Early reactions were mixed for Gov. Tom Wolf’s proposal to change Pennsylvania’s overtime rules along the lines of a stalled federal plan but with a slower approach.
Some, expecting renewed federal action, labeled the state move on overtime as premature. At the same time, they said, Wolf’s proposal reflected a better approach than the one initially laid out under the administration of former President Barack Obama.
Business leaders opposed the federal plan and continue to question the idea of new overtime rules for salaried employees. Their primary concerns range from added administrative costs for employers to more rigid work schedules as companies shift salaried workers to hourly and restrict them from working over 40 hours.
The governor’s proposal would update the state’s 40-year-old rules for determining when workers are eligible for overtime pay, potentially affecting up to 460,000 workers.
Wolf wants to increase the salary threshold at which most salaried workers would be eligible for overtime but he would phase it in rather than move all at once, as the Obama administration had proposed.
The state threshold currently matches the federal baseline of $23,660, or $455 per week. Wolf wants to phase in increases that would bring the threshold to $47,892 by 2022. The phase-in would begin in 2020 at a threshold of $31,720, or $610 per week.
After 2022, Wolf wants the salary threshold to update automatically every three years. He believes this move will strengthen the middle class in Pennsylvania and put more money in the pockets of many low-paid salary employees.
The increase proposed by Obama was struck down last year by the federal courts.
Karen Young, president of Lower Paxton Township-based HR Resolutions LLC, called the move by Wolf “premature.”
“We need to wait and see what the (federal) Department of Labor will come up with,” she said. “That is not dead. They are regrouping.”
However, Young said she likes the phased approach proposed by Wolf and believes the federal government should do something similar.
Young and other business leaders have previously said the threshold of $455 per week is too low. But the initial federal move to double the salary threshold — from $23,660 per year to $47,476, or from $455 per week to $913 — was too much, she said.
She also believes the first threshold change set by Wolf — $610 per week — may be a little high, though it could be a good starting point for negotiating a final number.
Still, Young said the changes could lead to fewer new jobs. Companies may simply increase the salary of workers near the threshold to avoid paying overtime and then refrain from hiring additional people. Some employers may be less flexible about work schedules to ensure employees stay under 40 hours.
If the changes advance in Pennsylvania, it could take more than a year to implement them, state officials have said. The Department of Labor and Industry doesn’t anticipate releasing the proposed changes for public comment until March.
Tough for some to absorb
The overtime proposal by Wolf came as a surprise to Jill Welch, partner in Lancaster-based law firm Barley Snyder‘s labor and employment practice group.
She, too, is expecting that something will soon come down from the federal government regarding new overtime rules, which would trump the move in Pennsylvania.
That said, she believes the $31,720 threshold proposed by Wolf proposed as a starting point for Pennsylvania may be close to what federal regulators will settle on in the future.
Welch said the additional increases proposed by Wolf will likely be too high for many smaller companies, nonprofits and others in the retail and restaurant business to absorb over three years.
“I think you will see a big push that this is too much too soon,” she said. “Making wholesale changes to groups of employees every year for three years is a nightmare.”
Much as they would have under the federal proposal, Welch said she expects employers will look to take proactive steps and potentially raise the salaries of some employees. They may convert other employees to hourly associates.
Some may look to hire part-time employees to handle extra work, she said. But those positions could be hard to fill with a low unemployment rate and high demand for entry-level workers.
Welch said it may make sense for Pennsylvania to consider different salary thresholds for nonprofit organizations or base thresholds on the size of an employer.
She also anticipates there will be legal challenges associated with the automatic increases floated by Wolf.
“It will be interesting to see how this plays out in an election year,” she said. “It could be an interesting topic.”
Indeed, state Rep. Kristin Phillips-Hill (R-York) expects overtime will be a top issue this year, as the Republican-led General Assembly already has resisted Wolf’s push to raise the state minimum wage.
“It almost feels like an end run around the legislature,” she said of the overtime proposal. “This is more big government, another mandate, more red tape.”
Phillips-Hill is part of a group of lawmakers trying to reduce government regulation in Pennsylvania.
“What we know right now is that federal tax reform is already putting more money back in the pockets of Pennsylvania workers,” she said. “I want us to focus on tax reforms and needed regulatory reforms. We need to reduce the cost of business and make sure the state is more inviting to companies creating jobs.”
The overtime proposal will not do that, she said.
A clash with reality?
Chamber leaders echoed similar concerns.
The Harrisburg Regional Chamber and Capital Region Economic Development Corp. credited Wolf’s proposal for taking “more reasonable action” by phasing in changes.
But the chamber also said that today’s business world is not what it was when 40-hour work weeks and 80-hour pay periods were standard.
Some professional jobs are more seasonal, with bursts of heavy work.
“For example, as we come into tax season, young accountants will be putting in some long hours. Since this proposal rises to a threshold of nearly $50,000, we could see an impact on entry-level accounting professionals who front-load their hours, putting in more time during tax season and working fewer hours later in the year,” the chamber said.
Technology also has made work much more accessible at all hours of the day, including email responses, which creates complications for businesses trying to track hours worked, an issue that came up during debate over the federal proposal.
Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, said workplace culture and morale could be damaged by changes such as a shift for workers earning a salary to being paid by the hour. And that transition might lead to declining take-home pay for some employees, if they need to clock out for a doctor’s appointment or leave work early.
Kevin Shivers, executive state director for the National Federation of Independent Business, said he believes Wolf’s proposal, if passed, will lead to the demotion of tens of thousands of managers across Pennsylvania.
Still, he said, the proposal is a good talking point and it should resonate with union leaders in a gubernatorial election year, but he doesn’t think it will prove to be a political winner for Wolf.
“You’re talking about dramatic increases in labor costs in every sector of the Pennsylvania economy,” Shivers said.
Change warranted, complicated
Others saw a change as warranted, but were concerned about how it would affect businesses.
“In Pennsylvania, we do need to look at how to raise wages and get more into the paychecks of the middle class,” said Jonathan Bowser, CEO of the Cumberland Area Economic Development Corp.
But he expressed concern about the overtime proposal’s impact on smaller companies already struggling with high health care costs.
“I hope our state and federal government can find a balance in how to increase take home wages, but yet not negatively impact small businesses further that cannot absorb significant increases to their expenditures,” he said.
Union leaders Rick Bloomingdale and Frank Snyder of the Pennsylvania AFL-CIO called Wolf’s action a crucial first step to correcting the imbalance and “changing the rules of the economy to benefit Pennsylvania’s workers.”
“Now more than ever, while the federal government is repealing workplace and wage protections for working people, the governor’s initiative on this matter is critically important,” they said in a joint statement.
Other union officials, including Dave Fillman of AFSCME Council 13 and Wendell Young IV of the UFCW Local 1776, offered similar views, hoping this proposal will lead to a broader discussion on higher wages in Pennsylvania.
“It has been more than 11 years since Pennsylvania last raised the minimum wage,” Young said. “Meanwhile, neighboring states are raising their minimum wage. It is time to raise the wage in Pennsylvania as well.”