number of restaurants and the opportunities -- we had 800 restaurants in new orleans to 1,400 now. and it's people like myself that were young, eager and wanted to take the opportunity. the restaurant industry is very similar. it's just like the united states. it is an industry opportunity. and we want to take the chance to become entry-level, and a restaurant can't afford to pay $50,440.
>> and to take you as an example, you went from very entry-level position to manager to owner to other groups. do you think this sort of proposal, had it been in place at the time, would effectively have been a much bigger barrier to that sort of progression? >> yeah. being a salary employee, it gave me the flexibility to attend school, to attend college, to further my education. imagine -- i couldn't go to work eight hours a day, you know, all the time. i woke up in the morning at 6:00 a.m., took classes at 8:00 a.m., went to work at a restaurant, managed a shift, went back to school, studied, took more classes or worked friday, saturday and sunday so that i can further my education, which allowed me to take the risk and
be an entrepreneur, which was my dream. and we started one restaurant. and everybody in my company has developed from within. we have given the same opportunities that i took when i was a young boy to be part of a restaurant. and every restaurant we own, we have people that were entry-level that are now part owners in our business. a perfect example is elan shaya. >> thank you very much. and congratulations for that recognition on shaya. >> thank you mr. chairman. to start out, i want to make it clear. i, too, am concerned that the small business advocacy group didn't get a chance to provide comment. i think that with further debate we might have gotten more clarification on the need for this rule. but ms. mccutchen, right now the rule sits at $11 and i think 38 cents an hour.
in north dakota the extension agency at ndsu does a study. they do a study that involves a single mom, two kids living in a very modest apartment with a very small car, spending only i think $50 a week on clothing. how much do you think they calculate in fargo she needs to earn to make ends meet in a 40-hour workweek? >> i am not aware of that study, so i do not know. >> okay. well, i will tell you, it is $24 an hour just to make ends meet. so what do you think the number should be? >> i think the number should be $35,000, but let me -- >> how do you calculate that? >> based on past methodologies and the data that we have about wages and lower income states and small businesses. i will point out, please, that north dakota under their state law, if it makes sense in the
economy in north dakota, can adopt a higher salary level as has new york and california, new york at 35,100, and california at 45,600. but what works in north dakota at that level probably will not work in louisiana. and that's why the federal level has always been set at a lower level to exclude only -- >> but i am telling you that economists in north dakota have looked at what would be in fact a 40-hour living wage for a single mom and they have calculated it at $24 an hour. and that's the challenge that we have here. i mean, we've got a process problem with this rule, but we have an economic problem for middle-class families in this country who struggle every day to make ends meet. and think about this. that same mom, if she works in a salaried position, she can't get a second job if she's working 60 hours a week. so, she's stuck. in fact, she's worse off.
and the other i think point that we need to make is that no one is telling anyone that they have to go on an hourly wage. no one is saying that. they're just saying if they're a salaried employee making less than this, they can only work 40 hours a week, right? is that a correct analysis? >> correct. >> [ inaudible ] >> right. >> we do. >> but my point is that i don't think that we have enough information. and so i am a little disturbed by the process here, because i don't think that we really know how many people will be impacted by this and what the consequences will be. i am concerned about what happens in universities. that's who i've heard from the most. i am concerned about what happens in non-profits where people have to be on call, people who work with the homeless, people -- where it's very difficult to calculate what, in fact, would be their hourly wage.
so i think we've got some issues with this rule, but i think we have to acknowledge that what we have here is a dramatic problem with people not working as hard as they know how to work, getting up every morning and doing a great job and getting further and further behind. and you don't have to look any further than this presidential campaign to understand the challenges and the i think insecurity that americans' families feel in these kinds of situations. so where i share the concern, and i think senator scott has expressed some concern about process, i share the concern about process. i think this is a pretty dramatic increase to do in a way that doesn't allow full analysis and full response. but i am concerned about the general overall maybe attitude
that suck it up, workers. just work harder and you'll get further behind. and oh, by the way, if you work in a non-profit, where you do tremendous benefit for society, you should even get paid less. so it's a real challenge that we have here. so i just -- i think that we need to put this in the perspective of what this hourly wage is and what it means for an american family. and i think $24 an hour for somebody who works 40 hours a week and is struggling, you know, maybe they should have an opportunity to get a second job, and that's not exactly possible when you're working 60 hours a week. >> senator scott. >> thank you, mr. chairman. thank you for holding this very important hearing. senator heitkamp, i'm looking forward to continuing the conversation on this legislation i've sponsored. we're looking for you to be a co-sponsor in the future. we have 36, but we need 37. you could be the one. thank you to the panelists for being here this morning as well as we discuss such an important
issue. and i will tell you that having listened to the comments of some of the panelists, i wonder where the real world is because the comments are so far apart and the reality of it is that having been a small business owner, having been a business owner with five employees at one company, seven or eight in another, and then 15 or so, the fact of the matter is that when you think about this -- the impact of this rule on the average person, not on the non-profits specifically, not on the universities, not on small businesses but on employment opportunities, they're going to go down, not up. what we'll see is more part-time employees. if you think about the current state of affairs for small businesses to digest, the aca pushes wages down, pushes hours down. you think about dodd/frank and the ability to have access to capital so there are more small businesses in distressed
communities. not growing. i think in 2015 we saw fewer businesses, not more businesses, much in part because of the impact of the regulatory environment. and as i thought about some of the comments i've heard, the only word that keeps coming to my mind is hogwash. i'm not sure if they've ever actually been in the real world working. it appears to me that perhaps you haven't. ms. mccutchen, a couple questions for you. going on the impact of geography, i think the fact of the matter is that thinking of this from a federal perspective, having a low point where states can figure out what's best for their states based on their geography, based on their wages is an important consideration. second question i have is one on flexibility. i heard someone mention the fact that salary employees have just as much flexibility as folks who are hourly or the hourly workers have as much flexibility as ones that are salary. in my business where i had salaried employees they had a whole lot more flexibility than the hourly folks. >> you're exactly right, and that's because of what we call
the salary basis test, which is one of the tests for exemptions. if you're an exempt employee, you have to be paid a guaranteed salary, regardless of the number of hours you work a week. so the quid pro quo here is that an exempt employee does not receive overtime for working over 40, but they also do not receive less pay for working under 30. so unlike an hourly employee who's only paid for the hours they work, if you need to go home early to deal with a family issue, to go to a child sporting event, you can leave and your employer cannot dock your salary. you're going to get that same guarantee week in and week out, and that is very valuable and valued by exempt employees. >> the assignment of duties concerns me as well, because when you look at a small business owner like i was, five employees, my managers had to do some work that perhaps they would not have had to do if we were in -- in our busy season, everyone worked a little harder. when it was slower, you had more flexibility and you went to more soccer games, more dental appointments and you still got paid the same amount. i think when you look at the impact of the assignment of
duties and the impact this rule will have on the classification, you will really have many people making the decision it's just not worth it. so the reclassification process will be expensive. the employers will have to bear more costs. the employees will have fewer dollars to take home because they'll be working fewer hours. >> absolutely. in fact, some of our panelists in their written comments basically said reclassification is like flipping a switch. it takes minutes. and i say that's hogwash and those people have never actually helped an employer reclassify. i have. dozens and dozens and dozens. it's at least a six months' process and it requires a tremendous amount of decisions. you don't just flip a switch and say hey, somebody's going to be hourly. you have to figure out, are they going to be hourly or salary? how much is the hourly rate going to be? am i going to continue to pay benefits or not? do i have to change my benefit plans because their eligibility provisions say only exempt employees? then you have to think about, are you going to give people --
changing your policies, right? all of a sudden, you have to pay these people for travel time, for time they spend on their e-mails and on their smartphones after work. so you have to look at all of your policies. you might have to reprogram your time-keeping systems and your payroll systems. it is a huge and complex process which the department of labor thinks is going to take an hour. >> hogwash? >> hogwash. >> there's been some confusion from listening to all of the comments on the impact that this rule will have on non-profits. on one hand, you hear from ms. duncan's organization, you hear from the red cross, ymca expressing very serious concerns about a drastic and abrupt increase in the threshold. at the same time, on the other hand, there have been some reports that many non-profits are not covered by the flsa and will not be impacted by the change. i was hoping as a former wage and hour administrator you might be able to provide some clarity on this issue.
>> well, the challenge for non-profits is they're not -- they don't generate revenue from selling, right? so you hear about people from the fight for 15 and other things. don't worry, for-profit companies, all they have to do is raise their prices. but unfortunately with non-profits, they don't have that option. they operate on government funding and donations. i was talking to ms. duncan earlier today, and she says you know, their 2017 budget's already done. they have no more money, and that's why she's contemplating cutting benefits. in ms. gupta's written comments and what she said today is well, we just ask states for higher reimbursements for medicaid. really? is that going to happen? what is the reality that non-profit disability service providers are going to get increased reimbursement rates in order to increase the money they have to pay their employees? it's not going to happen. >> i'm out of time. >> okay, thank you. as i turn to senator cardin, i'm going to ask senator scott to take the chair so i can vote
relatively early on the floor and come back immediately so we don't have to interrupt this hearing for the floor vote. senator cardin. >> well, thank you, mr. chairman. >> well, thank you, mr. chairman. and i just really wanted to come by to show my support for this hearing. i think it's important that the small business committee is holding a hearing on the impact of regulations, particularly as it relates to small companies. i know we've gotten a little bit adrift from just small companies. but i think there's -- and i was listening to senator highcamp and i agree with much of what she said. here's the challenge. the challenge is that we have a growing economy, but not everyone's been able to benefit by the growing economy. and congress has taken little initiative to deal with some of the fundamental issues that would allow for the mobility that you were referring to from the restaurant work that you
did. you need to have access to affordable higher education, you need to have protection as far as being able to work the hours that allow you to be able to do that. you've got to deal with potential abuses within the workforce. and that's some of the issues that we need to deal with. we need a tax code that provides an incentive for you to be able to benefit from your own skills. and i don't begrudge the administration trying to deal with these issues. and the overtime rule is one of those examples to try to deal with it. and yes, we can talk about how they draw the line and whether it's done right or wrong, and i agree with senator highcamp that we need to have an open process and i very much welcome the comments that have been made here today. but the bottom line is is that congress has not really been as definitive as they need to be on some of these workforce issues. we're the legislative branch of government.
we're the ones who should be trying to come to a consensus here. but instead, it looks like we are not working towards that type of consensus. and senator scott, i applaud your efforts to try to reach out across party lines to get some of these issues resolved. >> yes, sir. >> so i look forward to the discussion. i do think, though, that we have to deal with some of the points that senator highcamp mentioned, and that is the general frustration that's out there. we see it's very evident in this campaign cycle, and it's an area that i think this congress needs to deal with. so i thank you all for being here. >> can i try and correct the record on a couple of things? >> i'd be glad to let you do that. i have two minutes left. >> okay. the notion that somehow this is a change in how we deal with local areas. senator highcamp is exactly right, we look all across the country, including louisiana.
there's no place where you can earn an executive salary at less than the level that the department suggested, because a basic budget is close to $50,000 everywhere in the country. but the fact is that all the department did was try to restore what we used to have in this country, which was a rule that said most salaried workers are entitled to overtime pay. that was the rule from 1938 until 1975, and we lost sight of that. that 50%? big deal that 50% of salaried employees would be covered by the rule in louisiana. it used to be 60% nationwide. so we're just trying to get back. the department is moving us not all the way back to where we were. this is not even a full inflation adjustment. >> and i agree with that point. the point i was trying to raise is that if congress through the tax code, the earned income tax credit, the child tax credit, we could strengthen the ability of families to be able to have the
budget they need. so it's not just working through the executive branch. congress also needs to be paying attention. >> absolutely. >> senator rubio. >> thank you. ms. duncan, one of the overlooked down sides of this regulation is the effect that it's having on non-profits. in florida i've had a number of important communities -- we have an important community of non-profits, and i've had a number of them -- care providers for children and adults with developmental disorders. they've been telling us they'd be forced to relocate current patients and would have to reduce the number of the disabled that they take in their doors. this rule is most disruptive for the patients that depend on these services. so in your testimony, you state that the flexibility of your employees is key to your ability to help the population you serve and the non-profit schedule, rigid corporate schedules don't always apply to people who choose to work for your organization out of their desire to help people, not just for a salary.
how key is pay flexibility to the kinds of people that you employ? and therefore, what impact will this have? >> for pay flexibility or hour flexibility? >> both, but hours especially. >> we're a global organization in over 60 countries around the world, and many of our employees are working with individuals at these foundations. and so, the ability to have a conference call with china, who's 12 hours ahead of us, is key to being responsive to the needs they have at the time. instead of waiting 12 -- by the time we've come in to work 12 hours later. and while we could still consider that time and pay overtime, it certainly provides quite a burden to constantly have to figure out how we do that, how we clock in, how we clock out, how we count those hours. so i think that flexibility -- i think that most of our employees are professionals.
i'd say over 90% have college degrees and are on professional tracks. and really, even the motivation or the desire to be in that more professional position, i think it would be very demotivating if they had to turn around and now all of a sudden be considered either nonexempt, or the impact of us meeting the salary requirements. as i stated, we have come a long way. i think traditionally there was an idea that, hey, we're doing great work, so you should feel good at the end of the day and we can pay you nothing. we've come a long way since then and many non-profits are very competitive salarywise. and the responsibility that our folks have is huge, and they need the flexibility to get that work done without asking permission. >> which is based on what you said, the implementation of this
rule as currently anticipated would be deeply disruptive to work schedules and the ability to provide services. at least that's been the testimony we've gotten from multiple non-profits throughout florida, and i would imagine from your testimony i gather you're saying that would be as well. >> yes, because we'd have to, you know, from a financial standpoint look at how we cover the cost of any increases, if we increase salaries, so that's fewer surgeries, because our fiscal year budget is already done. and unless a donor comes up and says, okay, here, i'm going to fund your changes, which is most likely not going to happen in the next month, so we'd have to reduce the number of surgeries that we're providing or we would have to look at alternatively from offering the jobs in country coming up with a way to hire in-country candidates, which wouldn't be the level of -- we like the training and the
corporate environment of having people here at our headquarters. >> thanks, senator rubio. one more question, from me, at least, for ms. mccutchen. can you talk about the practical implications of the automatic increases? >> well, the practical application is that in the past there have been changes to these regulations. salary increases generally every five to nine years, duties test changes less often. but every time there's a change, an employer has to do an analysis -- which employees can still be exempt and which do i need to reclassify? and for the ones they're going to reclassify, they have to go through, what my experience, is a six-month process to implement that reclassification. imagine having to do that every single year. no employer today -- actually, one employer that i know of today does reviews on an annual basis their exemptions. and so that's something totally new.
it's going to have a lot of costs and a lot of time. and costs, by the way, which the department of labor has not analyzed whatsoever in their proposal. they only analyzes first-year costs, not taking into account that with the annual increases, this is going to happen every single year. you're going to have the same problems, the same decisions, the same issues with do i reduce my employees, do i reduce my surgeries, how am i going to pay for it. >> thank you. mr. montilla, restaurant businesses in south carolina,
the goal is always to move from where you start, perhaps washing dishes and cleaning tables to being in a position where you're in management and perhaps ownership one day. it appears to me that the pipeline of opportunities starts to vanish as we see more and more red tape from the federal government. your competition no longer is simply other businesses, other restaurants, but the oppression, sometimes it feels like, that comes from the red tape in government also creates a competitive disadvantage from my perspective. >> it does. >> can you talk about that a little bit? >> yeah. especially in our industry, entry-level jobs, management job is -- when you go from -- and remember, the restaurant industry is an industry where you don't even have to have advanced degrees to be an owner, to be an entrepreneur, to reach the american dream. you can be a waiter and take that entry-level position which probably pays less than while you're waiting tables at $38,000 a year, on average, and get on-the-job training on managing, on timekeeping, on labor costs, on food costs, and you're doing that, you do that because you want the opportunity to be able to move on. once you increase