National Association of Manufacturers’ criticisms of the Obama overtime proposal all miss their mark

Last September, the National Association of Manufacturers (NAM) filed comments in opposition to the Labor Department’s proposed rule on overtime pay for salaried workers, which would raise the salary threshold under which all workers are eligible for overtime pay from $23,660 to $50,440. NAM’s chief criticism boils down to this: “The Labor Department set the salary level threshold for exemption too high.” The evidence NAM presents to support that criticism, however, is inaccurate, irrelevant, or contradicts its claims.

First, NAM claims, “The proposed salary threshold is grossly out of step with nearly 80 years of historical practice and precedent.” The evidence is a chart that purportedly shows the historic levels after each past increase, adjusted for inflation. But the chart is misleading. It cherry picks the lowest of the several potential levels set in the past, instead of the level that corresponds to the current duties test. When the correct levels are compared, DOL’s proposed $50,440 salary threshold is lower than the levels set in the Truman, Eisenhower, Nixon, and Ford administrations. As Tammy McCutchen testified in Congress on behalf of the U.S. Chamber of Commerce, the short test salary threshold varied between a low of $51,957.36 and a high of $63,741.60.

Even if you take NAM’s misleading chart at face value, it shows an increase in the threshold of 22% in the ten years from 1949 to 1959, or 2.2% per year. If the same rate of increase were applied to the 1975 threshold of $35,625, the 2015 threshold would be almost 90% higher, or about $67,000. NAM should be grateful that the Labor Department chose such a modest level.

NAM’s second argument is that the Labor Department’s Wage and Hour Division (WHD) failed to account for regional differences in salaries. In particular, NAM claims that in “previous rulemakings, WHD has based its salary level on the wage statistics for the South.” The claim has only a tiny bit of truth to it. An honest review would admit that the WHD took into account a wide range of factors in the past, from federal government salaries, to surveys of New York clerical workers, salaries of recent college graduates, and comparisons of the salaries of non-exempt bookkeepers and junior accountants with those of exempt senior accountants. None of those assessments was limited to the South.

The simple truth is that if WHD did take the South into account in the past, as NAM says it did, yet the proposed level is lower than the inflation-adjusted threshold salaries set in 1949, 1959, 1963, 1970, and 1975, then the proposal more than accommodates regional differences. This is especially clear given that regional salary differences are much smaller today than they were in the 1940s, 50s, 60s, and 70s. If $51,000 to $63,000 appropriately accounted for the South’s lower salaries, then $50,440 obviously does so even more.

NAM makes a peculiar, self-contradictory argument that “due to regional differences, an unnecessary rift and inequality among employees will be created, where none currently exists, simply because of where an employee happens to live.” NAM has no problem with paying different salaries to people doing the same work in different locations, but illogically thinks it’s unfair to make employers pay overtime to employees in some locations but not others.

Finally, NAM makes a nonsensical argument that because “many employment laws…treat employees differently from management,” any salaried supervisor earning more than $455 a week should be treated as an exempt executive. The fact that the National Labor Relations Act expressly excludes “any individual employed as a supervisor” from the definition of employee, thus excluding supervisors from the right to bargain collectively, is strong evidence that the Fair Labor Standards Act, by contrast, did not mean to treat supervisors differently from other employees. The FLSA exempts “executives” from its overtime pay protections, not supervisors. A poorly paid supervisor is no more an “executive” than is a poorly paid bookkeeper or secretary. If Congress had wanted to exempt supervisors, it knew how to do it. Congress chose not to.

NAM wants to continue to pay poverty-level salaries to employees while treating them as exempt executives and denying them overtime pay, no matter how many hours a week the employees work. The Labor Department is right to put an end to these practices by setting an exemption threshold that, while modest, approximates the salary level of a bona fide executive.