Local employers weigh consequences of proposed federal overtime rules

President Barack Obama has proposed revisions to overtime rules that would make low-wage managers and professionals eligible for overtime if they are paid less than $970 a week, compared with $656.25 a week in New York now.

Although Obama's plan would boost the earning power of these salaried workers, it could also make local employers convert more jobs to part time or even hire fewer workers, local executives and experts warned.

The proposal would be the first increase in 11 years for a salary benchmark that under federal labor law is key in determining if a worker earns enough to be exempt from overtime.

Current federal standards say that managers and professionals earning at least $455 a week -- or $23,660 a year -- are ineligible for overtime pay. (In New York, the annual pay benchmark is higher, at $34,125 a year.)

Under Obama's plan, the threshold to no longer qualify for overtime would more than double, to $50,440 a year.

The White House contends that the 11-year-old wage threshold has become outdated because of inflation, leaving millions of workers such as store managers ineligible for overtime pay, which generally is one and a half times a worker's regular hourly rate.

Last month, the U.S. Labor Deparment, which has the power to revise the federal salary requirements, announced the proposed new threshold. No congressional action is needed.

The 60-day comment period for the proposal runs through Sept. 4, after which the comments will be published in the Federal Register, a public forum administered by the U.S. government.

A final rule could take effect next year.

But the National Retail Federation, which estimates that the increase could cost retailers $9.5 billion annually in added payroll costs, on Wednesday asked the Labor Department to extend the comment period by an additional 60 days to Nov. 3.

The group said the department needs to "better understand how such drastic changes in the white-collar exemptions could affect employers and employees in the retail industry."

The raise, if adopted, could prove a boon to as many as 690,000 workers in New York State, including retail and fast-food managers, professionals and administrators such as lower-wage accountants, architects and executive secretaries.

They would stand to earn about $75 million more annually if they worked overtime, said James Parrott, Manhattan-based chief economist of the Fiscal Policy Institute, a nonprofit research organization. No numbers were available for the impact on Long Island workers.

"For the affected workers, the additional pay will be significant," Parrott said.

"This will be a tremendous benefit to workers if the Department of Labor approves the regulation as is," said employment attorney Troy Kessler, a partner of Shulman Kessler in Melville who represents employees.

The White House estimates the initiative could make 5 million low-wage managers and others nationwide eligible for overtime. Under the proposed rule, those workers paid below the new amount would be considered hourly and eligible for overtime.

How much of a boon materializes for workers would depend on the response of employers.

They could opt to pay the higher salary to maintain the workers' exemptions from overtime -- meaning that these employees might still work the same hours, but they would get a raise, in New York, of almost $314 a week.

In addition, employers could legally avoid paying the higher salary and overtime by making the managers and professionals part-time, hourly workers, or the companies could opt to hire fewer people.

"Ultimately, with rules and regulations like this, the unintended consequence is that you become a part-time workforce," said Mike Durant, the New York State director of the National Federation of Independent Business, a small-business trade group. "That is not what we want."

Rhonda Klch, president of Coram-based Equity First, which provides financial guidance to individuals and small businesses, said her company is negotiating a contract that will require more workers.

But instead of hiring three more people, she may have to settle on two.

"The budget doesn't allow for what some of the new criteria will be," Klch said. "We'd have to consider hiring one less person and give the other people more responsibilities."

Another local executive took aim at a provision in the proposed rule for automatic future increases.

"Anything that is indexed so that it's automatic is never good," said Liz Uzzo, vice president of human resources for H2M, a Melville-based engineering and architectural-design consulting firm.

"Our salary/compensation program is merit-based, much like other private-sector employers', and to tie an automatic increase based on CPI or any other index is not good business. It's ridiculous."

Obama and the U.S. Labor Department contend that the unchanged threshold defeats the purpose of the salary requirement for exempt employees, which was to exclude high-wage earners from overtime eligibility.

Because the wage threshold has stagnated for more than a decade, some convenience-store managers, fast-food assistant managers and office workers are expected to work 50 or 60 hours a week without "a dime of overtime pay," the department said in a statement.

But executives see risks, especially for small businesses.

On Long Island, 90 percent of the 96,000 companies here employ fewer than 20 people, according to census data.

A mandated raise in the pay of lower-wage managers "will be a big hit," said Jessica Stelfox, the director of human-resources consulting at Freeport-based Advantage Payroll Services, whose more than 3,000 clients include many small businesses.

While agreeing that the $455 federal threshold for overtime exemption is too low, Uzzo of H2M said the president's proposal would be better phased in.

"You don't go from $455 to $970 in one hit," she said. "It's kind of bizarre."

Not every employer is dismayed.

Ira Rosenfeld, president of Bi-County Scale & Equipment, a West Babylon company, which sells and services food equipment to supermarkets, said employers have to pay to get good workers.

"They are all living in New York, for God's sake," Rosenfeld said.

Some local experts believe that after analyzing the Federal Register feedback from employers, the department might settle on a lower increase.

Attorney Beth Fagin, an employment counselor at labor-relations and human-resource consulting firm Portnoy, Messinger, Pearl & Associates in Syosset, said a compromise is possible.

"The $970 a week comes out to a salary of over $50,000," she said, "In some parts of the country that is a large salary."

But others believe the department will stick close to the higher amount.

"It's certainly possible that the number may come down a bit," said Kessler, the employment lawyer.

"I think it is unlikely because that number has not been changed in 11 years."

Some lawyers who represent employers are urging their clients to sound off in the Federal Register.

"If you think this is going to impact you, I would suggest getting involved in the public comment period," said employment attorney John Ho, a partner in the Garden City office of Bond Schoeneck & King.

Uzzo plans to do just that.

"I will absolutely comment," she said. "And I urge everyone who is impacted by this to do the same."