August 28, 2015
FOR IMMEDIATE RELEASE: August 28, 2015
Media Contact: Julie Rabinowitz, 207-621-5009
USDOL-proposed rules could hurt Maine’s small businesses and lead to loss of jobs
AUGUSTA—Commissioner of Labor Jeanne Paquette released today the Maine Department of Labor’s comments on the federal Fair Labor Standards Act rules changes proposed by the U.S. Department of Labor. The public comment period on the proposals is open through Sept. 4, 2015. The state of Maine is opposing these rules as proposed because of the potential negative effects on employment and small businesses.
Governor Paul R. LePage supported Commissioner Paquette’s decision to oppose these changes. “Maine is committed to being business friendly and creating opportunity for our workers,” stated the Governor. “These changes, however, will have a lasting effect on almost every employer and industry sector, with the federal government setting a one-size-fits-all policy. Maine’s economy is not like that of other states, and this approach will not benefit our people.”
“We all want wages to increase,” stated Paquette, “but abrupt changes to the way Maine businesses plan to meet their staffing needs will have far reaching effects on both workers and businesses. Many workers who see this proposal as an automatic raise will have their expectations crushed when their employers revise their job duties to avoid paying the increase. Having the federal government impose regulations in this manner and timeframe will likely not result as intended in Maine.”
The proposed changes will more than double the minimum salary necessary for an executive, administrative or professional (EAP) worker to be classified as “exempt” from the Fair Labor Standards Act (“FLSA”) overtime regulations. Under the current regulations, an exempt employee must be paid at least $455 per week (equivalent to $23,660 annually for a full-year employee), which will increase to an estimated 2016 level of about $970 a week, or $50,440 a year.
The proposed changes would increase the annual salary threshold from $100,000 to $122,148 for exemption as a highly compensated employee (HCE). In addition to these changes, USDOL is also requesting public comment on a potential mechanism for automatically adjusting the EAP and HCE standard salary levels, determining whether nondiscretionary bonuses should be included in calculating the standard salary threshold and determining whether the EAP duties tests should be modified.
In 2014, 96 percent of Maine’s employers had fewer than 50 workers, accounting for 41 percent of the total number of payroll jobs. These businesses paid annual combined wages of $7.4 billion in 2014, about 37 percent of the total wages paid in Maine. That year, the average annual earnings for workers (both part and full time) in businesses with fewer than 50 employees was $36,200; for businesses with 50 or more employees the average earnings per worker annually was $42,500.
Wage data does not include information regarding exempt status. Some economists in national reporting on this proposal have estimated that the number of exempt employees in Maine who would be affected by these changes to be as low as 20,000. Occupational Employment Statistics (OES) data indicate that there are 321,469 workers in Maine earning between $23,660 and $47,892, many of whom are not currently considered exempt, but putting the likelihood of the number of affected workers to be much higher than 20,000.
OES data indicate there are 9,845 workers earning between $100,000 and $122,148 in Maine, the majority of whom would likely be considered HCE.
Commissioner Paquette cites several reasons for the state’s opposition to the proposed federal rules. The state opposes the annual mandated adjustments because industries that are highly seasonal and small businesses make up the vast majority of Maine’s employers. These businesses “lack the budget flexibility to provide annual raises to all exempt workers. The mandating of increases across the board will likely have an indirect result in decreases in merit and performance-based raises for all workers who meet or exceed the expectations of their employer,” writes Paquette.
The commissioner recommends that, if there is to be an automatic annual adjustment, basing it on earnings makes more sense than basing it on a measure of inflation because exempt individuals are paid based on the value of the attributes they bring to an employer. The state also suggests that there be a phase-in period. In such states as Maine whose wages, on average, fall at the lower end of the wage scale, meeting the threshold will be a steeper jump for employers than for those in states with generally higher-than-average wages. Using a phase-in period would allow employers more time to review the duties of all their workers in light of the final rules, make adjustments to job descriptions and staffing arrangements, and plan for any increases in salary for employees who truly will be exempt.
The small size of the majority of Maine’s businesses is a factor in the department’s opposition to other provisions of the proposal. Management of small and/or seasonal businesses need flexibility to address fluctuations in business demand. Any attempt to artificially cap the amount of time exempt managers can spend on non-exempt work would place significant administrative burdens on retailers, increase labor costs, hurt customer service and may result in increased wage-and-hour litigation.
The state suggests that USDOL establish differing compliance requirements and reporting requirements for small entities. Businesses with low annual dollar volumes should not be held to the same level as large corporations. Commissioner Paquette states, “The USDOL is not considering the burden for these types of employers, which form the backbone of Maine’s economy.”
This proposal mandates compliance with the new increased wage thresholds starting in 2016. This will have a negative or a delayed effect on hiring in the new year, and may also result in job losses in certain sectors if businesses have to identify sources of funding for compliance.
Paquette also raises the concern that these rules will not have the overall effect on wages that the Obama Administration hopes will happen. “While some employees might receive a pay raise, this is dependent on whether the employer continues to hold an exemption on employees who qualify for the exemption. Some employers may choose to remove the exemption all together, paying an employee an hourly rate of pay and capping the weekly hours to fewer than 40 to ensure no overtime is worked, offsetting the workload to other staff or hiring part-time employees,” she explains in the letter. “This may increase costs to the business while providing no material benefit to the formerly ‘exempt’ worker, and may also hurt the career development of the worker.”
The Notice of Proposed Rulemaking (NPRM) was published on July 6, 2015, in the Federal Register (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at http://www.regulations.gov on or before September 4, 2015. Only comments received during the comment period identified in the Federal Register published version of the NPRM will be considered part of the rulemaking record.