New Overtime Protection Affects BSC Managers

This is the final part of a three-part article about minimum wage and overtime changes.

The debate extends beyond hourly workers as well. In June, the U.S. Department of Labor announced a proposal to extend overtime protection to an estimated 5 million workers by raising the minimum salary for exempt employees from $455 a week, or $23,660 a year, to a projected $970 a week, or $50,440 a year. This means overtime pay would be guaranteed for salaried earners making less than $50,440. The change was something President Barack Obama hinted at during his 2015 State of the Union address.

Labor Secretary Tom Perez wrote in a post on the department’s website that, “There are millions of American workers … sacrificing precious family time for a job that’s not paying them enough to make ends meet. That’s not right, and it undermines the very intent of the law that has governed work in America for more than three quarters of a century.”

In that website post, Perez stated overtime regulations have not been “meaningfully updated” in decades.

“An exemption from overtime eligibility originally meant for highly-compensated, white-collar employees now applies to workers earning as little as $23,660 a year — below the poverty line for a family of four,” he wrote. “In 1975, 62 percent of full-time salaried workers were eligible for overtime pay; but today, only 8 percent of full-time salaried workers fall below the salary threshold and are automatically eligible for overtime pay.”

The public comment period for the Notice on Proposed Rulemaking on overtime closed Sept. 4, and the Department of Labor is now reviewing all comments that were received, according to Jason Surbey, from the department’s office of public affairs. He says it’s the administration’s intention for the rule to become effective in 2016.

On behalf of BSCAI, ISSA, the Association of Residential Cleaning Services International (ARCSI) and the National Service Alliance LLC, a letter was sent to the Department of Labor concerning the proposed overtime changes. The letter detailed several concerns from the organizations, mainly the negative impact overtime changes would have on businesses and their employees “at a time when [the] industry is confronted with numerous other rising cost factors, such as increasing wage pressures and increased compliance costs.”

The letter suggests the proposal — if adopted — would lead to:

• Layoffs and significant financial harm to businesses;
• Unemployment and a loss of benefits for employees;
• Automatic annual updates that do not account for fluctuations in the economy.

The letter also contends that the proposal does not take into account regional differences, as salaries and living wages tend to be higher in metropolitan areas versus rural areas.

Balek — one of four individuals who signed the letter to the Department of Labor — said an internal survey by ISSA estimated substantial costs associated with the proposed change.

“We surveyed our members, and we had estimates ranging from an increase in cost for smaller companies at $100,000, and for some of the larger [companies], up to $700,000,” he says. “I suspect some companies would have an even greater economic impact.”

Balek says the proposal has created a cloud of uncertainty, which makes it difficult for businesses to make rational decisions on how to categorize employees and manage their costs.

“Right now, we’ve got this big question mark — is this rule going to be adopted?” says Balek. “If so, what shape and form will it be? The answers to those questions will have cost implications for those businesses. And yet, we don’t have those answers. So it makes it difficult — if not impossible — for those businesses to properly plan and anticipate going forward.”

Diamond says that the proposal directly affects building service contractors.

“That salary exempt number does have a big impact, because those numbers are usually for the internal management staff, and they are not direct costs to the customer,” he says. “If I go back to the customer and I say, ‘You have three cleaners at night and one cleaner during the day or 10 cleaners at night and one cleaner during the day,’ and I say, ‘minimum wage affects them,’ then the customer understands the impact on their site-specific workers. The customers don’t feel it’s as much their obligation to help us cover salaried workers in our office. It raises our corporate overhead when we deal with that exempt status number. The minimum wage affects the cleaners; the exempt status affects management.”

Similar to a minimum wage hike, Diamond says this overtime change will force BSCs to either increase productivity to keep budgets within what the customer is willing to pay, cut services or in some cases do both.

Ultimately, Balek thinks the Department of Labor will revise its overtime regulations.

“It’s just a matter of how that is going to work,” he says. “I don’t think it is going to be adopted in its current form. There’s a lot of push and concern about the rapidity of the adoption of this rule. There’s a lot of pushback from the business community.”

What Lies Ahead

Concerning the minimum wage, Balek says he thinks the status quo will remain.

“I think what you’re going to see happening in the near future is more of the same,” he says. “I think you’ll see states and local governments acting in the absence of any federal action in that area.”

Diamond says politics are far above his pay grade, and that all he and others can do is give their input. He does believe minimum wage will increase — just not as aggressively as what has been reported or proposed.

He also can see benefits to those minimum-wage proposals.

“I do think that when you look at higher-wage employees, one of the side benefits is lower turnover, because the jobs are not as easy to replace,” says Diamond. “Now, if minimum wage goes up, that raises the bar for what the entry-level job is. As you have less turnover, you have the more highly skilled workers gravitate toward the higher-paying jobs. In turn, you can have cleaners who can clean not with just the right tools but also using more and more common sense. Therefore, they can probably clean a little bit faster, because they have had more training and more consistency, and more experience to know what has to get done to keep the environment proper for the client the next day.”

But Diamond does believe the costs associated with both proposals will affect customers at some point.

“I think ultimately five or 10 years down the road, the cost is going to get passed back to the customer,” he says. “But in the short term, it is going to erode margins, and it is going to increase productivity. It’s going to be a combination of both.”

Jon DePaolis is a freelance writer based in Frankfort, Illinois.