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Apr 04, 2016

Proposal on Overtime Pay Cause for Concern

Peter CalcaraBy Peter Calcara, Vice President - Government Relations


The U.S. Department of Labor (DOL) has proposed major changes to the white-collar exemptions to federal overtime pay requirements. In 2014, President Barack Obama directed the DOL to examine the “white-collar exemption” currently in place for executives, administrative, and professional employees in the Fair Labor Standards Act, or FLSA.

Currently, a person must satisfy three criteria to qualify as exempt: they must make a salary; that salary must be more than $455 per week ($23,660 or less annually); and their “primary duties” must be consistent with managerial, professional, or administrative positions as defined by DOL.

The proposal, if allowed to go into effect, could have significant ramifications to PICPA members, their firms, and the clients they represent. That’s why last December the PICPA signed onto a letter with the Partnership to Protect Workplace Opportunity (PPWO).

In the DOL proposal, which was initially published July 6, 2015, there would be an increase in the minimum salary threshold to $970 per week ($50,440 annually), a jump of more than 100 percent. DOL also proposes increasing this minimum on an annual basis by pegging it to the 40th percentile or by indexing it to inflation for urban goods and services (CPI-U, an aggressive measure of inflation). DOL proposes publishing these annual increases to the minimum salary only 60 days before they become effective, providing employers and employees with too little notice.

The magnitude of an increase to the salary threshold and almost any changes to the duties test will hurt small businesses, schools, municipalities, nonprofits, and other employers, as well as workers and the economy as a whole. Many employees would lose the flexibility they currently enjoy, and employers would be faced with potentially significant increases in labor and administrative costs. In a stagnant economy, these consequences could be devastating.

The PICPA is working with the PPWO to urge Congress to support S. 2707 and H.R. 4773, the Protecting Workplace Advancement and Opportunity Act. This legislation would nullify DOL’s proposal, prohibit automatic increases of the salary threshold, and require the DOL to complete analysis of the proposal’s changes to the overtime regulation to better identify its significant effects on employees, businesses large and small, nonprofits, and state and local governments.

Last month a group of about 70 members of Congress sent a letter to Reps. Tom Cole and Rosa DeLauro, chair and ranking member respectively, of the U.S. House Subcommittee on Labor, Health and Human Services, Education and Related Agencies, urging them to consider including language that would prohibit the DOL from using appropriated funds to implement or enforce its proposed changes to federal overtime rules. Pennsylvania was represented on the letter by Reps. Mike Kelly (R), Lou Barletta (R), and Glenn Thompson (R).

But that’s not enough. Members of Congress need to hear directly from PICPA members about how this proposed change will impact you and your operations. It’s not too late, but time is running out.

The final proposal was published March 14, 2016. Following a public comment period, the final rulemaking will be published in the Federal Register and go into effect within 60 days of publication.

The time to act is now! How can you help? The PPWO website offers a lot of helpful and easy ways for you to contact your member of Congress about this important legislation.

Together we can fight this unfair and ill-advised proposal.

22 comments

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  • Maria Jordan DeCarmen | Oct 11, 2016

    This does impact Accountants, or at least any who work with business owners because those businesses usually aren't squandering millions of money on lavish boats. Anyone who works with small to mid sized businesses in America understands that they run a narrow line of profitability and that when wage costs go up it can put them out of business, especially if the prices don't have room to go up also. Small to med. sized businesses are 99% of all US firms (according to the SBA https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf) That means a hit, not a boost to the economy and also to your (as an accountant) pay as you loose business clients who go under. It does not mean free money because money is never free. . . 

    Regardless, its a new law. CPAs who do help businesses need to be aware of how to help them prepare. In many industries, they will need unique solutions and timekeeping solutions for mobile employees, etc. Also they will need to analyze employee duties and pay and decide on overtime, more employees to cover work, or increasing the salary level. There is a great set of articles at SwipeClock, a firm that partners with CPAs to prep clients for this new law. http://www3.swipeclock.com/updated-federal-overtime-law-means-tracking-time-employees/ I recommend checking the articles out. Its useful for getting ready.  

  • pcalcara@picpa.org | May 14, 2016

    PPWO launched a video on its YouTube channel and website that outlines the unintended consequences of the Department of Labor’s proposed overtime rule to nonprofits, colleges and universities, and small businesses across the country. Here's the link http://protectingopportunity.org/ppwo-video-explains-dangers-dol-overtime-change/

  • A | Apr 28, 2016
    Excuse me if I am mistaken David L. Zalles, but I thought only employees of a public agency which is a State, a political subdivision of a State, or an interstate governmental agency may receive "comp time" instead of overtime pay. To keep on track of the topic, I am for the DOL change in regards to the accounting profession which I belong to. The reason being, this change would give negotiating power to underpaid employees who work large amounts of overtime. If you are an accountant making less than $50,000/year it's time to get a new job.
  • Ken A. | Apr 27, 2016

    I am talking about the population of nobel prize winners in economics not economists. Moreover it is natural that the 600 were well respected and achieved otherwise their signature would mean nothing. So even here it is compering apples to oranges.

    The unemployment calculation has not changed for periods being evaluated so the impact is zero.

  • EconomicsDegree | Apr 27, 2016
    To Ken A:  600 divided by 21,500 = 2.79% -> Less than 3% of the occupation in the US alone.  What is the problem?  It also goes without saying that "it depends on how you calculate unemployment".
  • Ken A. | Apr 27, 2016

    You are taking out of my sentence that of the 600 mentioned 7 was nobel price winners. You did the statistics course, did not you? So please calculate this %.

    About the minimum wage: I thought it goes without saying. The unemployment rate did not increase either.

  • EconomicsDegree | Apr 27, 2016

    Ken A. :  "More than 600 economists" is less than 3% of the occupation in the US alone.  Hardly a consensus of opinion.  (2014 employment stats from US Department of Labor - 21,500 economist jobs reported with a 6% job growth per year expected.)  The first thing you learn in statistics courses is that you can make the data support any position you wish by the way you word the questions and/or results.  Let's take a look:

    Increases in the minimum wage have had little or no negative effect on the (key wording coming) "employment of minimum-wage workers".  Of course! That is because an increase in minimum wage does not automatically increase all other wages, and therefore, brings more workers into the minimum wage pool.  

    Ex:  Assume the current total of minimum wage workers is 100,000.  Employee A and a group of 999 other workers are laborers making $8.25 an hour in an unskilled occupation.  That is $1 per hour over the current federal minimum wage -- so they are not counted in that 100,000 figure.  Now, the minimum wage is increased to $8.25.  If the market will not support price increases to cover the additional cost of labor, some employers are forced to reduce headcount.  So, lets say as a result of the increase in minimum wage,  small employers cut their employment levels by 1,000 jobs -- all original minimum wage workers.  That is a full 1% job loss for minimum wage workers.  But guess what?!  The "employment of minimum-wage workers" has not changed and is still at 100,000 -- even though 1,000 unfortunate souls have lost their jobs.  They have simply been replaced by the formerly above minimum wage workers.  And the status quo continues.  Negative effect?  You decide.

  • Ken A. | Apr 27, 2016

    To Economist, how is it different from a minimum wage? More than 600 economists, including 7 Nobel Prize winners wrote, "In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front."

  • CB | Apr 27, 2016

    I am the director of a non-profit organization.  In my non-profit world we are motivated by passion to provide services and education that, for the most part,  are not provided by corporations, local, state or federal government. Because we need to fundraise  to meet our operating budget - most of which goes to salaries and benefits - we work hard every year to fullfill our mission while also creating a work environment that is satisfying, fair, and respects families and their needs.  However, only about 1/2 our employees would meet the new salary test. We could not possibly raise the revenue that would be required if this new law were to pass.  This would result in layoffs, and would considerably reduce the scope of the valuable services we provide.

    I believe this law would have unintended consequences that may jeopardize the jobs of many, and the availability of important services that many would not otherwise have access to.  That would certainly be the case for my organization, and it would be a shame.

  • EconomicsDegree | Apr 27, 2016

    Let’s talk economics: 

    1.) Pricing Constraints: Fees cannot be increased beyond the limit of what clients are willing to pay, or clients will go elsewhere.

    2.) Market Price: The price the consumer is willing to pay for services. 

    3.) Income limitations: Income cannot exceed the market price times the number of engagements completed.

    4.) Capacity Constraints:  The number of engagements completed cannot exceed the available number of output hours divided by the required number of hours to complete.

    5.) Real Output:  Entry level, lower level staff can take up to 60% more time to complete a project than a seasoned accountant.

    6.) Risk vs Reward:  No one is willing to take on the liabilities and responsibilities of business without a satisfactory rate of return on their investment. 

    7.) Equipoise:  The point where all intellectual influences have come to a balanced state.  

    8.) Cause & Effect:  Required overtime pay increases cost & decreases ROI, requiring adjustments in order to return to equipoise. 

    9.) Outcome: Since income cannot increase due to constraints and management is not willing to receive less ROI, labor costs must be reduced by cutting less productive employees, cutting wages, and/or cutting benefits. 

    Any questions?  Class dismissed.

  • George | Apr 27, 2016

    Just food for thought...if any business or organization can't pay their employees fairly, then should they be in business in the first place?

  • Charles F | Apr 27, 2016
    I support the DOL proposal. It's about time the rules were changed to bring some justice to this work environment that many so-called professionals "enjoy". I love the way these representatives call their anti-worker legislation proposal the " Protecting Workplace Advancement and Opportunity Act" It's anything but.
  • George | Apr 27, 2016
    Hope this goes through...would help me out tremendously!
  • Chris S. | Apr 27, 2016

    It is fair to me - I am an employee. Dissapointed with PICPA stance.

  • Kris H. | Apr 27, 2016
    I'm very surprised my fellow accountants are only thinking of their own working environment with the comments about shore homes and Bentleys and the lining of partners' pockets.  There are many small businesses and non-profits who would not be able to comply with this new directive.  So, what happens in their case?  They could switch the employee to an hourly wage instead of salary, but instead, the employee receives a lower hourly wage than what their previous salary would have calculated out to be in order to compensate for the overtime they would now have to pay.  If the overtime comes seasonally, then during the off-season, the employee has to make do on much less.  Or, the position is now going to be covered by two part-time employees, and the previously salaried person either accepts that or hunts for a new job.  I foresee the unemployment line growing, at least for full-time positions, and if a small business owner tried to comply with this directive, it might put him in the unemployment line as well.  Believe it or not, I'm not against an increase, but my suggestion to the DOL in the first public comment period was to increment the minimum salary increase over a number of years, much like they did for the previous minimum wage increase. It seems the DOL didn't even read the more than 250,000 comments they received.  I'm sure I'm not the only one who provided a solution instead of just complaining.  It seems the DOL has not given any consideration of the fall out.  The legislation proposed has to do with ALL employers, people, not just accountants who can't seem to see past the end of their nose.  How embarrassing.
  • REE | Apr 27, 2016
    Why doesn't the PICPA poll its members on political issues like this?  I support the DOL change and am not happy my dues are used to fight something I agree with.  
  • R | Apr 27, 2016
    This is absolutely ridiculous. Why would I want to stop myself from getting compensated to ensure the managing partners get to keep lining the pockets with more cash.
  • Connor P. | Apr 27, 2016
    Why would any entry level accountant want to stop this revision?
  • David L. Zalles | Apr 27, 2016

    I think that employees should have the option to take "comp time" (at 1 1/2 times the hours for evenings and Saturdays, and 2x for Sundays and Holidays) in lieu of "pay". But it should be the employees' option, not one imposed or influenced by the employers.

    I provided this option to CPA firm professional and administrative staff when I was a firm administrator at 2 regional CPA firms in the mid-1970's and mid-1990's, and most of them preferred the extra time off.

    Many articles indicate that today's millenials prefer extra time off to extra money, but it should be individual decisions. And I don't think that DOL should take away this option that any employee may want to elect to do.

  • Peter N. Calcara | Apr 08, 2016

    Here’s a quick update to my post. According to the American Society of Association Executives (ASAE), more than 250,000 organizations submitted comments on the federal overtime rule to DOL last year. ASAE also notes that it believes strongly that the new rule would adversely affect many nonprofit organizations and other employers with limited revenues. In addition, the PICPA recently agreed to cosign letters to members of Congress urging them to support of S. 2707 / HR 4773, the Protecting Workplace Advancement and Opportunity Act. You can learn more about this issue at http://protectingopportunity.org/.  

  • J | Apr 06, 2016
    Must have hit the snooze button on Macroeconomics. Wage increases help the money multiple effect which increases GDP. Also poorer people have to spend more. But no enrich the greedy old Boomer partners! 
  • P | Apr 05, 2016
    He'll NO!  Is this to protect all Accountants or just the large, exploitative partners at the bigger firms so they can have million dollar Shore homes and Bentleys while they deny overworked Staff protections they enjoyed 30 years ago.

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    Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.