Businesses Brace for New Regulatory Hike
Federal Changes to Overtime Rules for White-Collar Workers Slated to Begin This Summer
As part of the U.S. Department of Labor’s (DoL) changes in overtime rules, expected to go into effect after July, thousands of Puerto Rico employers will be required to pay overtime for white-collar professionals who are currently exempt.
“The department is reviewing all comments received during the public comment period to the Notice of Proposed Rulemaking [NPRM] on overtime as it develops a final rule. The public comment period for the NPRM closed Sept. 4. The department received more than 270,000 timely comments overall,” said Jason Surbey, of the U.S. Labor Department’s Office of Public Affairs in Washington, D.C.
“A final rule is likely to be issued by July 2016, with an effective date sometime after that. And yes, the final rule will apply to workers in the commonwealth,” Surbey said in an email to Caribbean Business.
With Puerto Rico mired in a nearly-decade-long economic depression and many local businesses under financial strain, the news certainly won’t be welcomed by the island’s employers, in both the private and public sectors.
Currently, the threshold for overtime exemption for executive, administrative and professional employees is a gross income of $23,660 a year, or $455 a week, according to the Fair Labor Standards Act (FLSA). Low-level workers and other administrative personnel, such as clerks and secretaries, aren’t exempt, meaning businesses must pay overtime to these full-time staff members.
However, the new rule would increase the threshold for exempt professionals to those earning a gross income of $50,440 a year, or $970 a week.
This would mean professionals earning between $23,660 and $50,440 annually would receive overtime pay for working more than 40 hours a week.
Certain professionals, including doctors, lawyers and teachers, aren’t subject to the salarylevel test, according to the U.S. Labor Department website.
The FLSA doesn’t have exemptions for small businesses and nonprofit organizations. In general, though, the proposed rule would apply to those that have an annual gross volume of sales or business of $500,000 or more.
ABOUT 171,000 LOCAL WORKERS MAY GET OVERTIME
There is no official estimate of the number of exempt employees in Puerto Rico, but Banco Popular’s Progreso Económico (Economic Progress) report for October 2015 estimates that about 171,000 exempt employees out of some 909,000 employees islandwide will be included in the new overtime rules.
“The difference in salary levels between Puerto Rico and the U.S. means that the proposal would impact a much higher percentage of workers and employers in Puerto Rico than in the U.S. In 2014, the average weekly salary of all employees in Puerto Rico represented 53% of that in the U.S.,” the report stated. “Moreover, in that same year, around 92% of all employees in Puerto Rico had weekly salaries of less than the one being proposed ($970) to qualify as exempt employees.”
The options facing local businesses aren’t exactly positive, the report indicated. “[In Puerto Rico,] about 70% (120,000 employees) have an income of less than $50,440 a year. Therefore, if the proposal is approved, the options facing local employers would be to increase the salaries of these employees, pay these employees for overtime work or employ fewer workers.”
Among the individuals and organizations that have sent comments to the DoL is the Puerto Rico Manufacturers Association (PRMA), which argued in a Sept. 3, 2015 missive that the new overtime rules would cause a “debacle” on the island.
“Although the PRMA generally supports any efforts to modernize FLSA regulations, a vast majority of our members have expressed their concern about the impact that these proposed changes would have on their operations. Our comments are focused on a reconsideration of the proposed changes that can redefine who is eligible for overtime pay as well as impose an automatic adjustment of the minimum salary level on an annual basis and a request to grant Puerto Rico a specific exemption from the application of this proposed rule,” the organization said.
“Raising the salary threshold across the board, without consideration to employers’ circumstances, would create a debacle on the island. Most of our members would have to take drastic measures to absorb the costs of implementing the proposed regulations. In the end, these remedial actions would, more likely than not, have a negative impact on the employees’ compensation, flexibility, morale, opportunities for development and career advancement,” the PRMA warned.
The initiative is a directive from President Barack Obama, who has noted that the current overtime salary threshold of $23,660 a year is below the poverty level for a family of four. “Workers above this level may be denied overtime even if they spend only a small share of their time on professional, executive or administrative activities. For example, a convenience-store manager, fast-food assistant manager or office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay,” the White House stated. “For some of these employees, not receiving overtime pay means they aren’t even receiving the minimum wage when all of their hours of overtime are taken into account.”