tv Small Business Owners to Testify on the Labor Departments Overtime Rule CSPAN May 12, 2016 4:20am-5:32am EDT
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 problem 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 a 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 enjoy 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 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 the 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 angle 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 a high number of employees. i think i think i'll stop there for the purpose of time. >> ok. thank you very much, mr. montilla. 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 authority. four, employees 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 they 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 employees' 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 it doesn't begin to reflect the status and financial reward that characterized 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 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, but 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. 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. ms. duncan: 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 palette or other facial deformityies deformities. i'm here to express our opinions to the 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 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 implement -- 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 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. at operation 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 increased salary expenses. also the lack of consideration
for geographic location. regional economies play a part in starting salaries. according to a website source of salary, $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 impact such a change were 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 wage an hour administration 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? ms. mccutchen: we would have set our economists back to work. the flexibility of regular impact analysis is particularly important to the small business it has 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? ms. mccutchen: 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. >> ok. 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 desperate impact on 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? ms. mccutchen: 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 is 27% in some states, 52% in others, depending upon whether they're rural 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. mr. vitter: right. ok, thank you. mr. montilla, 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? mr. montilla: yes, i do. a company like myself and most of the restaurant industry,
entry-level managers, it's an opportunity that we seek when e're hourly employees. and by increasing that salary level so high, it forces our restaurants to put a lot more eople 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've 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 of opportunity. and we want to take the chance to become entry-level, and a restaurant can't afford to pay $54,445. mr. vitter: and 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? mr. montilla: 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. mr. vitter: thank you very much. thank you for the recognition for mr. chaya. >> to start out, i want to make it clear that i, too, am
concerned that the small business advocacy group didn't get a chance to provide comment. i think 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? ms. mccutchen: i am not aware of that study, so i do not know. >> ok. well, i will tell you, it is $24 an hour just to make ends meet.
so what do you think the number should be? ms. mccutchen: 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, ew york at $35,100 and $36,000. but what works in north dakota probably will not work in louisiana and that's why the federal level has always been set at a lower level to -- >> but i can tell you that economists in north dakota have looked at what would in fact be a 40-hour living wage for a single mom, and they have calculated it at $24 an hour.
and that is 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. > but my point is that i don't think that we have enough information. and 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 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 come would be there 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' feel in these kinds of
situations. where i share the concern and irning 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 nonprofit where you do tremendous benefit for society, you should get paid even less. so it's a real challenge that we have here. so 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, maybe they should have an opportunity to get a second job and that's not sexactly possible when
you're working 60 hours a week. >> senator scott. >> thank you for holding this very important hearing. i'm looking forward to continue our discussion on this legislation that i have sponsored and look forward to you being one of our cosponsors in the near future. we have 36. you could be the 37th. you could be the one. thank you to the panelists for being here as we discuss an important issue. having listened to the comments, i wonder where the real world is. because the comments are so far apart and the reality of it is, having been a small business owner, having been a business owner with five employees in one company, seven or eight in another, and 15 or so. the fact of the matter is that when you think about the impact of this rule on the average person, not on the not profits, 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 of 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 the so there are more small businesses in distressed communities, not growing. i believe in 2015 we saw fewer businesses not more businesses. much in part because of the impact of the regulatory environment. as i thought about some of the comments i've heard, the only word that keeps coming to mind is hog wash. i'm not sure if they've been in the actual world working. it appears to me that perhaps they haven't. a couple of questions. one 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 conversation. the second question i have is one on flexibility. i heard someone mention the fact that sal rid employees have just as much flexibility as folks who are hourly. r the hourly workers have just as much flexibility. 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 no matter the number of hours you work a week. so an exempt employee does not receive overtime but they do not receive less pay for work under 30. so unlike an hourly employee who is only paid for the hours you work, if you need to go home early to deal with a family issue, to dewith a a child's sporting event you can leave and your employer cannot dock your salary. that is very valuable and valued by exempt employees.
>> the assignment of duties concerns me as well, because take a look at a small business owner as i was, five employees, my managers had to do some work that perhaps they would not have had to do in our busy season everyone worked a little harder when it was slower you had more flexible and you went to more soccer games, dental appointments, and got paid the same amount. when you look at the impact of the duties and this rule will have on the classification, you will really have many people making the decisions. it's just not worth it. so the reclassification process will be expensive. the employerless have to bear more costs. the employees will have fewer dollars to take home because they will be working fewer hours. >> absolutely. some of our panelists basically said reclassification is like flipping a switch. it takes only minutes and i say that's hog wash and those people have never actually helped an employer reclassify. i have. dozens and dozens and dozens.
it's at least a six of-month process and requires a tremendous amount of decisions. you don't just flip a switch. are they going to be hourly or sal rid? am i good night to continue to pay benefits or not? do i have to change my benefit plans because their eligibility say only exempt employees? then you have to think about are you going to give people changing your policies, all the all of a sudden you have to pay for travel time, e-mails and smart phones after work. you have to look at all of your policies. you might have to reprogram your time keeping ssmses and payroll systems. it is huge and complex which the department of labor thinks is going to take an hour. >> hog wash? >> hog wash. >> there's been some confusion from listening to all the comments on the impact that this rule will have on nonprofits. on one hand you hear from ms. duncan's organization, from the red cross, the ymca expressing
very serious concerns about a drastic and abrupt increase in the threshhold. at the same time, on the other hand, there have been some rorts that many nonprofits will not be impact bid the change. i was hoping, as a former wage and hour administer, you might be able to provide some clarity on this issue. >> well, the challenge for nonprofits is they don't generate revenue from selling. right? so you hear about people from the fight for 15 and other things. for profit companies all they have to do is raise their prices. but, unfortunately, with nonprofits, they don't have that option. they operate on got funding and donations. i was talking to ms. duncan earlier today and she says their 2017 budget is already done. they have no more money. and that is why she is contemplating cutting benefits. ms. gunpointa's written comments, what she said today is well we just ask states for
higher reimbursement pay for medicaid. really? is that going to happen? what is the reality that nonprofit disability 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. >> we're out of time. >> ok. thank you. as i turn to senator carden, 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 carden. >> 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 the small companies. i know we've gotten a little bit adraft from just small companies. but i think -- andist listening to senator hite camp 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 has 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 refrling 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 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 scode 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 hite camp that we need to have an open process and i very wuck much welcome the comments that have been made here today. but the bottom line 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 toward that type of consensus. senator scott, i applaud your efforts trying to reach out across party line to try to get some of these issues resolved. so i look forward to the discussion. i do think, though, that we have to deal with some of the points that senator hite camp mention and that is the general frustration that is out there. we see that is 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.
>> if i can answer a couple of things that have been said. >> i will be glad to let you do that. >> ok. the notion that somehow this is a change in how we deal with ca including louisiana. there is no place where you can earn an executive salary at less than the level the department of labor suggested. 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 sal rid workers are entitled to overtime pay. and 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 6203r9s
nationwide. so we're -- 60% nationwide. so we're just trying to get back. the department is moving us not all the way back to where we were. >> i agree with that point. the point i was trying to raise is that if congress through tax code, earned income 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 to this regulation is the affect it's having on nonprofits. in florida i've had a number of important communities -- we have an important community of nonprofits. i've had a number of them care providers for children and adults with developmental disorders telling us that they would be forced to relocate current patients and would have to reduce the number of the disabled they take in their
doors. this rule is most disruptive for the patients that depend on these services. in your testimony you state that the flexibility of your employees is key to your ability to help the population you serve in the nonprofit sector ridgid corporate skedyulls don't always apply to people. not just for salary. how key is pay flexibility to the kinds of people that you employ and what -- therefore what impact will this have? >> sure. pay flexibility or hour flexibility? >> both. hours especially. >> we're a global organization in over 60 countries around the world. many of our employees are working with individuals at these foundations. so the ability to have a conference call with china who is 1 hours ahead of -- 12 hours ahead of us is key to being responsive to the needs they have at the time ipsted of
waiting 12 -- by the time we come into work 12 hours later. and while we could still consider that time and pay overtime, it certainly provides quite a burden to constantly having to figure out how we do that, how we count those hours. so i think that flexibility it seems to be most of our employees are professionals. i would say over 90% have college degrees and are on professional tracks. really, even the motivation or the desire to be in that more professional position i think 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 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 nonprofits are very competitive salarywise. our he responsibility that folks have is huge. and they need the flexibility to get that work done without asking permission. >> just based on what you said, the implementation of this rule is currently anticipated would be deeply disruptive, the work schedules and ability to provide services. that's been the testimony we've gotten from multiple nonprofits throughout florida. and from your testimony i gather you're saying that would be as well. >> yes. because from a financial standpoint we'd have to look at how we cover the costs if we increase salaries that's fewer surgeries because our fiscal year budget is already done. and unless a donor comes up and says ok i'm going to fund your changes, that which is most likely not going to happen in the next month. so we would 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 -- we would -- we like the training and the corporate environment of having people here at our headquarters . 0 >> thanks. senator rubio. >> one more question. can you talk about the practical implications about the automatic increases? >> well, the practical application is in the past there have been changes to these regulations, salary increases generally every five to nine years, dute less often. but er time there is a change you have to do an analysis. and then for the ones that are going to reclassify 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 exemption. and so that's something totally new. it's going to have a lot of costs and a lot of time. and cost business the way which the department of labor has not aned whatsoever in their proposal. they only analyzed first-year costs, not taking into account that this with the annual increase is. 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. >> businesses in south carolina certainly 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 then perhaps oncheship 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? >> especially in our industry. entry level jobs management jobs is -- when you go from -- and remember, the restaurant industry is an industry where you don't even have to have advanced degrees to get to -- to be an owner, to be an entrepreneur, to reach the american dream. it is -- 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 time keeping, 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 the level to a point that restaurants can't afford to pay $50,000 a year for entry level, what happens is we have less of those jobs. that's what's going to happen to my restaurant. we can't bring in an entry level which that person wants the opportunity to come in at $38,000 a year and do on-the-job training so they can own their own restaurant or move into management or managing partner or profit sharing manager and leads to better growth. if that opportunity, that middle level is gone, then yes there's no more opportunities. >> thank you very much. there's one thing for certain. our economy is growing at an
anemic rate. i think it was 0.5 in the first quarter. at least 6 million people are working involuntarily part time because of the oppressive environment that we have in this country from government red tape. i think this has been fairly informative. thank you all for your participation. and we look forward to working with committee members to find additional ways to protect small businesses and ensure their vose is heard in the federal rule making process. this hearing is now adjourned. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2016]
>> this coup attempt happened in spain when all over the country right-winged army officers tried to seize power and in parts of the country succeeded in seizing power in 1936. it sent a shock wave of alarm throughout the world because here was a major country in europe, the right-wing military quickly backed by hitler and muse leanie who sent arms, airplanes, pilots, tanks, tank drivers, and moose leanie eventually sent 80,000 ground troops. here was the spanish right making a grab for power. and people all over the world felt it ought to be resisted. if not here, where?
at a house hearing yesterday about daily fantasy sports and how they're affected by strict egulations on online gambling. it is just under two hours. the hearing comes to order. >> i thank representative pa lone for his letter last fall requesting the hearing. the panel of witnesses here today will discuss the issues
facing daily fantasy sports, the industry, as well as consumer protection feetors that are available in the marketplace. there have been headlines, there have been advertisements we have all seen the introduction of these contests to fans. some of these ca be played for pennies while others are for substantial amounts of money. just as the proliferation of the internet and mobile devices have given consumers access to personalized entertainment on the go like netflix, candy crush and others have also supported the growth. between 1994 and 2003, the number of fantasy sports players increased from around 2 million players to 15 million players, in 2015 almost 60 million people played fantasy sports. as fun and easy as the games are advertised to be the issues involved are actually
complicated. more complicated that than they might first appear. this hearing is an opportunity for the stakeholders to discuss the many aspects of this complicated issues. consumer protection is a critical component of this conversation and indeed a critical component of the works this subcommittee does day in and day out. not only should consumers have a clear understanding of the rules and the risks for a particular contest, but the integrity of the game depends upon consumers getting what they are paying for. there has been a significant amount of state activity in this area tt last few months. i am interested in hearing from the witnesses how state regulatory responses have impacted their industry and their marketplace. from the states that have required the daily fantasy sports sites to meet online gambling requirements to the states that have passed legislation explicitly legalizing fantasy games, it is critical to understand the role of the state and what impacts their actions have on interstate commerce.
consistently, during this term of the subcommittee, i have focused on the struggles that small businesses faced in the regulatory environment. i believe that small businesses are vital to our economy and understanding how they fit into this industry that is reportedly dominated by a few large actors is a critical piece of this puzzle. once again, thank you to our witnesses for participating this morning and i would yield back my time and recognize the ranking member of the subcommittee ms. schakowski five minutes for an opening statement, please. >> thank you, chairman burgess, for holding today's hearing on thaily fantasy sports. i want to welcome all of our witnesses today. today's hearing really comes down to one question. what should be the future of this multibillion dollar gaming industry? fantasy sports games competing for cash against others by picking fapts city teams of real sports playsers have taken off in recent years.
according to trade associations, 56.8 million people in the united states and canada participated in some form of fantasy sports in sea 2015. while this includes traditional fantasy that spans the entire football season or baseball season, a rapidly expanding share of funding goes to daily fantasy sports. between 2012 and 2015, depayly fantasy grew from less than 10% of all fantasy sports spending to now more than half. and there is a big money in this industry. daily fantasy companies generate $3.7 billion in entry fees alone. when we talk about the daily fantasy industry we're mainly talking about two companies. draft kings and fan dual represent 95% of the market. i would note, however, that neither of those companies is testifying today.
neither are the sports leagues and teams that have partnered with these sites. daily fantasy has gotten big fast. but how should we think of daily fantasy? companies that operate these web sites call it a game of skill. i will admit it takes some skill. you have to pick players, be part of your fantasy team. i doubt i would be very good at that. i know i wouldn't. but even if some skill is required, daily fantasy is at betting on lves sports. hall of fame quarterback joe nameth asked it when asked, do you have to -- this is what joe said. he said, do you have to pay anything to play? and do they win something? it's gambling. several states have come to the same conclusion. last year in my home state of illinois attorney general lisa maddigan declared daily fantasy
to be illegal gambling under state law. the illinois state legislature is considering legislation to makedayly fantasy a regulated and taxed form of gaming under the oversight of the illinois gaming board. on the federal level it almost seems like an accident that daily fantasy sites are allowed to exist in the first place. sports betting is illegal in all but four grand fathered states under the professional and amateur sports protection act. nd the unlawful internet gambling and sportsman act generally prohibited online gambling. it contained an exception for fantasy sports. but keep in mind that in 2006 when it passed, fantasy sports was almost all season-long fantasy, not the daily fantasy sports that we're focusing on today. even if companies claim to be legal under the letter of the law, that doesn't seem like the lawmakers' intent.
former congressman jim leach, who introduced this said last year that he had no idea that the fantasy exception would more of in today's called ron of daily betting. he continued, it is sheer huts pa that the fantasy sports companies to cite the law as a legal basis for existing. as long as the federal law on daily fantasy seems ambiguous, the legality of daily fantasy will be determined largely at the state level. daily fantasy companies have responsibility to comply with these state regulations. blocking use in states where it has been determined to be illegal gambling. if these sites are going to operate, companies need to take robust steps to prevent use by minors or those struggling with gambling addiction, ensuring they take these steps will require appropriate regulation. so what should be the future of daily fantasy? should it be allowed?
several states have already decided the answer is no. what regulations need to be in place to protect consumers? i'm disappointed that the companies most central to the discussion are not here today to answer these questions. that said, i welcome our witnesses and look forward to hearing your perspective on this industry. i yield back. >> the chair thanks the gentlelady and recognizes the chairman of the full committee. five minutes for opening statement. >> thank you, mr. chairman. so today we're going to hear from stakeholders about the daily fantasy sports industry that indeed has attracted so much attention and excitement in the last couple of years. most folks' exposure to fantasy sports consists of a group of friends and coworkers getting together for a season long pool. the games are a fun way to bring communities together. even republicans and democrats for sure, among some of our very favorite national past times. but what we've seen in the last
couple of years is explosive growth of daily fantasy sports. about 660 million folks are playing in a reported 14 million are playing daily fantasy sports with sometimes millions of dollars at stake. so as we explore the current landscape of daily fantasy sports and the new innovation that is they offer for fans, consumer protections, have to be in place for players on the web sites. it is clear that adult players deserve a fair game and clear rules. i look forward to hearing from the witnesses about what internal controls are in place to ensure game integrity on fantasy sports web sites, particularly if different operators use different controls. i am also interested to learn about the self-regulatory activities industry has put in place and the technological tools available in the market for consumer protection including age limits.
states are looking at these issues which is going to help inform whether a federal role is warrented or not. so my state michigan there is a bill pending in the legislature to expressly legalize daily fantasy sports. but we must keep in mind that a patchwork of differing and contradictory state laws has the potential to negatively impact consumers and harm further growth and innovation in the process. thank you all for being here today. i look forward to your testimony and yield back. >> the chair thanks the gentleman. the chair recognizes the jalts from new jersey. -- gentleman from new jersey. >> daily fantasy sports have become an integral part of the game for millions of fans around the country. what started as a small informal betting pools among friends over the course of a season is now a sophisticated online platform where millions of dollars are exchanged across state lines every day. entry fees for daily fantasy sports range from a few cents to several thousand dollars.
and the major daily fantasy sports operators have posted revenues of more than $1 billion in recent years. casual fans and die-hards alike have embraced fantasy sports to interact and the leagues have taken notice. in the past two years, major league baseball, the n.b.a., the nhl and major league soccer have each purchased ownership stakes or invested. individual teams across professional sports have also formed lucrative partnerships with operators, including nearly all n.f.l. and mble teams and about half of the n.b.a. teams. these teams and their leagues know that sports parts tants watch more games than the average fan and will watch a one-side cld test until the end if a players' performance can improve their stats. this presents an opportunity. despite its growing popularity, daily fantasy sports are
currently operating in a murky legal framework by an industry that is mostly unregulated. it is crucial that consumers know what they are purchasing when they sign up for daily fantasy sports and understand the risk of losing money in the process. for example, there are reports that 90% of payouts are won by just 1% of winners. with the allegations of insider trading at two major daily fantasy sports operators, the potential harm to consumers is real. and today we'll explore not how to stop people from playing but how to bring fairness and transparency to the industry. and i must also mention the hypocracy of those arguing that daily fantasy sports readily distinguishable from sports betting. while receiving licenses in the united kingdom, operators continue to argue to interested states in the united states that unlike sforts betting, it is not gambling. the reliance on this arbitrary distinction on skill and chance
is unconvincing, especially since both the department of justice and the n.f.l. have asserted that sports betting also is a game of spills. sports leagues have reaped huge profits from operators at the same time most remain stubbornly opposed to sports betting on the grounds that their players can become involved in gambling and organized crime if it were legalized. yet an estimated $400 billion is spent on sports betting and 99% is illegal and functions almost exclusively through organized crime. in new jersey, voters approved a 2-1 referendum in 2011 to allow sports betting at casinos and race tracks in response to every major professional sports league joined together and sued the state to stop the implementation and stifle the will of the voters. how can the professional sports leagues oppose this but support and prosper from the betting
taking place every day in daily fantasy sports? to date the leagues and others have not sufficiently explained the difference between fantasy sports, sports betting and other forms of gambling. and i look forward to hearing from the witnesses on this topic. i just want to conclude by thanking chairman upton and burgess for holding this hearing. while i'm disappointed that some actors refused to participate today, i still believe that this hearing will be a good beginning to our efforts to level the playing field between daily fantasy sports, traditional sports betting and gaming. i yield back the balance of my time. >> the chair thanks the gentleman. the gentleman yields back. this concludes member opening statements. the chair would like to remind members that all statements will be remain part of the record. the chair also wants to acknowledge the presence of our colleague from nevada. she is not a member but is monitoring our activities to make sure we behave ourselves.
so we do want to thank our witnesses for being here this morning and taking their time to testify before the subcommittee. today's witnesses will have the opportunity to summarize their opening statements followed by a round of questions from members. our witness panel for today's hearing includes ms. peter shenchingy. mr. john mcman niss, the executive vice president at mgm resorts international. mr. steve brew baker executive director. dr. ryan rodenberg, assistant professor at florida state university. mr. mark lock, chief executive fficer at genius sports group. ms. lindsey slater operations manager at geo comply.
mr. jordan gnat senior vice president of strategic development of scientific games. mr. curt egg ert, professor of law at chapman university fowler school of law. we do appreciate all of you being here this morning and we ill begin our panel with mr. shenke. you are now recognized for five minutes. >> chairman burgess, ranking member schakowski, and members of the subcommittee, thank you for the opportunity to testify today. sorry. [inaudible] >> i'll try to work through it. chairman burgess, ranking member schakowski, and members of the subcommittee, thank you for the opportunity to testify before you today. my name is peter shenke and.
members.has many content and data providers. and contest and league management operators such as real time fantasy sports, my fantasy league, fan dual and draft king. it has become a new national pasttime with over 50 million americans participating in some form of fantasy sports last year. americans enjoy fantasy sports as a hobby and form of entertainment that gives them an enhanced experience and a deeper appreciation for the sports they love. i am also the founder and president of rode wire.com. i founded the website almost 20 years ago when fantasy sports were just beginning to play on the internet. i'm a small business owner and i chose a career in this industry because i'm passionate about playing fantasy sports and helping millions of others enjoy the hobby. i would like to give a short introduction.
it may seem to some as it started last fall with the barrage of adds during football season, the truth is it has been played for over 35 years. while there have been innovations, the basic concept has remained the same. the objective is for a play tore select a team of real world athletes and compete against opponents based on a scoring system that uses statistical measures of athletes performances. take fantasy football. players draft a team of eight players to play positions. the goal is to assemble a fantasy team that will earn the most points, not to pick the winner of any particular game. a running back, for example, earns one point for every ten rushing yards and six points foor touchdown. this is typical for both season long contests as well as daily. some may have the impression that the daily format is dramatically different than season long but it is virtually identical in the way it assigns
points. all the same principles apply and owners still assemble the team from different teams for multiple positions and those players earn points through the same scoring position. the only difference is the duration of the contest. rather than taking place over a 17-week football season before crowning a champion, for instance, these contests take place over a single day or weekend. in essence, every week is akin to the playoff rounds in a eason long league. it's having a transformative effect. ultimately this can enhance fans overall experience. my second point today is that the states are actively regulating our industry. we support common stens state regulation to ensure transparency, fairness and maintain consumer confidence. we are committed to consumer protection not just because it is the right thing to do but because it is vital to the
health of our industry. states have traditionally taken the leading role and taken varying approaches. in the majority of states, paid fantasy sports operate under the existing legal framework without separation, separate legislation, or regulation. but bound by state laws on fair commercial practices. some states including virginia, indiana, and tennessee have enacted legislation to clarify the legality of paid fantasy sports contests and to ensure consumer protections. other states are crafting legislation tailored to their own states needs and interests. we stand ready to work with any state interested in developing a common-sense framework that would allow residents to play, while ensuring appropriate protection and without dampening protection or consumer choice. asking has empowered the ftc to protect consumers and we as an industry appreciate that our businesses must comply with these standards just as all
internet businesses do. we stand ready to work with the ftc and this subcommittee in moving forward to ensure the transparency of daily and sports. we also hope that in doing so we preserve the ability of states to regulate this ability and that they do so without killing the innovative experiment for fans. thank you again for the opportunity to testify today. i look forward to answering any questions you may have. >> the chair thanks the gentleman. mr. mcman niss. five minutes, please. >> thank you, chairman burgess, members of the subcommittee. i appreciate the opportunity to be here to testify today. i am the executive vice president and general counsel for mgm resorts. we operate land-based casinos throughout the many states. many