Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
All three branches of government took aim at increasing employee pay on Wednesday. At the executive level, several news outlets have reported that the President on Thursday will direct the Department of Labor’s Wage and Hour Division (WHD) to revise its long-standing overtime regulations. At the regulatory level, the DOL’s Employment and Training Administration (ETA) announced that it plans to re-issue a proposed wage rule for the H-2B temporary guest worker program that would likely increase the hourly wages for H-2B workers as well as for U.S. workers recruited in connection with the H-2B program. Finally, the Senate Committee on Health, Education, Labor and Pensions (HELP) held a contentious hearing on the proposed Fair Minimum Wage Act, which would increase the minimum wage to $10.10 per hour and index it to inflation, as well as increase the hourly rate for tipped employees.
The precise changes the WHD would be ordered to make to existing overtime regulations are uncertain. According to a Politico article, the changes will impact more employees at “banks, restaurants, convenience stores and in ‘executive, administrative and professional’” white collar positions. Although this tactic of using executive authority to implement wage changes is not new – e.g., just last month the President signed an Executive Order establishing a minimum wage for federal contractors – the focus on overtime is new territory. In recent years, the DOL’s attention has been directed to employer misclassification of employees as independent contractors. Notably, the President’s recent budget proposal for FY 2015 would allocate $14 million to the WHD to specifically combat misclassification. The unexpected emphasis on the Fair Labor Standard Act’s (FLSA) overtime regulations has taken many by surprise as it was not mentioned in recent regulatory agendas, which outline agency priorities for the coming year.
The plan to revise the FLSA overtime regulations comes on the eve of the 10th anniversary of the last revisions to these regulations. Prior to the April 23, 2004 amendments, the overtime regulations had not been changed significantly in 50 years. Although the exact nature of the changes is unknown at this point, it appears that any change would impact virtually every U.S. employer. Reported revisions include a narrowed exemption for computer professionals, loan officers, as well as those applicable to restaurant and retail managers.
While changes to the FLSA will necessarily take some time, the Administration appears intent on seeing these changes through. Employers are advised to become engaged in the rulemaking process to make sure their voices are heard, and the impact on their operations minimized.
H-2B Wage Rule
In tomorrow’s Federal Register, the ETA will formally announce its intent to “exercise its rulemaking authority to implement a regulation governing the wage methodology in the H-2B program.” The H-2B nonimmigrant program “permits employers to hire foreign workers to perform temporary non-agricultural services or labor in the U.S. on a one-time, seasonal, peakload or intermittent basis.” Over the years, the DOL has issued rules that would revise the methodology for establishing how H-2B workers are paid, as well as how U.S. workers hired in connection with H-2B applications are paid. However, both litigation and the withdrawal of federal funds to implement these rules have prevented them from taking effect. The ETA explains that it will re-issue a proposal based on the rule issued in 2011. That rule, among other changes, would have raised the wages paid to both guest and citizen workers. This effort would be yet another way of increasing wages through regulatory means.
Finally, tempers flared during a Senate Committee hearing to discuss the Fair Minimum Wage Act of 2013 (H.R. 1010; S. 460), a measure that would raise the minimum federal hourly rate from $7.25 to $10.10 in $.95 increments over a three-year period and then index the rate to inflation. The legislation would also increase the hourly wage rate for tipped workers from $2.13 to $3.00 during the first year, and then increase this base amount by either $.95 or an amount necessary to raise the rate to 70% of the minimum wage, whichever is less.
Douglas W. Elmendorf, Director of the Congressional Budget Office (CBO), testified that this minimum wage proposal would have two principal effects: most workers would receive higher pay, and some jobs may be eliminated. The degree of these changes would depend on the amount the minimum wage is increased. Under the $10.10 proposal, by the second half of 2016, Elmendorf said there would be a reduction in employment of about .3%, or 500,000 jobs. This is the central estimate, he said, meaning there is a two-thirds probability that the change would create anywhere from a slight reduction in employment to a loss of one million jobs. In response to a question posed by HELP Chairman Tom Harkin (D-IA), Elmendorf acknowledged there was a “substantial” uncertainty regarding this estimate.
Sen. Elizabeth Warren (D-MA) emphasized during the hearing that the CBO’s report is “a meta study,” or a study of studies. Elmendorf confirmed that some of the studies examined by the CBO found little or no employment response to an increase in the minimum wage, and some more than the 500,000 job loss estimate.
Sen. Orrin Hatch (R-UT) pointed out that President Obama has postponed efforts to raise the minimum wage in American Samoa, which he said is an explicit acknowledgement that there exists different purchasing power across regions, and therefore a “one-size-fits-all” approach to setting a minimum wage is not appropriate. Elmendorf agreed that the impact of raising the minimum wage “would vary substantially across states.” Hatch said that establishing a minimum wage should be a state-by-state determination, as the cost of living varies among states. He said that just because the cost of living is high in New York, for example, other states with lower costs of living should not have to pay the price.
Labor Secretary Thomas Perez also testified at the hearing, saying that “Americans deserve a raise,” and that the bill’s indexing proposal “is critical."
Ranking Member Lamar Alexander (R-TN) criticized what he termed “a stale, bankrupt, ineffective proposal,” and asked why lawmakers were opposed to Republican amendments to the measure.
On a somewhat related topic, Sen. Johnny Isakson (R-GA) used the opportunity to ask Secretary Perez about a recent report issued by organized labor that touched on the Affordable Care Act (ACA) and its impact on wages. He said “labor unions seem to be having buyer’s remorse” regarding the ACA, and cited the report’s finding that the healthcare law is making income inequality worse for organized labor. Perez disagreed, saying that he has spoken with a number of unions who claim they have benefited from the ACA.
A complete list of panelists and links to their testimony can be found here.
We will continue to monitor these wage issues and report on any developments.