[House Hearing, 114 Congress] [From the U.S. Government Publishing Office] THE ADMINISTRATION'S OVERTIME RULE AND ITS CONSEQUENCES FOR WORKERS, STUDENTS, NONPROFITS, AND SMALL BUSINESSES ======================================================================= HEARING before the COMMITTEE ON EDUCATION AND THE WORKFORCE U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION __________ HEARING HELD IN WASHINGTON, DC, JUNE 9, 2016 __________ Serial No. 114-51 __________ Printed for the use of the Committee on Education and the Workforce [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: www.gpo.gov/fdsys/browse/ committee.action?chamber=house&committee=education or Committee address: http://edworkforce.house.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 20-343 PDF WASHINGTON : 2017 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON EDUCATION AND THE WORKFORCE JOHN KLINE, Minnesota, Chairman Joe Wilson, South Carolina Robert C. ``Bobby'' Scott, Virginia Foxx, North Carolina Virginia Duncan Hunter, California Ranking Member David P. Roe, Tennessee Ruben Hinojosa, Texas Glenn Thompson, Pennsylvania Susan A. Davis, California Tim Walberg, Michigan Raul M. Grijalva, Arizona Matt Salmon, Arizona Joe Courtney, Connecticut Brett Guthrie, Kentucky Marcia L. Fudge, Ohio Todd Rokita, Indiana Jared Polis, Colorado Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan, Joseph J. Heck, Nevada Northern Mariana Islands Luke Messer, Indiana Frederica S. Wilson, Florida Bradley Byrne, Alabama Suzanne Bonamici, Oregon David Brat, Virginia Mark Pocan, Wisconsin Buddy Carter, Georgia Mark Takano, California Michael D. Bishop, Michigan Hakeem S. Jeffries, New York Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts Steve Russell, Oklahoma Alma S. Adams, North Carolina Carlos Curbelo, Florida Mark DeSaulnier, California Elise Stefanik, New York Rick Allen, Georgia Juliane Sullivan, Staff Director Denise Forte, Minority Staff Director C O N T E N T S ---------- Page Hearing held on June 9, 2016..................................... 1 Statement of Members: Kline, Hon. John, Chairman, Committee on Education and the Workforce.................................................. 1 Prepared statement of.................................... 2 Scott, Hon. Robert C. ``Bobby'', Ranking Member, Committee on Education and the Workforce................................ 5 Prepared statement of.................................... 6 Walberg, Hon. Tim, a Representative in Congress from the state of Michigan.......................................... 3 Prepared statement of.................................... 4 Wilson, Hon. Frederica S., a Representative in Congress from the state of Florida....................................... 7 Prepared statement of.................................... 8 Statement of Witnesses: Bernstein, Dr. Jared, Senior Fellow, Center on Budget and Budget Policy Priorities................................... 20 Prepared statement of.................................... 22 Passantino, Mr. Alexander J., Esq., Partner, Seyfarth Shaw LLP, Washington, D.C....................................... 38 Prepared statement of.................................... 41 Rounds, General Michael, Associate Vice Provost of Human Resource Management, University of Kansas, Lawrence, KS.... 30 Prepared statement of.................................... 32 Sharby, Ms. Tina, Chief Human Resources Officer, Easter Seals New Hampshire, Manchester, NH.............................. 9 Prepared statement of.................................... 12 Additional Submissions: Guthrie, Hon. Brett, a Representative in Congress from the State of Kentucky: Prepared statement of Dr. William Luckey................. 65 Hinojosa, Hon. Ruben, a Representative in Congress from the State of Texas: Letter from Professors at Colleges and Universities...... 94 Mr. Kline: Prepared statement of the Society for Human Resource Management............................................. 114 Letter from America Association of Colleges of Pharmacy (AACP)................................................. 116 Letter from Consumer Technology Association.............. 118 Letter from Credit Union National Association (CUNA)..... 120 Letter dated June 9, 2016, from College and University Professional Association for Human Resources (cupa-hr). 123 Prepared statement of Independent Electrical Contractors. 125 Prepared statement of Independent Insurance Agent........ 128 Prepared statement of National Association of Federal Credit Unions (NAFCU).................................. 131 Prepared statement of National Association of Home Builders (NAHB)........................................ 133 Prepared statement of National Federation of Independent Business (NFIB)........................................ 134 Letter dated June 6, 2016, from National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA)...................................... 136 Letter dated June 17, 2016, from National Retail Federation (NRF)....................................... 137 Letter dated June 9, 2016, from Partnership To Protect Workplace Opportunity.................................. 139 Letter dated June 9, 2016, from WorldatWork.............. 169 Mr. Scott: Economic Policy Institute: Facts on the updated overtime rule................................................... 172 Takano, Hon. Mark, a Representative in Congress from the State of California: Economic Policy Institute: Nonprofit organizations in support of the Department of Labor's new overtime regulations............................................ 175 Questions submitted for the record by Stefanik, Hon. Elise, a Representative in Congress from the State of New York to General Rounds 183 General Rounds response to questions submitted for the record 185 THE ADMINISTRATION'S OVERTIME RULE AND ITS CONSEQUENCES FOR WORKERS, STUDENTS, NONPROFITS, AND SMALL BUSINESSES ---------- Thursday, June 9, 2016 U.S. House of Representatives Committee on Education and the Workforce Washington, D.C. ---------- The Committee met, pursuant to call, at 10:00 a.m., in Room 2175, Rayburn House Office Building, Hon. John Kline [Chairman of the Committee] presiding. Present: Representatives Kline, Wilson of South Carolina, Foxx, Roe, Thompson, Walberg, Salmon, Guthrie, Rokita, Heck, Messer, Carter, Bishop, Grothman, Curbelo, Stefanik, Allen, Scott, Hinojosa, Davis, Courtney, Fudge, Polis, Wilson of Florida, Bonamici, Pocan, Takano, Jeffries, Clark, Adams, and DeSaulnier. Staff Present: Bethany Aronhalt, Press Secretary; Andrew Banducci, Workforce Policy Counsel; Janelle Gardner, Coalitions and Members Services Coordinator; Ed Gilroy, Director of Workforce Policy; Jessica Goodman, Legislative Assistant; Callie Harman, Legislative Assistant; Nancy Locke, Chief Clerk; John Martin, Professional Staff Member; Dominique McKay, Deputy Press Secretary; Brian Newell, Communications Director; Krisann Pearce, General Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce Policy; Alissa Strawcutter, Deputy Clerk; Juliane Sullivan, Staff Director; Olivia Voslow, Staff Assistant; Joseph Wheeler, Professional Staff Member; Tylease Alli, Minority Clerk/Intern and Fellow Coordinator; Austin Barbera, Minority Press Assistant; Pierce Blue, Minority Labor Detailee; Denise Forte, Minority Staff Director; Christine Godinez, Minority Staff Assistant; Brian Kennedy, Minority General Counsel; Kevin McDermott, Minority Senior Labor Policy Advisor; Kiara Pesante, Minority Communications Director; Arika Trim, Minority Press Secretary; Marni von Wilpert, Minority Labor Detailee; and Elizabeth Watson, Minority Director of Labor Policy. Chairman Kline. A quorum being present, the Committee on Education and the Workforce will come to order. I will recognize myself for a brief opening comment. In July of 2011, Chairman Walberg held a subcommittee hearing to examine whether the Fair Labor Standards Act was meeting the needs of the twenty-first century workplace. And the answer, of course, was a resounding no. We learned the rules implementing the law are too complex, bureaucratic, and outdated. Trial lawyers profit while workers are denied their fair share under a broken regulatory system. That is precisely why this Committee, more specifically Republicans on this Committee, have repeatedly called for responsible effort to streamline and modernize Federal overtime rules. Workplaces are more dynamic and innovative than they have ever been, and the needs of today's workers are much different than for those who worked when the law was written more than 75 years ago. Workers and employers have a better shot to succeed when Federal policies reflect the changing realities of our economy. The Department of Labor had an opportunity to build consensus around a set of responsible reforms that would have garnered broad bipartisan support. Yet the Department chose, once again, to take an extreme partisan approach that will hurt the very people they claim they want to help. This rule will disrupt the lives of countless individuals and do nothing to remove the regulatory landmines that are harmful to workers and employers. That is what small business owners, college and university administrators, State and local officials, and heads of nonprofit organizations have warned about. But these warnings were ignored. The Department ignored the voices of those who must implement this rule in the workplaces, on their campuses, as they serve the needs of people in their communities. Instead, the Department listened to the same progressive voices who have been wrong for so long about how to address the challenges facing working families, the same voices who claimed a trillion-dollar stimulus bill would create jobs and deliver a strong economy. It didn't. The same voices who claimed the government takeover of health care would lower costs and protect the health care people liked. It hasn't. The same voices now claim this overtime rule will provide a pay raise for millions of Americans. It won't. The regulatory onslaught under this administration is unprecedented. The President and his liberal allies have advanced new rules governing retirement advice, health and safety, energy, union organizing, Federal contracting, financial markets, health care, and wages. Still, there are those who can't understand why the economy is anemic or why job growth is sluggish or why wages are largely stagnant. Now we have an overtime rule that will do more harm than good, particularly for lower-income workers and younger Americans. Chairman Walberg has led our efforts in this area for years, and I--where is Chairman Walberg? Ah, there he is, and I will now yield to him the remainder of my time to explain in more detail the costs and consequences of this rule. [The statement of Chairman Kline follows:] Prepared Statement of Hon. John Kline, Chairman Committee on Education and the Workforce In July 2011, Chairman Walberg held a subcommittee hearing to examine whether the Fair Labor Standards Act was meeting the needs of the twenty-first century workplace. The answer was a resounding `no.' We learned the rules implementing the law are too complex, bureaucratic, and outdated. Trial lawyers profit while workers are denied their fair share under a broken regulatory system. That is precisely why this committee--more specifically, Republicans on this committee-- have repeatedly called for a responsible effort to streamline and modernize federal overtime rules. Workplaces are more dynamic and innovative than they have ever been, and the needs of today's workers are much different than for those who worked when the law was written more than 75 years ago. Workers and employers have a better shot to succeed when federal policies reflect the changing realities of our economy. The Department of Labor had an opportunity to build consensus around a set of responsible reforms that would have garnered broad, bipartisan support. Yet the department chose once again to take an extreme, partisan approach that will hurt the very people they claim they want to help. This rule will disrupt the lives of countless individuals and do nothing to remove the regulatory landmines that are harmful to workers and employers. That's what small business owners, college and university administrators, state and local officials, and heads of nonprofit organizations have warned about. But these warnings were ignored. That's right--the department ignored the voices of those who must implement this rule in their workplaces, on their campuses, and as they serve the needs of people in their communities. Instead, the department listened to the same progressive voices who have been wrong for so long about how to address the challenges facing working families. The same voices who claimed a trillion dollar ``stimulus'' bill would create jobs and deliver a strong economy. It didn't. The same voices who claimed a government takeover of health care would lower costs and protect the health care people liked. It hasn't. Those same voices now claim this overtime rule will provide a pay raise for millions of Americans. It won't. The regulatory onslaught under this administration is unprecedented. The president and his liberal allies have advanced new rules governing retirement advice, health and safety, energy, union organizing, federal contracting, financial markets, health care, and wages. Still there are those who can't understand why the economy is anemic, or why job growth is sluggish, or why wages are largely stagnant. Now we have an overtime rule that will do more harm than good, particularly for lower-income workers and younger Americans. Chairman Walberg has led our efforts in this area for years, and I would like to yield to him to explain in more detail the costly consequences of this final rule. ______ Mr. Walberg. I thank you, Mr. Chairman, for recognizing me on this. This is an important issue, and we have spent significant time on it with the hopes, that someone out there dealing with this would listen, and listen to reality. I mean, today, I received a copy of a letter sent out by professors and nonprofits, none of which who have anything to do, as far as I can tell, with establishing a budget and dealing with paying people, and making sure institutions continue. And in fact, what I see here, professors of theater and others, no wonder we have got the problem with misunderstanding what realities are and making sure that people have opportunities for expansion, opportunities for experience, opportunities for resume building, opportunities to do things that happen in America. Whew, now that I got all that out of my system, let me go on with a statement here. Because of this rule, many Americans will soon realize that they have fewer job prospects, less flexibility in the workplace, and fewer opportunities to climb the economic ladder. Thousands of salaried workers will be demoted to hourly status. These workers will feel as though they have taken a step back in their careers when they are forced to clock their hours and they no longer have flexible schedules to balance work and family. With this shift, workers will have fewer opportunities for on-the-job training and career advancement. Last year we heard from Eric Williams, who started his career working on the line at a fast food restaurant and then climbed the ranks to become an industry executive. He testified how the Department's actions will limit the ability of hardworking men and women to achieve the same success, and that is reality. He also owns businesses now, but it started with the opportunity, the opportunity to expand his capabilities. Younger Americans in particular will be hurt. At a time when rising college costs and student debt are a national concern, the administration is pushing a rule that will make matters even worse. Colleges and universities nationwide, including the University of Michigan in my home state, who testified in front of our subcommittee and said, ``Absolutely. Tuition costs will raise as a result of it.'' Not what these professors have stated, who have no responsibility for that, but people who have the concerns have indicated across the board that tuition will have to increase. They have warned this rule forced them to raise tuition and reduce services. This rule will make it harder for young people to pursue their education, and adding insult to injury, it will be even harder for them to begin their careers. Nonprofit organizations with tight budgets faced similar challenges. Every day in each of our districts, these organizations are making a difference in the countless lives, whether helping underprivileged youth, building good homes for low-income families, or serving the needs of individuals with disabilities. We should do everything we can to support and encourage these crucial services. But as one of our witnesses will testify today, this rule will do the exact opposite. Finally, Mr. Chairman, as is often the case with the administration, this rule creates new hurdles for startups and small businesses. Many won't be able to afford this mandate even if they wanted to. Some will have no choice but to hold back on hiring, lay off workers, or cut back hours. To make matters worse, they will continue to confront a confusing regulatory maze that encourages costly litigation. The bottom line is that this rule hurts the very individuals the administration claims it will help. That is why I introduced legislation earlier this year along with Senator Tim Scott to protect workers, students, nonprofits, and small businesses from the rule's harmful consequences. Today's hearing is the next step in our efforts. I look forward to our discussion and yield back to the Chairman. [The statement of Chairman Walberg follows:] Prepared Statement of Hon. Tim Walberg, a Representative in Congress from the state of Michigan Thank you, Chairman Kline. Because of this rule, many Americans will soon realize they have fewer jobs prospects, less flexibility in the workplace, and fewer opportunities to climb the economic ladder. Thousands of salaried workers will be demoted to hourly status. These workers will feel as though they've taken a step back in their careers when they're forced to clock their hours, and they'll no longer have flexible schedules to balance work and family. With this shift, workers will have fewer opportunities for on-the- job-training and career advancement. Last year, we heard from Eric Williams, who started his career working on the line at a fast-food restaurant and then climbed the ranks to become an industry executive. He testified how the department's action will limit the ability of hardworking men and women to achieve the same success. Younger Americans in particular will be hurt. At a time when rising college costs and student debt are a national concern, the administration is pushing a rule that will make matters even worse. Colleges and universities nationwide--including the University of Michigan in my home state--have warned this rule will force them to raise tuition or reduce services. This rule will make it harder for young people to pursue their education, and adding insult to injury, it will be even harder for them to begin their careers. Nonprofit organizations with tight budgets face similar challenges. Every day, in each of our districts, these organizations are making a difference in countless lives, whether helping underprivileged youth, building good homes for low-income families, or serving the needs of individuals with disabilities. We should do everything we can to support and encourage these crucial services, but as one of our witnesses will testify today, this rule will do the exact opposite. Finally, as is often the case with the administration, this rule creates new hurdles for startups and small businesses. Many won't be able to afford this mandate, even if they wanted to. Some will have no choice but to hold back on hiring, lay off workers, or cut back hours. To make matters worse, they'll continue to confront a confusing regulatory maze that encourages costly litigation. The bottom line is that this rule hurts the very individuals the administration claims it will help. That's why I introduced legislation earlier this year, along with Senator Tim Scott, to protect workers, students, nonprofits, and small businesses from the rule's harmful consequences. Today's hearing is the next step in our efforts. I look forward to our discussion and yield back to the chairman. ______ Chairman Kline. The gentleman yields back. I am going to be recognizing the Ranking Member Scott for his opening comments, and by agreement he will yield part of his time to the Ranking Member on the subcommittee, Ms. Wilson. I recognize Mr. Scott. Mr. Scott. Thank you, Mr. Chairman. Mr. Chairman, last month the Department of Labor took a long overdue step towards addressing income inequality by restoring and strengthening overtime protections for millions of Americans. Before too long, we have let the bedrock worker protections wither, leaving millions of Americans working harder than ever with very low pay. Some of those changes over the years include, in 1965, CEOs earned 20 times the pay of the typical worker. Now they earn over 300 times. In 1970s, the Federal minimum wage was equal to 50 percent of the average hourly worker's pay. Today, minimum wage is only about 35 percent of the average hourly worker's pay. In 1975, the overtime threshold below which most salaried workers are automatically eligible for overtime pay recovers 60 percent of them were covered. Today, it is only 7 percent. Overtime protections in the Fair Labor Standards Act of 1938 were intended to curve overwork and help create jobs by encouraging employers to hire more workers rather than overworking the few. But the overtime salary threshold has been allowed to erode so badly that today a worker earning less than the poverty threshold for a family of four still makes too much to be automatically eligible for overtime pay. Congress intended that the Fair Labor Standards Act would protect and expand the middle class. For too long, the overtime regulations were consistent. And for a long time, the overtime regulations were consistent with that goal. Between 1938 and 1975, the salary threshold was updated seven times, and it was set at a meaningful level, initially, and kept pace with changing economies. But over the past 40 years, the threshold has only been updated once, in 2004, and that increase was far below the historical average. The Department of Labor's job is to implement laws passed by Congress. With this rule, the Department has done its job making the Fair Labor Standards Act's overtime protections meaningful again. The rule restores the 40 hour work week, raising the salary threshold to $913 a week, approximately a little over $47,000 a year. This update will make 4.2 million workers newly eligible for overtime and strengthen overtime protections for 8.9 million more workers. Today, too many workers are deemed ``salaried'' and then work 50, 60, or even 70 hours a week, working their last 10, 20, or 30 hours for no pay at all. Yeah, that's right. After they have worked the first 40 hours, the additional 10, 20, or 30 hours, as it has been said, they have the freedom to work those 10, 20, or 30 hours. Well, I agree. Unfortunately, the interpretation is different because the 10, 20, or 30 hours extra are worked for free, and I am not sure that is the freedom that most workers want. Some of these workers wind up earning below the minimum wage when all of their work hours are taken into account, and that's wrong. When you work extra, you should be paid extra. Instead of forcing workers to put in extra hours with no pay, the rule will result in some employees getting back some precious time with their families, which we know is critical to parents' ability to help children thrive. It will also create jobs by putting incentives in place for employers to spread work hours to new employees, and it will result in part-time employees having the opportunity to work additional hours that many want and need. Critically, the rule ensures that we will not see eligibility for overtime erode so badly again by requiring automatic updates for the salary threshold every three years. Polls show that 79 percent of Americans agree that it is time for our Nation's overtime rules to be updated, and Committee Democrats stand with our fellow Americans in welcoming that increase. I look forward to hearing from the witnesses about this role so we can reduce income inequality and strengthen the middle class, and I commend the Department of Labor for its excellent work on this issue. And I now yield to the ranking member of the subcommittee, Ms. Wilson. [The statement of Ranking Member Scott follows:] Prepared Statement of Hon. Robert C. ``Bobby'' Scott, Ranking Member, Committee on Education and the Workforce Thank you, Mr. Chairman. Last month the Department of Labor took a long overdue step toward addressing the income inequality crisis facing our nation by restoring and strengthening overtime protections for millions of Americans. For far too long, we have let the bedrock worker protections wither-- leaving millions of Americans working harder than ever for very low pay. In 1965, CEOs earned 20 times the pay of the typical worker. Today they earn over 300 times more. In the 1970s, the federal minimum wage was equal to 50 percent of the average hourly worker's pay. Today the minimum wage is equal to only 35 percent of the average hourly worker's pay. And in 1975, the overtime threshold below which most salaried workers are automatically eligible for overtime pay covered over 60 percent of salaried workers. Today it covers only 7 percent. The overtime protections in the Fair Labor Standards Act of 1938 were intended to curb overwork and help create jobs by encouraging employers to hire more workers, rather than overworking a few. But the overtime salary threshold has been allowed to erode so badly that today a worker earning less than the poverty threshold for a family of four still makes too much to automatically qualify for overtime pay. Congress intended the FLSA to protect and expand the middle class. And for a long time, the overtime regulations were consistent with that goal. Between 1938 and 1975, the salary threshold was updated seven times--it was set at a meaningful level initially and kept pace with a changing economy. But in the past 40 years, the threshold has only been updated once (in 2004) --and that increase was far below the historical average. The Department of Labor's job is to implement the laws passed by Congress. With this rule, the Department has done its job - making the Fair Labor Standards Act's overtime protections meaningful again. The rule restores the 40-hour workweek by raising the salary threshold to $913 per week, or roughly $47,476 per year. This update will make 4.2 million workers newly eligible for overtime and strengthen overtime protections for 8.9 million more workers. Today too many workers are deemed `salaried' and then work 50, 60, or even 70 plus hours a week--working the last 10, 20 or 30 hours for no pay at all. That's right after they've worked the first 40 hours, the additional 10, 20 or 30 hours, as it's been said, they have the `freedom' to work those 10, 20 or 30 hours. Well I agree. Unfortunately the interpretation is different, because 10, 20 or 30 hours extra hour are worked for free. I'm not sure that's the freedom that workers want. Some of these workers wind up earning below the minimum wage when all of their work hours are taken into account. That is wrong. When you work extra, you should get paid extra. Instead of forcing workers to put in extra hours for no pay, the rule will result in some employees getting back precious time with their families, which we know is so critical to parents' ability to help children thrive. It will also create jobs by putting incentives in place for employers to spread work hours to new employees, and it will result in part-time employees having the opportunity to work additional hours that many want and need. Critically, the rule ensures that we will not see eligibility for overtime erode so badly again by requiring automatic updates to the salary threshold every three years. Seventy-nine percent of Americans agree that it is time for our nation's overtime rules to be updated and Committee Democrats stand with our fellow Americans in welcoming this increase. I look forward to hearing from our witnesses about how this rule can reduce income inequality and strengthen the middle class. And I commend the Department of Labor for its excellent work on this important issue. I now yield to the Ranking Member of the Subcommittee, Mrs. Wilson. ______ Ms. Wilson. Thank you, Ranking Member Scott. The Department of Labor's final overtime rule will extend overtime protections to 4.2 million Americans, including 330,870 workers in my home state of Florida and 101,463 workers in my colleague's state of Florida. In addition to extending overtime eligibility to millions, this update strengthens overtime protections for 8.9 million workers who are already eligible for, but are unfairly denied, overtime pay. Salaried workers are entitled to premium overtime unless they both earn above the salary threshold and meet a duties test. Unfortunately, too many employers fail to perform a duties test, focusing only on the salary threshold which since 2004 is near poverty wages. This focus on salary level alone has left far too many employees misclassified as exempt, depriving them of the overtime pay they deserve. Since its inception, the salary level test was designed to prevent this missed classification by screening out workers who were obviously not exempt because they failed the job's duties test. But as the salary threshold becomes outdated, misclassification becomes more abundant as more workers are subject to the duties test. The previous salary level only screened out 15 percent of workers who failed the duties test. The new rule restores the advocacy of the salary threshold, simplifies application, and prevents misclassification by making clear that 8.9 million Americans who were previously subject to, but failed, the duties test are still eligible for overtime pay simply by virtue of their salaries. I urge my colleagues in the majority to rethink their stance on this sensible effort to prevent misclassification. I urge them, also, to cosponsor my bill, the Payroll Fraud Prevention Act, which would prevent another form of misclassification: the misclassification of employees as independent contractors, which deprives them of vital wage and hour protections. I urge the majority to reconsider its position on both of these policies designed to protect workers from the misclassification that can deny them their hard-earned pay. I yield back. [The statement of Ranking Member Wilson follows:] Prepared Statement of Hon. Frederica S. Wilson, a Representative in Congress from the state of Florida Thank you, Mr. Chair. The Department of Labor's final overtime rule will extend overtime protections to 4.2 million Americans, including 330,870 workers in my home state of Florida and 101,463 workers in my colleague's state of Michigan. In addition to extending overtime eligibility to millions, this update strengthens overtime protections for 8.9 million workers who are already eligible for, but are unfairly denied, overtime pay. Salaried workers are entitled to premium overtime unless they both earn above the salary threshold and meet a duties test. Unfortunately, too many employers fail to perform a duties test, focusing only on the salary threshold, which, since 2004, has hovered near poverty wages. This focus on salary level alone has left far too many employees misclassified as exempt, depriving them of the overtime pay they deserve. Since its inception, the salary level test was designed to prevent this misclassification by screening out workers who were obviously non- exempt because they failed the job duties test. But as the salary threshold becomes outdated, misclassification becomes more abundant as more workers are subject to the duties test. The previous salary level only screened out 15 percent of workers who failed the duties test. The new rule restores the efficacy of the salary threshold, simplifies application, and prevents misclassification by making clear the 8.9 million Americans who were previously subject to, but failed, the duties test are eligible for overtime pay simply by virtue of their salaries. I urge my colleagues in the majority to rethink their stance on this sensible effort to prevent misclassification. I urge them to also cosponsor my bill, the Payroll Fraud Prevention Act, which would prevent another form of misclassification - the misclassification of employees as independent contractors, which deprives them of vital wage and hour protections. I urge the majority to reconsider its position on both of these policies designed to protect workers from the misclassification that can deny them of their hard-earned pay. I yield back. ______ Chairman Kline. The gentlelady yields back. Pursuant to Committee Rule 7(c), all members will be permitted to submit written statements to be included in the permanent hearing record, and, without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous material referenced during the hearing to be submitted for the official hearing record. We will now turn to the introductions of our distinguished witnesses. Miss Tina Sharby is the chief human resources officer with Easter Seals New Hampshire, Inc., in Manchester, New Hampshire. Additionally, she is currently president of the Manchester Area Human Resources Association Board of Directors and a board member of the New Hampshire Human Resources State Council. Dr. Jared Bernstein is a senior fellow with the Center on Budget and Policy Priorities here in Washington, D.C. Dr. Bernstein previously served as chief economist and economic advisor to Vice President Biden, and was a member of President Obama's economic team. Between 1995 and 1996, Dr. Bernstein held the post of deputy chief economist at the U.S. Department of Labor. General Michael Rounds is the associate vice provost of human resource management at the University of Kansas, in Lawrence, Kansas, where he oversees human resource services for more than 10,000 faculty, staff, and student employees on the K.U. Lawrence and Edwards campuses. Before joining the University of Kansas, General Rounds served as deputy superintendent in the Office of District Support for the Louisiana Department of Education. He retired from the Army in 2009 at the rank of brigadier general. Mr. Alexander Passantino is a partner with Seyfarth Shaw LLP here in Washington, D.C., and leads the D.C. office's Wage and Hour Litigation Practice Group, focusing in part on FLSA compliance issues. Prior to joining Seyfarth Shaw, Mr. Passantino started as deputy and acting administrator of the U.S. Department of Labor's Wage and Hour Division from 2006 to 2009. I would like to ask our witnesses to please raise your right hand. [Witnesses sworn.] Chairman Kline. Let the record reflect the witnesses answered in the affirmative. Before I recognize each of you to provide your testimony, just a brief reminder of our lighting system. We allow five minutes for each witness to provide testimony. When you begin, the light will turn green. When one minute is left, the light will turn yellow. At the five minute mark, the light will turn red, and I would ask you to try to wrap up your testimony quickly. I am very loathe to gavel down a witness in their testimony, but we have got a lot of members here who want to be engaged in the discussion. And when we get to members, I will remind my colleagues that you will have five minutes. That is for the question and answer, folks. And I am not loathe to gavel down my colleagues. We are ready to start, and I would recognize Miss Sharby for five minutes. TESTIMONY OF TINA SHARBY, CHIEF HUMAN RESOURCES OFFICER, EASTER SEALS NEW HAMPSHIRE, MANCHESTER, NH, TESTIFYING ON BEHALF OF THE SOCIETY FOR HUMAN RESOURCE MANAGEMENT Ms. Sharby. Good morning, Chairman Kline and Ranking Member Scott. I am Tina Sharby, the chief human resources officer for Easter Seals New Hampshire, and I am appearing before you today on behalf of the Society for Human Resource Management. I appreciate the opportunity to share a little bit about what this new overtime rule means for not-for-profits like mine, as well as SHRM's reaction to the final regulation. In short, Mr. Chairman, while SHRM supports an update to the salary threshold, the final overtime rule is too much, too fast. The rule will have a far-reaching negative impact on Easter Seals New Hampshire, on our dedicated employees, and most importantly on some of the most vulnerable members of our community. Despite overwhelming input from members of the regulated community through the rulemaking process, the administration unfortunately missed a real opportunity to put forth a rule that works for employers and employees. Not-for- profit organizations in particular will be disproportionately impacted by the rule's dramatic 100 percent increase to the salary threshold, and this threshold only escalates since the final rule indicates an automatic increase every three years. Let me briefly explain my organization. Easter Seals New Hampshire is the parent organization to Easter Seals Rhode Island, Easter Seals Maine, and Vermont. In 2015 alone, we assisted over 16,000 individuals and provided over $6 million in free and subsidized services. As a not-for- profit with limited flexibility in the budget, I have serious concerns on how I will be able to cover potential overtime expenses. Most of Easter Seals New Hampshire's funding comes through Medicare, Medicaid, and other State and Federal funding sources, and funding to these programs is not expected to receive any increases anytime soon. We are unable to raise prices on products or services to clients to cover these added overtime costs. Faced with a doubling of the salary threshold, we will have no other option but to drastically reduce the services in order to continue to operate. A program at significant risk is the Military and Veterans Service Care Coordination Program, which provides services 24/7 for our veterans in emergency situations. Since the program's inception, we have responded to over 100 incidents, significantly reducing the risk of suicide. Because of the potential cost for overtime under the final rules, Easter Seals New Hampshire will be forced to limit our ability to provide this around-the-clock care and lessen these life-saving support services. Mr. Chairman, we estimate that the final overtime rule will cost Easter Seals $427,000 in the first year alone, but the consequences of the rule are not just financial. They also impact our employees negatively. Consider our care coordinators who are salaried professional employees. They respond to care needs whenever a service member or veteran needs help. These employees make an average of $43,000 a year. This is below the rule's new salary threshold, but clearly they conduct exempt tasks such as supervising services and overseeing the planning of client care. If these care coordinators are reclassified as nonexempt, not only will they no longer be able to provide these critically needed services around the clock, we will view their reclassification as a demotion. In fact, we have calculated that a total of 280 employees will need to be reclassified from salary to nonexempt status. Additionally, during times of crisis, these coordinators often work well over 40 hours a week to provide emergency client care. When the schedule returns to normal, they will take time off to attend other life events. Now, with these employees being reclassified, they will be forced to closely track every minute in a work week, and less likely will they be going to a doctor's appointment and child's soccer games. Mr. Chairman, the final rule was clearly a missed opportunity to update overtime regulations in a way that works for both employers and employees. Throughout the rulemaking process, SHRM has supported a measured increase in the salary threshold. However, doubling the salary threshold in the 40th percentile of weekly earnings presents significant challenges for employers like mine. Tying the increase to the 40th percentile sharply contrasts with historical updates through the salary threshold that represented a more reasonable increase and acknowledged differences across sectors and in certain areas with lower cost of living. SHRM and its members are equally concerned about the automatic threshold to increase. In closing, Easter Seals, other not-for-profits, SHRM, and employers across the country have serious concerns with the final overtime rule. That is why SHRM strongly supports the Protecting Workplace Advancement and Opportunity Act. The bill would nullify the final overtime rule in order to have the Department of Labor do a better economic impact analysis before issuing new changes to the overtime regulations. SHRM and its members look forward to working with the Congress to improve the overtime rule in a way that works for both employers and employees. Thank you and I welcome your comments. [The statement of Ms. Sharby follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Kline. Dr. Bernstein, you are recognized for five minutes. TESTIMONY OF JARED BERNSTEIN, SENIOR FELLOW, CENTER ON BUDGET AND POLICY PRIORITIES, WASHINGTON, D.C. Mr. Bernstein. Chairman Kline, Ranking Member Scott, thank you for the opportunity to testify in this extremely welcome update to an essential labor standard. My first point is that in our age of high levels of income and wealth and equality, it is essential that labor standards first established 75 years ago in the Fair Labor Standards Act are updated. By adjusting the overtime salary threshold, this new rule does exactly that. Second, the blue line in the figure you see there shows that this adjustment, while welcome and significant, is but a partial adjustment, one that reflects the Department of Labor's responsiveness to thousands of comments from stakeholders. Were we to fully adjust the threshold for the value it has lost since 1975, it would be set at well over a thousand dollars per week instead of about $900 per week, which is the 40th percentile of the lowest wage region, the South. The new threshold will also cover 35 percent of full-time salaried workers, a large increase from the 7 percent covered today, but a far cry from the 60 percent covered in 1975, as Ranking Member Scott pointed out. In other words, this new threshold is a reasonable but conservative choice. The U.S. economy is twice as productive as it was 40 years ago, and the workforce is much more highly educated. I know of no plausible economic reason why our labor market cannot maintain a standard that approaches what we had back then. Third, opposition to the new rule is misguided. Given the DOL's thoughtful compromises in only partially updating this labor standard, and the new rule's negligible impact on the national wage bill, many of the attacks on it amount to nothing more than knee-jerk responses from business lobbyists doing what they are paid to do: fight the rule regardless of the substantive arguments that support it. And while concerns about compliance cost, and cost to nonprofits and higher educational institutions deserve a response, they too miss the mark. On compliance cost, the DOL, at the behest of employers, did not change the duties test, which is the most complex part of the overtime determination. Since firms should already be in compliance with this part of the law, no new compliance costs are invoked in this area. In fact, at a recent congressional hearing, the witness representing the National Restaurant Association conceded this point, admitting that compliance with the new rule ``would be an easy transition to make from a management and bookkeeping standpoint.'' The higher threshold actually simplifies firms' compliance burden as more workers will be automatically covered, the need for the duties test on millions of salary workers is now obviated. The DOL also worked hard to accommodate the concerns of nonprofit and higher educational institutions. For certain Medicaid-funded providers of services for individuals with intellectual or developmental disabilities, for example, the new rule does not take effect for three years, providing time for outreach, technical assistance, and budget adjustment. As another example, DOL ensured that future National Research Service Award Grants from the NIH will be above the new salary threshold. It is also important to note that the FLSA contains some exemptions for teachers, including professors, adjunct instructors, certain coaches, and academic administrative personnel, as well as many graduate and undergraduate students. The DOL's new guidance even highlights that the Department generally ``views graduate and undergraduate students who are engaged in research under a faculty member supervision as being in an educational relationship and not an employment relationship with the school, and thus, not entitled to overtime.'' On the whole, the rule is predicted to increase the total payroll of nonprofits and higher education institutions by far less than one-tenth of 1 percent. I hope members keep that in mind when we listen to some of the heated rhetoric we are hearing. Most importantly, these organizations should remember that the pay and work-family balance of their workers is no less important than the pay and work-family balance of workers at for-profit institutions. The whole point of this labor standard is to guarantee employees fair workplace conditions, a point recently amplified by a group of nonprofits in favor of the proposed rule, who wrote, ``Our own workers and the families they support also deserve fair compensation and greater economic security.'' As these nonprofits argued, teaching or working for the public good should not require working long, unpaid hours. While my fellow witness may argue otherwise, I urge you on the Committee to remember that we could just as easily have found representatives from the education and nonprofit sectors who strongly support the new rule, recognizing its role in valuing and respecting their workforces. Those of us who purport to care about the public good have the responsibility to practice the values we preach. This rule gives an excellent opportunity to do just that. Thank you. And I yield back my time. [The statement of Mr. Bernstein follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Kline. The gentleman yields back and I thank him for it. General Rounds, you are recognized. TESTIMONY OF GENERAL MICHAEL ROUNDS, ASSOCIATE VICE PROVOST OF HUMAN RESOURCE MANAGEMENT, UNIVERSITY OF KANSAS, LAWRENCE, KS Mr. Rounds. Good morning, Chairman Kline, Ranking Member Scott, and members of the Committee. Thank you for providing me the opportunity to testify on the administration's overtime rule that will impact our students, families, and hundreds of employees at the University of Kansas. When fully implemented, the recent changes to the Fair Labor Standards Act will have a significant impact on the university. K.U. is a major public research university, and it is the flagship institution in the State of Kansas. Like many public universities across the country, the percentage of university resources that come from public funding sources has decreased significantly over the past decade. While university leaders agree that an increase to the minimum salary threshold is due, an increase of 100 percent at one time in 2016 is difficult to absorb without significantly impacting university services. Many employees on college campuses, including K.U., are currently exempt from the overtime pay requirements. To comply with the pending increase in the exempt threshold from $23,660 to $47,476, colleges and universities may increase the salaries for a few individuals whose current pay is closest to the new threshold, but will need to reclassify the majority of impacted employees to hourly status. While in some cases these changes are appropriate and would keep with the spirit of the legislation, in many instances K.U. is being forced to reclassify employees who work in jobs that have always been exempt and are well suited to exempt status. It is K.U.'s position that this widespread reclassification is to the detriment of both our employees and students. As a nonprofit and public entity, K.U. is reflective of the higher education industry in our inability to absorb the increased costs that come with higher salaries for exempt employees, expanded overtime payments, and other labor and administrative costs associated with transitioning traditionally exempt employees into nonexempt status. In the face of these costs and challenges, K.U. will ultimately be forced to adjust or reduce services, eliminate or consolidate positions, or at some point raise tuition, all to the detriment of our students. The changes will also increase the costs of, and thus inhibit, important research done by the university. Unfortunately, due to recent cuts in public funding, the university does not have the central funding flexibility to apply against the financial impacts of the adjusted overtime rule as we enter a new State fiscal year on 1 July. With no central fiscal flexibility, K.U. is compelled to pass any financial responsibilities for addressing the legislation along to our school's department and research centers. Working on relatively fixed budgets, each unit has limited options available to address the mandated changes. In the short-term, the primary impact will be felt in the reduction of services or the elimination of positions. Ultimately, our most important stakeholder, students, will bear the burden of these adjustments. As of June 6, 2016, the university has 354 currently exempt employees impacted by the revised overtime rule. The projected cost to raise these employees to the new annual salary threshold is around $3 million. The alternative, if chosen, is to switch these employees to a nonexempt status and pay them overtime. The projected overtime cost to sustain our current level of services is roughly equivalent to the cost to raise each employee to the new exempt threshold. Since neither of these options are currently financially feasible for any of K.U.'s units, it is inevitable that there will be a reduction in the services currently being provided by K.U. units, the students, as we transition employees from their current exempt to nonexempt status without the flexibility of working more than 40 hours per work regardless of mission demands. The one relatively flexible financial lever that the university has to increase revenue is to raise tuition. Tuition increases need to be approved by the Kansas Board of Regents and are justifiably closely scrutinized. For the upcoming fiscal year beginning in July, the window to use a tuition increase to help mitigate the impact of the new overtime rule in 2016 and 2017 has closed. It is probable, however, that tuition will ultimately be pushed higher in future years in order to address the enduring impacts of the new overtime rule. Due to both the near- and long-term fiscal impacts of the new overtime rule, K.U. believes that the Protecting Workplace Advancement and Opportunity Act is important legislation because it would require a more detailed economic analysis, including understanding and mitigating the impacts on higher education before these dramatic changes to Federal overtime pay requirements are fully implemented at K.U. We appreciate the administration's ambitious agenda to promote affordable, high- quality educational opportunities, expanding access to college, and providing the support necessary to drive students to on- time completion and long-term success. However, the new changes to the overtime rule represents a major expense for a public university and puts our campus in further financial strain as we continue to deal with decreased State funding. There is simply no way for universities like K.U. to absorb costs of this magnitude without an impact on our academic research and outreach missions that will be felt by the public and students we serve. Thank you. [The statement of Mr. Rounds follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Kline. Thank you. Mr. Passantino, you are recognized. TESTIMONY OF ALEXANDER PASSANTINO, PARTNER, SEYFARTH SHAW LLP, WASHINGTON, D.C. Mr. Passantino. Thank you. Chairman Kline, Ranking Member Scott, members of the Committee, thank you for the opportunity to speak with you today regarding the Department of Labor's revisions to the white collar overtime regs. As a partner in the Washington, D.C. office of Seyfarth Shaw my practice focus is on helping employers comply with FLSA. I spend my days providing advice and counsel to employers on things like independent contractor status, overtime exemptions, and other pay practices. Since the Department announced its revised regulations three weeks ago, I have been discussing this issue pretty much nonstop with employers, with trade associations, with colleagues, and I am pretty sure that my family's been subjected to it as well. Today, I want to focus and spend the time flagging some of the compliance challenges that employers will face in the coming months as they decide how to proceed with the revised regulations. Certainly, a few employers, particularly in some industries and in some higher-wage regions of the country, may find that all they need to do is decide and flip some switch. For the vast majority of employers, however, the revisions require a thorough analysis of the costs and benefits associated with each of the several options for currently exempt employees earning an annual salary between $23,000 and $47,000. On the one side, you have the increased costs of the increased salaries, not just for the affected employees, but for supervisors or for more experienced employees to avoid salary compression. On the other hand, we have the impacts of converting employees to nonexempt status and is explained in more detail in my written testimony. Those impacts include: harming the ability of employers to provide and employees to take advantage of flexible scheduling options, including part-time employment; treating employees in the same job classification for the same employer differently based on regional cost of living differences; limiting career advancement opportunities; decreasing morale for those employees who are demoted to nonexempt status, particularly where peers in other locations remain exempt; reducing employee access to a variety of additional benefits, including incentive pay; deterring employers from providing newly reclassified employees with mobile devices and remote electronic access, further limiting employee flexibility; increasing FLSA litigation based on off-the-clock and regular rate of pay claims; and introducing a host of legal and operational issues, such as increased costs for administration. It is important to remember that converting an employee to nonexempt status means that the employer must treat the employee as nonexempt for all purposes. This means accurately tracking time; ensuring compliance with the minimum wage and overtime provisions; and, properly computing the regular rate of pay for overtime. With respect to tracking time, converting employees to nonexempt status means throwing them into a regulatory scheme developed for the workplace of a different century. It would take them from the 2004 white collar exemption regulations and place them under regulations where the case is cited or from the 1940s and the 1950s. Although in fairness, there is at least one case from 1960s cited in those regulations. It uses as examples people who are working crossword puzzles and playing checkers while they are waiting around on the job; telephone operators who have switchboards in their homes. In the modern workplace, the old understandings of waiting time, travel time, work time, and even workplace are pushed beyond the point of breaking. When you are talking about email, working on a laptop from a coffee shop, taking a call in the school pickup line, and all the time in between whether it is travel or waiting, the current rules do not work. How does an employer determine what time is paid and what time is not? Where do the principles of continuous workday begin and end? The answers are not clear. The regulations, guidance, and cases provide arguments on virtually every side of the issue. And every day employers are sued over the seemingly minor bits of time that have not been included in employees' hours of work. Yet it is the employer's obligation to keep adequate records of the employees' time, not just an eight written at the end of the day, every day, but the actual hours worked. And failure to do so results in severe consequences to employers in litigation. Under the existing rules, payments, like bonus payments, incentive payments, have to be included in the nonexempt employees' regular rate of pay. Sometimes that has to go back over the course of a year. Faced with that difficult calculation, employers often forego those types of incentive payments to nonexempt employees. The issues that I am raising now do not include issues related to morale, the get-it-done mentality, part-time employment, and even how employers are going to pay. So, once the employers decide they are going to convert someone to nonexempt status, they need to determine how they are going to pay, the rate they are going to pay, whether it is going to be a salary plus overtime, whether it is going to be straight hourly. Once those decisions are made, employers have to communicate. They have to craft communications to explain this to employees and they need to do it in such a way that has the employee understanding that they are still a valued member of the team and that they are not diminished in any way because they are losing their exempt status. And employers also need to craft these communications because the plaintiffs' lawyers have already announced that they are on the lookout for new cases based on the reclassification. On top of that, this process will repeat itself every three years as the Department increases the salary automatically every three years. In exchange for this, the Department's revisions do little to promote the President's directive to modernize the regulations. Rather, they are going to place large numbers of employees under a regulatory scheme that was last updated in the 1960s and is fraught with uncertainty. The Department itself is going to issue a Request for Information on some of these issues related to how the regulatory framework applies to the modern workplace. Unfortunately, employers do not have the luxury of waiting for the Department to modernize the regulatory scheme. They need to be in compliance by December 1 and the clock is ticking. Thank you for the opportunity to appear before the Committee and I look forward to your questions. [The statement of Mr. Passantino follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Kline. Thank you. I thank all the witnesses. Let me start questioning with you, Mr. Passantino, because you are kind of on a roll here. You know from your time at Wage and Hour that it is time-consuming to create regulations in accordance with the Administrative Procedure Act and governing law. But the reason Congress established this process is because it is so important to offer the public, including affected stakeholders, the opportunity to provide commentary informing the rulemaking process. Your testimony correctly notes that the Department's regulations sets a process automatically increasing the salary threshold every three years without fulfilling all of the procedural requirements designed to produce good rules. Can you take a couple of minutes here and explain how dangerous that is and possibly illegal that is to establish this process? Mr. Passantino. Sure. You know, by eliminating the notice and comment rulemaking process for all future salary increase, the Department has apparently decided that it doesn't need the input of the regulated community. So, historically, it has been notice and comment, the Department proposes a salary level. The regulated community weighs in, says we think it is too high, we think it is too low. And they take those comments under consideration and then the final rule comes out with a new salary level. In 2004, the salary level proposed was lower than the salary level in the final rule. In 2016, the salary level proposed was higher than what happened in the final rule. So, it can fluctuate in both directions depending on what the comments say. What the Department has done is said, we do not need to hear from the regulated community. We do not need to understand what the economic conditions are and how this is going to impact anyone who is directly affected by this rule. We are just going to update this every three years based on a standard that we have identified now in 2016, and we are going to do this for eternity. I do not believe that complies with the Administrative Procedure Act. I think it is sort of a super proposal for eternity. It is just we are going to propose this standard for all time. Congress has never authorized automatic increases and I think it is highly problematic that the Department is doing that. Chairman Kline. Thank you, sir. I yield back. We will recognize Mr. Scott. Mr. Scott. Thank you, Mr. Chairman. Ms. Sharby, did you indicate the $265,000 will be the cost to raise all the salaries up to the exempt level? Ms. Sharby. Yes, that is correct. Mr. Scott. So that anybody making from about $23,000 could get a raise to over $23,000, everybody between 23 and 47 could get to 47 and it would cost you $265,000? Ms. Sharby. Correct. Mr. Scott. And you would be right back to where you are today in terms of dealing with the overtime rule. What is your total budget? Ms. Sharby. We are very close to a hundred million. Mr. Scott. One percent of a hundred million is 1 million and you are talking about $265,000? Ms. Sharby. That is just in the cost to raise the employees to the new salary threshold. That does not take into consideration-- Mr. Scott. Which would put you right back where you are today. Ms. Sharby. Does not take into consideration the overtime costs that will definitely dramatically increase. Mr. Scott. No, there would be no overtime because they would be exempt. Those employees would be in the same situation that they are today in terms of overtime. Ms. Sharby. Excuse me. When I gave that number, that is not to bring all of our employees up to the new exemption. Those are the employees that we feel that we have to bring to the new exemption given their level of responsibility. Very many of our employees would not be going up to the new salary threshold. Mr. Scott. What kind of hours are these employees working today? Ms. Sharby. It depends on the position. Mr. Scott. After they work 40 hours and they are not considered exempt over $23,000, what is their hourly rate of pay after the 40 hours today? Ms. Sharby. I could not answer that. Mr. Scott. Zero. Is that right, Dr. Bernstein? Mr. Bernstein. Yeah, that is right. I mean, these workers are not being paid overtime, so any hour worked after 40 hours under current conditions before the new rule goes into effect is paid zero. Mr. Scott. Not time and a half. Not straight time. Mr. Bernstein. No, these workers are paid for 40 hours. Any overtime they are working is not covered. These are workers who are deemed exempt by dent of their salaries or their duties and, therefore, they are not paid for overtime. So, any hour of overtime work is paid zero. Mr. Scott. And so if you have a full-time employee who has already worked 40 hours and a part-time hourly worker who has worked 20 hours and you got to get 10 more hours of work done, if you lay it on the 40-hour full-time worker, how much does it cost you? Mr. Bernstein. Well, it costs you-- Mr. Scott. If they are exempt for this. Mr. Bernstein. It costs you, under the new rule, it will cost you time and a half and I think the-- Mr. Scott. And under the present law, what would it cost? Mr. Bernstein. It would cost you zero under the present law. Mr. Scott. And if you did it to the part-time worker, you would actually have to pay for the 10 hours. Mr. Bernstein. Well, that is right, but I think one of the points, if I may, Ranking Member Scott, one of the points you are getting at here is something that I think is very important for my colleagues on the witness stand to consider because I don't think they have by dint of their testimony, which is that there are various other ways that the increased threshold can be absorbed other than taking people up to the top salary cap. My colleague from the University of Kansas suggested that everyone will have to be taken up to the salary cap, but, of course, as you just pointed out, you can take workers who are working part-time, increase their hours as long as they remain below 40, there is no change to payroll. There is no change to payroll based on the overtime change. In other words, they are under 40, so they are not getting time and a half. They would be working more hours and they would have to be paid more straight time. There are various other absorption mechanisms. You can create more jobs at straight time. That is another way to avoid the overtime threshold and I actually think that is a very positive development. Various analyses, including, by the way, the National Retail Federation, which testified here, suggested that the new role would create over a hundred thousand jobs through this mechanism. Employers avoid paying the overtime by creating straight-time employment. Mr. Scott. And Mr. Rounds, did you say in your testimony that you could raise everybody from under 47 that's making more than 23 up to 47 to get them back to exempt for about $3 million? Mr. Rounds. Ranking Member Scott, we have 354 members as of today who are under the new threshold. Mr. Scott. And you can get to the 47-- Mr. Rounds. And that cost us about $3 million. Mr. Scott. About 3 million. What's your total budget? Mr. Rounds. I don't have the university-- Mr. Scott. Over a billion? Mr. Rounds. It's over a billion dollars. Mr. Scott. One percent of a billion is about 10 million? Mr. Rounds. Yes. Mr. Scott. What does your basketball coach make? Mr. Rounds. The basketball coach, which is Mr. Bill South, is not a State employer and, therefore, I don't have his salary. Chairman Kline. And the gentleman's time has expired. Mr. Wilson? Mr. Wilson. Thank you, Mr. Chairman, and thank each of you for being here today. Ms. Sharby, I really appreciate your service. Easter Seals makes a difference around our country for so many people, so thank you for what you do. I'm also very grateful that I have four sons that have participated in the Boy Scouts of America and with the extraordinary encouragement of my wife, all four of them are Eagle Scouts. During a recent discussion with the Indian Wars Council Scout Executives, I was informed by the negative impact that the regulation will have on the Boy Scouts in South Carolina, which makes such an important difference of the lives of the young people of our State. Can you expand on the impact this regulation will have on the quality and quantity of services that nonprofit organizations will be able to provide families? Ms. Sharby. Yes, I can. Currently, Easter Seals relies on level funding at best. Usually we are forcing cuts in our budget and we are going to have to consider how we are going to be able to continue these services. As I mentioned earlier, we provide free and subsidized services. So that is going to be an area where we are going to have to pay particular attention due to the lack of funding. In addition, it takes a long time to develop a relationship between the staff member and the person who is receiving services. It is not as simple as saying, okay, we will hire a new staff member to come in and pick up the responsibilities. In the state of New Hampshire with the 2.6 percent unemployment rate, bring them on. I have 150 staff vacancies. If you have people that you can send to me that are qualified to work for Easter Seals, I would be happy to interview them, but that is just simply not the case. So, our employees come to work for us because they believe in the mission. They do not necessarily come for the salary. They want to be paid a fair salary. I totally support that, but they come for the mission to make a difference in the lives of the individuals that they serve. And now, we are creating a situation where they are not going to have the flexibility to do the things that they feel are necessary in order to provide this quality. Mr. Wilson. And indeed, you and your staff are making a difference. General Rounds, over the past several months, I've had the opportunity to speak with many colleges and universities throughout the state of South Carolina regarding the impact of the Department of Labor's overtime rule. At South Carolina's flagship university, the University of South Carolina, this rule will affect nearly a thousand employees, cost the university over a million dollars a year to comply, which I believe could lead to destroying jobs. In a time when universities are facing a decrease in State funding and students are facing rising tuition costs, can you speak on the ultimate impact this burdensome and expensive overtime regulation will have on faculty students and programs? Mr. Rounds. Thank you, Congressman Wilson. As you mentioned, it does have an impact on our ability to provide the same type of response for many of the employees who are impacted. As you know, universities are not 9:00 to 5:00 organizations. Their cultures are responsive to our primary stakeholders who are students and many of the employees who are affected by this are employees who are directly engaged with students on a regular basis and if we try and force them into a 9:00 to 5:00 box, it will make it very difficult for them to provide the same services and maintain the same culture we currently have at K.U. Mr. Wilson. And I have seen it personally. I have a dear neighbor who is a tennis coach and she sees this as catastrophic to her ability to work with the students at the college that she teaches. Mr. Passantino, there was recently an article in the Los Angeles Times where the millennial generation is most likely the generation that would like to change careers, give up promotion opportunities, move their family to another place for flexibility. What kind of impact will this have on businesses that do provide flexible alternatives for persons who use laptops and smartphones? Mr. Passantino. I think the most significant piece for those employees who are reclassified as nonexempt, so who are below the threshold and the employer decides not to bring them up to the new threshold. It is going to be difficult for the employers to continue to provide them with those opportunities. Whether a particular time is compensable, paid under the act, depends on a lot of facts and circumstances, but there are principles that have been in place for a very long time that simply do not apply when you have someone starts in the office, goes to a coffee shop, heads off to a softball game, works at home. They do not apply in the same way as they do in the more traditional workplace. Chairman Kline. Thank you very much. Speaking of basketball, Mr. Courtney, you are recognized. Mr. Courtney. Thank you, Mr. Chairman, and thank you to the witnesses for being here today. Again, I think I want to follow up on a point Mr. Scott was making in terms of trying to, you know, step back and look at this from sort of a total global standpoint in terms of the impact of this rule. Dr. Bernstein, on page five of your testimony, you mentioned what the actual impact on the Nation's Wage Bill is going to be and, again, I don't know if you have it at your fingertips, but I'll let you, again, underscore that point. Mr. Bernstein. Thank you because I think it is really critically important to scale some of the numbers we are hearing by, just as Representative Scott was suggesting, by the budgets of the organizations. And when you do so, you find that nationally, the costs of the new rule will amount to less than one-tenth of 1 percent of the national payroll. Now, national payroll is in the trillions. So, we are talking about a relatively small group of workers who are newly covered and among that group of workers that are newly covered, those who are more likely to work overtime. Now, in the higher educational sector, that payroll share also amounts to well under one-tenth of 1 percent and in the nonprofit sector, again, less than one-tenth of 1 percent. And in fact, if you look at the affected workers who usually work overtime in both the higher ed sector and the nonprofit sector, it's less than 1 percent of their workforce. Now, I still think this is an important rule and not all the benefits are monetized. Some of the benefits come from being able to balance work and family. Tremendously important, but it does not show up in the national accounts as extra dollars. But when you go in the monetary side, you see the fractions involved here. I would say very much belie the level of some of the rhetoric we are hearing. Mr. Courtney. Thank you. And again, also, I think that the narrative that somehow the Department of Labor stonewalled, you know, any input that came in during the rulemaking process, again, I also served with Mr. Walberg in the Workforce Protection Subcommittee when fair labor standards was discussed. And, indeed, I would agree with the Chairman's comments that, you know, it was in need of an update and a modernization. Again, I kind of came to a different ending point in terms of what needs to be updated and that your graph certainly showed that, how this rule had just deteriorated to the point that it was less than 10 percent of the American workforce that was getting any benefit from it. And again, during the rulemaking process, nonprofits were listened to. Again, as you pointed out, the Medicaid waiver programs for people with intellectual disabilities, again, they operate under a one revenue system of operation and it is very rigid because these Medicaid waivers are under caps. And again, the Department gave a three year non-enforcement accommodation to those programs. In terms of universities and research, as your testimony points out, the National Institute of Health, in terms of future research grants is going to, again, align these grants to comply with the rules, is that correct? Mr. Bernstein. Yes, by aligning the grants to comply with the rules what you're saying is that the grants will equal the upper bound of the salary threshold and thus not invoke higher overtime costs. And I think it is really germane and I have a great deal of respect for my colleagues on the panel who are providing important services, as was recently mentioned. I think it is germane that both of them, and I very much underscore their point, have pointed out their problem is less with this overtime role and more with their funding streams. And I think in the case of Kansas, that is particularly striking because in Kansas, we know there has been this experiment with tax cuts and these cuts taking effect in 2013 have blown a $400 million hole in the State budget. State spending on higher education for a student in Kansas is down 22 percent since 2008 and my colleague, Mr. Rounds, made those points very clearly. But what you can't do in my mind in terms of the labor standards is cut taxes on wealthy people so that you cannot pay middle class a fair wage for a fair day's work. Mr. Courtney. And having talked to Secretary Perez, I think, you know, this question of the Medicaid waiver programs, I mean, frankly, the Department of Health and Human Services has to be brought into this discussion in terms of how they set these waivers. Again, it will align with these new fair labor standards. So, again, I think you are right. This is going to create a healthy sort of discussion, both at the State level and the Federal level, about trying to get, whether it is research grants, UConn or K.U., or whether it affects nonprofit programs that provide critical services for vulnerable populations that they get the adequate resources to create a living wage. I yield back, Mr. Chairman. Chairman Kline. The gentleman yields back. Dr. Roe. Mr. Roe. Thank you, Mr. Chairman. General Rounds, thank you for your service to our great country and all the panelists for being here. I was asked to speak about two weeks ago at the Tennessee Valley Carter Meeting on entrepreneurship and job creation. And I wondered why when you hear the administration say that we have 14-1/2 million new jobs, unemployment rate has gone down from 9 percent to 5 percent, all are true. Why is it when you poll the American people that 70 percent and the majority of Democrats are saying the country is headed in the wrong direction? It does not make sense. I mean, those two things together do not make sense. I began to look at in detail and what has happened is between 1990 or 1992 and '96 during that recession, 420,000 new businesses were formed in this country. Between 2002 and 2006, 400,000 new businesses were formed. Between 2010 and 2014, 166,000 businesses were form. And what happened was 20 counties in this country made up half the new businesses formed in America and 60 percent of the counties actually had a net loss. That is why we, as the American people, feel like we are going in the wrong direction. And in my opinion, the way the other side, Dr. Bernstein, you are an advisor to the President, believe that raising the minimum wage and doing this salary is actually helping the economy. It is not. If complying with government regulations were a country, it would be the fourth largest country in the world, just compliance costs, and this is going to add another compliance cost of what we are doing. I am a Boy Scout, an Eagle Scout. I worked Scout Camp every summer. There is no way on this Earth that not-for-profit--as a matter of fact, I have to write them a check when I get home--there is no way in the world that they can comply with this. If you are a Scout leader and you go by on a Friday morning to set up a jamboree for the weekend for Boy Scouts, by Sunday morning you got to leave them because you have done your 40 hours and you have not worked all week. I worked there 24 hours a day, seven days a week when I was a camp counselor. As you were saying, when do we start camp? You talk about 10ths of a percent at the University of Tennessee. It is going to add $9 million--$9 million--to the University of Tennessee which is a 2 percent increase in tuition for every student in the system. I talked to one of the land grant colleges two weeks ago when I was at the Valley Quarter Meeting and it is going to add $2 million costs to that one college. Tuition costs have skyrocketed. That is the last we need to do and at the University of Kansas. That cost has got to be passed on. And Dr. Bernstein, I will point out in our great State of Tennessee, we had cut taxes. We have the lowest per capita debt in the nation. We provide free community college for people, so it can be done by lowering bureaucratic hurdles and this is just one of them. General Rounds, this to me is a very personal. I was on the foundation board of my college and providing a quality education for someone like me who is a first generation student, it is another barrier that is out there. And I do not know how not-for-profits, like Ms. Sharby, you are talking about, are ever going to comply with this. So, General Rounds, if you would like to comment on the costs and then, Ms. Sharby, if you would. Mr. Rounds. Thanks, Congressman Roe, as I pointed out in my testimony, if you look at the fact that we are relatively flat or decreasing in our budget, it makes the absorption of any additional costs very difficult without taking dramatic steps. And in this case, the ability to absorb these costs because they are not available means that if for the majority of the individuals impacted, is they will become nonexempt as opposed to exempt and they will not be able to provide the same services that they currently do because they have very good flexibility in how they execute their job responsibilities. They will lose that flexibility. Mr. Roe. My good friend, the Ranking Member, brought up the basketball coach at the University of Kansas. Well, that is fine, but what about these State schools where I went where a coach may make $35,000 or $40,000 a year and they are out recruiting athletes? How in the world are you ever--they are driving eight hours to a game. How in the world are you going to comply with that? I have no earthly idea. Not everybody is at the University of Kansas, at a major university. Trust me, when you are a coach at Austin P. State University where I went, you are making small, little teeny bucks, not the mega bucks that a great coach like that is making. So, my time is about expired. I do want to, Mr. Chairman, I want to submit this new map of economic growth and recovery as a matter of the record. Chairman Kline. Without objection. Mr. Roe. I yield back. Chairman Kline. The gentleman's time expired. Ms. Fudge, you are recognized. Ms. Fudge. Thank you very much, Mr. Chairman, and thank you all for your testimony today. Mr. Bernstein, in your testimony, you note that the FLSA overtime exemptions were designed and intended to cover a particular class of worker. These exemptions have now been construed to cover assistant managers or supervisors that don't necessarily meet the duties test. How has the manipulation of this exemption, which, in fact, it has been manipulated, negatively and unfairly affected low-level management workers, causing them to lose out on overtime that they should receive? Mr. Bernstein. By misclassifying them as exempt, thus prohibiting them from getting time-and-a-half when they work beyond 40 hours a week. If you actually look at the intention of the FLSA and the duties of the types of workers you are mentioning, these are workers who very much should be covered by overtime protections, but are not. Therefore, and it is much like the conversation I was having with representative Scott a minute ago, when they work an hour, two, five, 10 hours of overtime, every one of those hours costs $0 to their employer. There is a-- Ms. Fudge. Excuse me, sir. The time is not accurate. Please proceed, sir. Mr. Bernstein. Okay. Every one of those hours is unpaid. One of the most important aspects of the new rule is that it does away with this confusion around the duties test by updating the salary threshold and setting it at $913 per week, these workers will now be automatically covered. Ms. Fudge. So, in effect, for many, many years, they have actually benefitted by the misclassification and have gained significant dollars that they really should have been paying people for a very long time. Mr. Bernstein. That's correct, and in fact, we were talking a little bit, a second ago, about the underlying economy and some of the dynamics there in. And one of the problems we have had is this increase in economic inequality, whether it is wage or wealth or income inequality, it is doubled in terms of share of income to the top 1 percent over the past 35 years. One of the things you see is that the profit share of national income recently reached historic highs. It is coming down a bit as the job market has tightened, and that is one of the dynamics that we are describing here. Workers are not being fairly compensated, and that has helped to boost profit margins. That is not a bad thing. Profit margins are good, but profit margins should afford you to be able to pay a middle-class wage to workers who are working over 40 hours a week. Ms. Fudge. And employers have unfairly benefitted from it. Mr. Bernstein. Correct. Ms. Fudge. Mr. Bernstein, we have repeatedly heard the argument that raising wages in any way would stifle job creation and economic growth, and today is no different. We hear the same thing. Our failure to act has seen the demise of the 40-hour work week, and that is what we have seen today, really, the demise of the 40-hour work week. Could you elaborate on how this salary increase will actually help economic growth and not hurt it? Mr. Bernstein. Well, a number of ways. One of the things I mentioned earlier, I think, is quite important. There are many labor economists who believe that one impact of the new rule will be the creation of new straight-time jobs, that is, employers who don't want to pay overtime to newly covered workers can avoid that by hiring other workers and paying them straight time. Also, it can increase the hours of their part- time workers, yet still keep them below 40. Now, Goldman Sachs argues that would create about 100,000 jobs. National Retail Federation argues more. To the extent that workers working more than 40 hours newly covered are now making time-and-a-half, these are workers who earn middle-class incomes, middle-class salaries. The top threshold in an annual sense is about $47,000 per year. That is actually below the-- that is about around the median household income. These workers tend to spend their paycheck, so that feeds back into the economy. We have a 70 percent consumption economy. That's pro- growth. And, in fact, you talk about a sloggy macro economy, one reason for that has to do with this inequality problem, and the fact that when the benefits of growth flow to the top of the scale, consumption tends to be less robust. Ms. Fudge. I have no further questions, but if there is something you want to address in my last two minutes that you have heard-- Mr. Bernstein. Well, thank you. Ms. Fudge.--please feel free. Mr. Bernstein. You know, I think there is a real lack of care, and I am glad Mr. Passantino is here because I sense he really understands these rules. I think there is a lack of care and consideration by many folks who oppose these rules in terms of what is actually in there. One, we just a heard a member complaining about coaches and the need to pay overtime to coaches. Well, athletic coaches, assistant coaches who fall under the exemption when their primary duty is teaching are exempt. And so, there are a variety of exemptions: teachers, academic administration personnel, graduate and undergraduate students. I urge my colleagues on the witness stand and their institutions to look much more carefully at that aspect of the rule. I will state, and since we are talking about coaches, I will note, that at least it is my understanding that the basketball coach at K.U.--and I'm a huge Jayhawks fan, just to get that on the record--is paid something in the range of $5- to $6 million a year. Now, if Mr. Rounds' numbers are correct, that means that you could fully compensate for the overtime cost that he designated and still pay their basketball coach about $3 million a year, which sounds pretty good deal to me. Chairman Kline. So, we agree that the coach is exempt. The gentlelady's time has expired. Mr. Walberg. Mr. Walberg. Thank you, Mr. Chairman. I guess I have gained more understanding of why our economic growth at an anemic 2 percent or less is what it is with economic advice that is coming, like what we are hearing today. It is frustrating to think that we have an administration that thinks you can name it and claim it, and that businesses, universities, and others can simply pick the dollars out of the air to pay, and that doesn't happen. And when we get into social welfare agencies, and we get into charitable causes, and entities that provide real basic help to people, this is not reality. And that is what is frustrating and maybe that is why we are that level of growth. It is interesting, also, that with the Puerto Rican bill that is being considered right now, the administration is willing to forego overtime regs and a minimum wage for 25 and under, indicating that will help grow the economy in Puerto Rico. Just want to bring that up, hypocrisy that we hear. Mr. Passantino, Department of Labor's final overtime rule is going to result in the demotion of salaried exempt employees in every corner of the country. By DOL's own estimates, very few of the Department's estimated 4.2 million impacted employees will actually see any potential benefit from this rule because they do not currently work more than 40 hours per week. However, these employees will be negatively impacted when they lose workplace flexibility, opportunities to attend training and networking events, and certain performance-based bonuses as a result of being reclassified. Do you anticipate, Mr. Passantino, significant morale issues amongst employees as a result of these changes? Mr. Passantino. I think, in talking to clients since the rule's been out, that is a very likely probability. As is in my testimony and as I said earlier, one of the issues is with respect to mobile devices and remote access. As annoying as they may be from time to time to be tethered to your job all the time, it also allows you to be away from your job for parts of the day and to be away from your workplace and to get things done when you are not sitting at your desk. Mr. Walberg. Workplace of the 21st century, right? Mr. Passantino. That is right. Mr. Walberg. Flexibility, opportunity. Mr. Passantino. Right. Mr. Walberg. Choice. Mr. Passantino. We have also talked to employers about the bonus issue and the fact that-- Mr. Walberg. Yeah, talk about that. Talk about the bonus issue and the impact of this rule. Mr. Passantino. So, for nonexempt employees, when there are nondiscretionary bonuses, and nondiscretionary bonuses are basically all of your incentive types of payments, those get included in the regular rate of pay for overtime purposes. So, if you have someone who is making $10 an hour, their overtime rate would be $15 an hour, but if they got a bonus on top of that, you would have to go back and recalculate their rate in order to determine what their new overtime rate is. Mr. Walberg. Hurting many of the people that appreciate the compensation that comes from bonus and opportunity and expanded opportunities. Mr. Passantino. Well, frankly, when we talk to employers, when we explain everything that is necessary to recalculate that rate of pay, they just decide to forego the bonus. Mr. Walberg. No bonuses. Mr. Passantino. Right. Mr. Walberg. Yeah. Mr. Passantino, contrary to the Department's assertion, changes to expand overtime eligibility will not necessarily result in a windfall of overtime income for newly classified, nonexempt employees. Will you describe some of the adjustments employers will consider making in order to keep labor costs under control? Mr. Passantino. I mean, one is that they can limit the amount of hours that someone works. Another is you can reduce the base rate of pay so that if you expect someone to work 45 hours per week, their previous salary becomes--you divide it by 45 or your divide it by 45 plus something else. And then their hourly rate will get them to what they made anyway. So, they make the same, except now they are keeping track of their hours and they are getting paid for overtime up to that 45 and then they would be paid time-and-a-half over that. You can pay them on a salary that reflects their current pay and then they would get a little bit extra for the amounts they work over 40. So, there are a variety of different ways that it can be accommodated. I think the other part of the equation, it may change the way that employers hire in new individuals to those positions. They maybe come in at lower rates to account for that overtime premium. Mr. Walberg. Generally, going back to the 20th century when we are in the 21st and moving rapidly in this 21st century to something expanding in the workplace. Thank you, I yield back. Chairman Kline. The gentleman yields back. Mr. Polis, you're recognized. Mr. Polis. Thank you, Mr. Chairman. You know, for stepping back for too long, workers across our country have simply been putting in more and more hours without receiving the compensation they deserve. You know, we have talked about many examples, but a manager at a fast food restaurant in my district might earn a salary of $26,000 a year, but work 50, 60, 70 hours. At that salary, a family of four is well below the poverty line. But under the new overtime rules, they will finally be compensated for their work and receive the pay they deserve. In fact, my district or my state has 248,000 workers that will benefit from the overtime rule. I would also like to note that this update would directly benefit 275,000 workers in my colleague's, Mr. Walberg's state, who we just heard from. And I think that is something that is long overdue and that workers deserve. There has been some discussion of higher ed workers and I wanted to go to Mr. Bernstein on that. I represent a district with two institutions of higher education: Colorado State University and University of Colorado, Boulder. There has been a lot of discussion about the rules affecting higher education. And to be clear, I wanted you to talk about what actual impact might this have on higher education and what percent of the higher education workforce would even be affected by these rules. Mr. Bernstein. Thank you. According to numbers from the Labor Department, 3.4 percent of workers at colleges and universities would be affected by the rule change in the sense that their salaries are between the current and the new threshold. However, it then becomes most workers in that bound, between the old and the new threshold, most workers don't work overtime. So, the next thing you have to do is ask how many of the workers in the affected range work overtime, and that gets you to .5 percent in the higher ed sector and, by the way, .8 percent in the non-profit sector. So, less than 1 percent of workers affected in that regard and as a share of their payroll, as I have been stressing throughout the discussion, under one-tenth of 1 percent in both cases, whether we're talking national, higher ed, or non-prof. Mr. Polis. And in addition, with the particular carve out around instructors that under the guidance from the Department of Labor generally covers assistant athletic instructors and others, so some of those, even some of .5 percent out of the 3.4 percent that make in that range that might work more than 40 hours a week, are some of them not even in the teacher exemption categories, some of those workers? Mr. Bernstein. Right, so this is again, it is critical to go back and understand the nature of the exemptions. Bona fide teachers, coaches, graduate and undergraduate students, academic administrative personnel are often exempt, meaning that the new rule will not affect their pay. In postdoctoral cases, which is an important area for my friend here from higher ed, again, I want to underscore that the Department of Labor's working closely with the NIH and the National Science Foundation to ensure that grants are now at the level of the upper bound of the salary threshold. Mr. Polis. And if there are workers that are affected, then I think you are down to whatever, .1 percent or .4 percent, let us say it is janitorial manager or something like that. You know what? The universities need to maintain a competitive pay scale in the private section anyway. I mean, if the private sector is paying overtime and somehow the university were exempt from it, would they even be able to engage or hire somebody for these positions? Mr. Bernstein. Well, if the job market is soft enough, they might, but in a tighter job market, they would not. But I think the key point here is that it is really hard to understand why someone who chooses to work in the public sector should be treated differently than someone who works in the for-profit sector when it comes to fair pay for overtime work. I think, as my colleague Ms. Sharby said, that these workers want to be paid a fair salary. And I think that is a great point. There is no reason, especially when we are talking about an impact that is less than one- tenth of 1 percent on payroll, that workers in one sector should be treated so unfairly relative to workers in a different sector. Mr. Polis. Well, even this again, economically, if we want the nonprofit or public sector to attract talented workers, they have to have overall compensation packages. They are competitive. Obviously, overtime is part of that; vacations are part of that; pay is part of that; benefits are part of that. But overall, you need to be competitive or you are going to wind up with the least talented people in these positions simply because the more talented ones are taken up by the private sector. So, we have to be competitive across all sectors. I think consistency of rules is very important to do that and I yield back. Chairman Kline. The gentleman yields back. Mr. Guthrie. Mr. Guthrie. Thank you very much. And I want to continue talking to Mr. Rounds on this idea of colleges, and I understand you worked at the University of Kentucky; K.U. are large, large enterprises. Well, Kentucky has a lot of small colleges, a lot of small colleges that were brought into being 100, 150 years ago from mission-oriented--and I have a written statement addressed to the Committee from Dr. William Luckey. He's the president of Lindsay Wilson College in Columbia, in Derek County, Kentucky. And his statement raises very serious concerns with the overtime rule and I will ask it to be entered into the record. Chairman Kline. Without objection. Mr. Guthrie. Lindsay Wilson College is a small, private, nonprofit college serving one of the poor areas in Kentucky and actually one of the poorer areas in our country. Sixty-two percent of the college undergraduates are Pell eligible. Fifty percent of the Pell eligible have an expected family contribution of zero. Lindsay Wilson students receive more in state-based grants than any other private college in Kentucky and I would like to read from Dr. Luckey's statement summarizing Lindsay Wilson' College's concerns with the overtime rule. It says, ``The DOL website states, the ruling will transfer income from employers to employees. I can tell you that in our case and in the case of hundreds of private colleges that submit a comment to OMB with this rule was under review, just the opposite is going to happen. Employees will lose their jobs and many other salaried professionals will be relegated to a lower profile, nonexempt status because for nonprofits, like Lindsay Wilson, there is no extra employer money to transfer. But our students that are among the Nation's most needy will suffer most. When the changes from Federal overtime rule take place at the current amount and in the current timeframe of implementation, it would be devastating to Lindsay Wilson College and I dare say it will hurt, not help, small colleges all across America.'' So, Mr. Rounds, that is the end of the quote from that. Mr. Rounds, many small, private colleges face strict budget constraints. Ninety-five percent of Lindsay Wilson's revenues come from student enrollment. When costs go up, tuition must rise or services must be cut. In this regard, is Lindsay Wilson's predicament similar to K.U.'s as it faces the overtime rule? Mr. Rounds. Thank you for the question. It is similar to K.U.'s. And what I would like to point out is with the 354 individuals who are currently considered exempt, 92 of those are postdocs. And I had put into my testimony that we plan on bringing them up to the new threshold because to not do so would make us noncompetitive. Obviously, it has a huge impact on us because there is a fixed budget. Granted, NIH is going to raise grant levels. We are working under current grant levels and so, under fixed budget, you-- Mr. Guthrie. But Lindsay Wilson is not a grant-based--you know, it does not do a lot of its--it is 95 percent student tuition, not NIH research. But, so, I know it is a separate-- maybe it is a little different from the University of Colorado, but please continue. Mr. Rounds. Yes, sir, but the remainder of the individuals are not in that position where they are tied to grants and we can do the adjustment in order to bring their salary levels up. So, in those cases, we are going to have to make them nonexempt employees and as we make them nonexempt employees, it has been pointed out on several occasions is that they will lose their workplace flexibility. I think the portrayal that we are not concerned about the making them competitive with the rest of the workforce--our employees competitive with the rest of the workforce is not accurate, at least at K.U. Over the last two years, we went through an extensive market study and within that market study, the intent was to ensure that we are paying our employees comparable to the industry and comparable to the region and as we finish that, we brought 33 percent of our workforce wages up in order to make sure that we were balanced. Naturally, difficult to do in a tight fiscal environment, but the right thing to do. As part of that process, I would point out that even employees that we raise their salary as we did a review, if they went from an exempt to a nonexempt status, that was more important to them losing their exempt status then the fact that they had their salary raised. And so, as Mr. Passantino has pointed out, we have found as we look at this particular issue that there are morale issues associated with it. The scope of those morale issues were not even sure of at this point. One last thing, and I appreciate the opportunity, is we have talked a lot about our basketball coach and his salary. Mr. Self is not paid with State funds and, therefore, I think a lot of the comparisons of what reducing his salary would do for us is not necessarily germane. So-- Mr. Guthrie. University of Kentucky chose this year to take athletic funds and build an academic building with it as well, so. [The information follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Kline. The gentleman's time has expired. Mr. Hinojosa. Mr. Hinojosa. Thank you, Chairman Kline and Ranking Member Scott. Today's hearing on the updated overtime rule by the Department of Labor is long overdue. According to the Economic Policy Institute, an estimated four million workers would benefit from the proposed overtime rule. And it would help more than 1.5 million working people in my own home State of Texas. Critics of this much-needed final rule also argue that colleges and universities cannot afford the increased costs. These educational institutions, like all other entities, will have a number of ways to come into compliance with the rule, including raising employee pay, limiting employees to 40 hours per week, paying overtime on top of an employee's salary as needed, or any combination of the above. Additionally, many employees at these colleges are exempted from coverage under the FLSA. It seems to me that we must be realistic about the number of people affected here. I think back to 20 years ago when I was elected to come to Congress, I was looking back on the computer, and saw that 1996, when I was elected, the minimum wage was $4.75 an hour. Under Bill Clinton, his second term, ending his second term, we were able to pass an increase of the minimum wage and it went in several steps. It reached $7.25 in 2009. That is nine years ago--no, seven years ago. But it was interesting to me that the same arguments that I hear my friends on the other side of the aisle that businesses will close and things will go to hell just didn't pan out. That is not what happened. What happened is in the second term of Bill Clinton, we had a surplus of $600 billion. We balanced our budget. It was a period of prosperity because we raised the interest--I am sorry, the minimum wage, plus many other things that occurred under Clinton's second term. So, what we are being told now, same excuses for not changing the minimum wage in about 12 years to me is hollow. It is not true. It seems to me that we have got to be realistic and that we have got to do something. I request unanimous consent, Mr. Chairman, to submit a letter from over 250 professors at colleges and universities across the United States and they strongly support the Department of Labor's new rule governing overtime. Chairman Kline. Without objection. Mr. Hinojosa. Thank you, Mr. Chairman. Mr. Rounds, I have a couple of minutes and I want to ask you, according to your cost estimates, assuming they are correct, your costs of this proposed rule will represent seven-tenths of 1 percent of payroll costs in 2015. It would represent three-tenths of a percent of total operating expenses and about 50 percent of what USA Today reports is the annual pay of Kansas University's head basketball coach. Why do you think these small percentages will require such a drastic reductions in student services? Mr. Rounds. Thank you. I appreciate the question. I am answering the question as what I am looking at is the individuals' who are primarily affected. And as you look across the individuals who are impacted, a large percentage are individuals who work directly with our students and as you look at the different numbers, what I am aware of is the fact that we are on a very fixed and tight budget. And it would be difficult or impossible in order to--those individuals that are directly associated with providing services to our students in order to be able to adjust their salaries to make them-- Mr. Hinojosa. Thank you, Mr. Rounds, my time is almost up and I want to say that I respectfully disagree with you. Goldman Sachs says this morning, ``New Obama rule on overtime likely to add 100,000 jobs to the economy.'' I think that is more likely to happen-- Chairman Kline. And the gentleman's time has expired. Dr. Foxx. Dr. Foxx. Thank you, Mr. Chairman. I want to thank our panel, all of them, for being here today. I do want to say that I think some of the information being presented here comes from folks that live in an alternate universe where they have never worked in the private sector, recommendations coming in from folks who never worked in the private sector and have no idea what it cost in addition to direct costs to comply with such government rules and regulations. And I want to say that--and Dr. Bernstein said everybody should be paid fairly, and I agree with that. But there are many people in this country, Dr. Bernstein, who work in nonprofits that do not do it for the money. As Ms. Sharby has said, they do it out of a sense of mission, and they make that choice when they go there. Just like we do not pay our teachers enough in this country, in my opinion, but they know when they go to those jobs what the pay is going to be. And they do it out of a sense of mission. And I think that is perfectly fine. We need to continue our civil society, organizations outside the control of government that have that sense of mission. It's part of what makes us such a great country. Mr. Passantino, I think that General Rounds was getting to this point, but I would like to ask you if you would talk a little bit about the areas where the Department of Labor may have underestimated the costs of compliance with this because we know historically, these government agencies, again, live in an alternate universe and have no idea what it costs to implement the rules and regulations. Would you say a little more about the costs of compliance for these rules? Mr. Passantino. Sure and I think a lot of the costs of compliance is not simply complying with this rule. It is what this rule forces employers to do in the context of other regulations. So, it is not simply do we look at the increased salary and what that increased salary level does to a particular employee and whether that's an added cost and whether, as a result of that employee getting a raise, that employee's supervisor then has to get a raise and that's an additional cost. You also have to look at the overtime payments that are going to be made to the employees that are reclassified as nonexempt. You need to look at the cost of implementing timekeeping systems. You need to look at the costs of additional, frankly, legal advice and H.R. work to determine what is compensable; what is paid time for employees who are not used to keeping track of time, who are not used to punching a clock, who have the freedom to use their computers at home and mobile devices. And now, for the first time, these employers are going to have to make decisions on whether that is paid time and where the particular time begins and ends. Dr. Foxx. Right, and I want to follow up a little bit on the adequacy of keeping records. The Labor Department's guidance accompanying the final rule says, ``There's no requirement that employees punch in and punch out.'' You talked about the challenges of sitting in the school pickup line, for example, and sending out emails or answering a telephone call before work, after work, miscellaneous things that all of us do. But to that point, the guidance specifies for an employee who works a fixed schedule, an employer need not track the employee's exact hours worked each day. But considering the ever-increasing threat of litigation on the wage and hour front, is it ever advisable for employers to forego tracking hours for overtime-eligible employees? Mr. Passantino. I mean, it is a huge mistake to say we are not going to track those hours. Sure, if somebody is always going to work 9:00 to 5:00 every day, the rule says you can keep track of time that way and they can mark a box that says, yes, that is what I worked today. Given the nature of the employees that are going to fall in this reclassification, given the nature of the workplace and the reliance on electronic devices, given the fact that there are lawsuits filed each and every day over six minutes here and six minutes there, it is a mistake not to keep track of those hours religiously for employers to make sure that they are capturing, you know, whether somebody works eight hours or whether they work eight hours and six minutes. Dr. Foxx. Thank you very much. And in my last 13 seconds, I want to say to Ms. Sharby's comments, she points in here, ``Easter Seals cannot afford to pay overtime and the children with disabilities that we serve are the ones that will suffer the most.'' And I think it is really important that we understand the most vulnerable in our country are going to be punished by these rules. Thank you, Mr. Chairman. Chairman Kline. The gentlelady yields back. Ms. Bonamici. Ms. Bonamici. Thanks so much Mr. Chairman. I see the Department of Labor's overtime rule as a long overdue update and I think, Dr. Bernstein, you made clear in your testimony with your chart that it is long overdue. According to your testimony, back in 1975, more than 60 percent full-time salaried employees earned salary levels that qualified them for overtime pay. Today, it is only 7 percent, and with this increase it will only go up to 35 percent. According to the Economic Policy Institute, in my home State of Oregon, about 124,000 people will benefit. Talking about this rule, Nicolai from Oregon said, ``I have worked an average of 55 hours each week for the past year, but since I have been salaried during that time, I have not been eligible for overtime pay. This new regulation would mean a raise of about $10,000 a year for me, which would allow me to invest in education and build my life and my family.'' You know, across my state of Oregon, there are many businesses that are recognizing that they can offer workplace fairness and balance for their employees and still continue to prosper. In fact, I just attended a few days ago an event called When Work Works that was sponsored by Family Forward Oregon and the Center for Parental Leave Leadership. And at that event, they recognized many of our forward-thinking employers that have really been leading the way and providing their employees with a fair pay, flexible and positive workplace policies, and they reported that these policies have helped them tremendously, not only with their bottom line, but with recruitment and retention. Now, some have said that complying with this overtime rule is going to reduce flexibility for employees. I am going to ask you about that, Dr. Bernstein, but I do not find that argument persuasive. The Economic Policy Institute report noted that both the hourly workers now and salary workers making less than the new threshold say they have little control of their schedules now anyway. In fact, you know, working people, they can't have their kids or their parents schedule their illness around their employer's convenience. It does not work that way and these are people who cannot afford to forfeit their hard- earned pay. So, under the Fair Labor Standards Act, employers can allow workers to alter their start and end times. They can give advance notice of schedules to take time off. And the overtime rule does not change that. And, in fact, to provide flexibility, we should be working on in this Committee the Schedules That Work Act, for example, and the Family and Medical Insurance Leave Act. These would truly provide workers with the flexible and predictable schedules, as well as joining the rest of the world in offering paid time off. So, Dr. Bernstein, I mentioned the flexibility argument that we have heard here today. Can employers still offer as much flexibility and predictability under the new rule as they could under the old rule and can you describe what this flexibility would look like from the perspective of both the employer and the employees? Mr. Bernstein. Yes, I can and I appreciate the question because I think that, once again, there has been a great deal of misleading comments made today suggesting that some of the nuances in the rule are not well understood. One of my colleagues mentioned that the rule forced employers to move workers, I quote, ``from salary to nonexempt status.'' That's simply not the case. Workers can absolutely remain salaried workers under the rule. I'm sure Mr. Passantino will back me up on that. It does mean, of course, that those workers will have to be paid overtime per hour if they are within the threshold, but there is nothing that says a worker has to be moved from his or her salary status. There has also been a tremendous amount of assertion here about morale and flexibility. I think we would be well advised to stick to the research on that and maybe tone down some of the assertions. I am not sure how it helps morale to pay people zero per hour for overtime, especially when we are talking about considerable numbers of hours as we have heard from some of the members today. But if we look at the research by Dr. Lonnie Golden, an economist that looked at this question, he found that contrary to a common assumption, salary workers, the affected pay levels appear to have no more ability to take time off for personal or family matters and that hourly workers at that same annual earnings level, salaried workers at the affected pay levels, so at the levels affected by the new rule, either report greater work family conflict and work stress or report greater incidence of the conditions associated with conflict and stress as do hourly workers. Unfortunately, when it comes to flexibility and morale, there is not a lot of difference between somebody who is hourly or salaried if you are barely getting by. If you are a middle-class family earning the current threshold, $24- or $25,000 a year, as has been said, you are near poverty. If you are at the new threshold, you are below the median earning. So, whether you are salaried or hourly, morale and stress is a huge issue for you that is resolved when you no longer get paid zero per hour for working overtime. Ms. Bonamici. Thank you, Dr. Bernstein. My time is expired. I yield back. Thank you, Mr. Chairman. Chairman Kline. The gentlelady yields back. Mr. Carter, you are recognized. Mr. Carter. Thank you, Mr. Chairman, and thank all of you for being here today. I am going to start with General Rounds. General, first of all, thank you for your service to our country. I had the privilege of serving as chair of Higher Education, Senator to Georgia when I was in the State legislature. So, higher education is very important to me. And I want to know the impact that this if going to have on higher education. In fact, I think it is only appropriate that this Committee know the impact. After all, we are Education and the Workforce. And after all, we have dealt and continue to deal with increased student debt. We have continued to deal with all of the things to do with student loans and those are things that are very important to us. I want to know because the American Council on Education released a statement on May 17 talking about the effects that this could have on higher education, and I quote, ``It could have a combination of tuition increases, service reductions, and possibly layoffs.'' Do you find that to be true, General Rounds? Mr. Rounds. I do find all of those assertions to be possible. And one of the things that I would like to read that I have available is a statement from our vice provost, who is responsible for providing student services. And I think this is very compelling, what he says is, ``What the new rule really does is impede our ability to customize and personalize the educational process beginning from the time a student initiates an inquiry to the time they depart or graduate. The level of personalization or customization has been a source of sustainable, competitive advantage for us in a highly competitive environment as we have emphasized and benefitted from focusing on the relational versus the transaction aspects of the work. This rule directly impedes our ability to build these relationships.'' ``In addition, I think it is a direct contradiction to the national completion agenda as a student's access to and availability of academic support personnel and services will be reduced. K.U. needs to highlight decreasing services is more than reducing operating hours. It will have a profound impact and an ability to attract, retain, and graduate students.'' Mr. Carter. Right. Mr. Rounds. And that is tied to the individuals who work with students on a recurring basis. Many of them were impacted by this legislation. Mr. Carter. Absolutely, and we understand that and that is one of the things we are most concerned with. Ms. Sharby, I want to ask you, you are an H.R. specialist. You are an expert at this, years of experience and much expertise. How is this going to impact you as an H.R. person? Now, I want to know, you have only until December 1 to comply with this. I mean, obviously, it is going to have a big impact. Ms. Sharby. Well, the biggest impact that we have right now is trying to develop a communication to our employees that we are going to have to change from exempt to nonexempt status and how to do that in a way that they don't feel diminished. They have already spoken to me saying, ``What does this mean to me? How am I going to do what I want to do in order to meet the needs of the clients that we serve.'' So, that is one of our big struggles. The other thing that we have to do is we are going to look at alternative ways to pay our employees. Offering overtime simply is not an option. Mr. Carter. Okay, very quickly, I have a minute and a half left. There is one thing that we are missing on this panel today is small business. I am a small businessman. November 21, 1988, I opened my first retail pharmacy. Dream come true for me. Went to three banks, not to compare interest rates, but instead, the first two turned me down. The third one finally went along with it and loaned me the money. And I want to ask you, Dr. Bernstein, how many businesses have you run in your career? Mr. Bernstein. Actually, I am running one now. I have a-- Mr. Carter. Are you? Mr. Bernstein. Yeah, yeah. Mr. Carter. Is it a small business? Is this going to impact you? Mr. Bernstein. I have a self-employed business and I believe-- Mr. Carter. Self-employed business? Mr. Bernstein. Correct. I have a self-employed business-- Mr. Carter. So, do you have any employees? Mr. Bernstein.--along--let me finish, please. Along with-- Mr. Carter. I will reclaim my time. Are you the only employee? Mr. Bernstein. I'm trying to answer your question, sir. Yes, I have my-- Mr. Carter. You are the only employee? Mr. Bernstein. I work for a private employer in the nonprofit sector. I also have a self-employed business where I am the only employee and believe me, I hear a lot of the kinds of-- Mr. Carter. So, you are not going to have to comply with the overtime rule. You do not have employees. Mr. Bernstein. I would be exempt from the overtime rule. Mr. Carter. You would be exempt. As I was-- Mr. Bernstein. I have been-- Mr. Carter. Sir-- Mr. Bernstein.--part of small businesses where I did work was an exempt employee. Mr. Carter.--as I was exempt from the overtime rule when I opened my business and when I was working, not 40 hours a week, not 60 hours a week. I was working 80 hours a week. I did that for at least five or six years. The first year, I made nothing. The second, the third, the fourth year, I made half of what I had been making before. Now, where were those overtime rules then? There were no overtime rules then. Mr. Bernstein--Dr. Bernstein-- Mr. Bernstein. I suspect you were exempt. Mr. Carter.--have you ever signed the front of a paycheck? You sign the back of a paycheck. You don't sign the front of a paycheck. Mr. Bernstein. No, that is not true. Mr. Carter. There is a big difference. Mr. Bernstein. That is not true. I have-- Mr. Carter. That is true, sir. Mr. Bernstein.--various business endeavors where I-- Mr. Carter. And I doubt that anyone who has had an impact on these rules-- Mr. Bernstein.--have had to sign the front of the paychecks. Mr. Carter.--signs the front of the paycheck. They sign the back of-- Chairman Kline. The gentleman's time has expired. Mr. Pocan. Mr. Pocan. Thank you, Mr. Chairman. Well, I guess I am a little surprised that we are having this hearing with the name it has rather than something like Overtime Rule Long Overdue. Instead, we are having one to question exactly what it is about. And I do have to agree with Mr. Carter on one thing. You know, there are about 187,000 people in my district who will get a raise out of this. I think your state, you are going to get about 493,000, but when you said it would be good to have a small person up here, I say that all the time. So often we get attorneys and this time we do not have all attorneys, but often, we do not get people actually impacted. And I think that is one of the questions I lead off with right away with Mr. Bernstein. If I understood you correctly, of the rule, are you saying in answer to Mr. Polis' question that it is about one-half of a percent of people affected are in the university arena and under 1 percent in nonprofit and the rest are small businesses? Mr. Bernstein. Well, what I said was-- Mr. Pocan. Well, not small business, but other traditional business models. Mr. Bernstein. I was not saying anything about the size of business. I was saying that the affected workers within those industries amount to less than 1 percent. Mr. Pocan. So, do you know if the nonprofit and the university sector of employees versus other private sectors, do you know what percent of that is affected by this? Mr. Bernstein. So, in the total economy, including all sectors, less than 1 percent of the workforce is affected in that, they are between the new and old threshold and they tend to work--they are current exempt and they tend to work overtime. That is less than 1 percent. Mr. Pocan. Sure, the question, though, is how many of that are in businesses-- Mr. Bernstein. In small businesses? Mr. Pocan.--other than the U.W.--other than universities and nonprofits? Mr. Bernstein. Oh, the vast majority. Mr. Pocan. See, that was the question because I think that is the problem is by not having small businesses here, it is almost like a Trojan horse, right? We are bringing in some more sympathetic industries, you know, nonprofit universities with a part of the rule, but we are not talking about the people that think it is okay to offer someone with a family of four a sub- poverty wage to work overtime. And that is exactly what that current level is set at. It is a sub-poverty wage for a family of four. So, four million people immediately and millions of others will benefit by this rule and yet the folks we brought in, quite honestly, there are other issues around. I heard you, Ms. Sharby, and I heard you loud and clear. You said Medicare and Medicaid funding, there is no increase expected in the near future. Would you like to have an increase in those funds that come to your organization? It is a simple yes or no. Ms. Sharby. Yes, I think it would be helpful. Mr. Pocan. Thank you. And I think the other thing we heard was from Mr. Rounds, you were talking specifically about it was going to cost $3 million to do it, but I understood right from some other previous comments since 2008, there has been, is that correct, a 22 percent cut to K.U. from your State budget? Mr. Rounds. That is correct. I do not remember the exact percentage, but that is about right. Mr. Pocan. So, you know, Mr. Chairman, I guess what I am getting at is when we look at the macro level of, you know, at first, I think it was 354 people then you just told us 92 were going to get the increase anyway because they are postdocs, they will be getting it through NIH, et cetera. So, we are talking about 262 people left, but you got a 22 percent cut to your budget from your State. I have a state that is doing the same thing. They just cut $250 million from the university. Let's look at the big picture here. And the big picture is we should have a hearing, quite honestly, on all these state institutions that have not lived up to their obligation to their students in publicly funded universities. I have seen articles on this. That is a much bigger dynamic than the 262 people that are going to be affected there. And, Ms. Sharby, just a quick question on the one-quarter of 1 percent of your budget that you are going to need to comply with this. Does that affect people in all four states or just New Hampshire? Ms. Sharby. All four states. Mr. Pocan. So, at four states we have the opportunity to give people a wage increase who work for your organization for a really small amount of money. So, I think the whole contention around who we have here before us does not really address the fact that there are a lot of small businesses out there and not even small, it is big businesses, who-- fast food, et cetera, who are paying people again at sub-poverty wages that would have to work and not get paid for overtime for a family of four. That is a real issue and having this increase, Mr. Bernstein, if I remember right, for decades, wasn't it adjusted for inflation, wasn't the rate about a thousand a week that was previously offered? Mr. Bernstein. Yeah, if you go back to 1975 and you put it into today's dollar, the threshold was $1,100 per week, about $57-, $58,000 per year. And if I may make one quick other comment, I think it would be a mistake to assume that the general perspective of nonprofits and higher ed is represented on this panel today. There are two statements out today, one from a representative of higher ed, one representative of nonprofits, very much in support of this rule. So, our draw today was very much tilted to our tired and nonprofits that are against the rule, but do not be misled because there are many of those institutions that are very supportive. Mr. Pocan. And thank you for saying that because there is a list of, I think, a few hundred folks, organizations that are supporting the rule as well. I yield back my time. Chairman Kline. The gentleman yields back. Mr. Allen. Mr. Allen. Yes, thank you, Mr. Chairman, and, of course, I come from the small business world as well and what my understanding was as far as salaried employees was that was something that you did to reward them for their achievement. In other words, you guaranteed them basically 40 hours a week of work and they could count on that salary. And then, of course, we also had incentive pay if they performed beyond their expectations. They received compensation as well and many times, in our business the compensation exceed the actual salary. And, of course, there was no--they didn't punch a clock. I mean, you know, their time was their time. And so now I am assuming that what we are going to do is we are going to have this compliance issue as far as these people are concerned. My biggest concern is the growth of this economy and, you know, the economy, it's not growing. As part of Economy Study Incorporated, this rule has discovered that many employees will potentially decrease and employers will potentially decrease employees eligible for overtime protections, base salary and decrease overtime hours work to compensate. In a time of slow economic growth, when the government should be promoting policy that creates jobs and grows the economy, why is DOL encouraging further regulation that will decrease economic output and overall GDP growth? Mr. Passantino, you want to answer that question? Mr. Passantino. The question as to why DOL is doing this? Mr. Allen. I mean, at a time when our economy is basically stagnant. We are growing less than 2 percent sometimes we have quarters with 1 percent, some quarters less than 1 percent. I mean, how do we get this economy to a 4 to 5 percent growth? I mean, I don't see how this rule is going to help. Mr. Passantino. I am not an economist and on a macroeconomic level, I do not have any real insight into that. What I can say is that employers who I have had discussions with recently, really are struggling with how they are going to implement this and the decisions that they are going to have to make, whether they are going to be able to afford to raise someone's pay; whether they are going to have to reduce salary on the front end so that they can accomplish the goal of getting to the same total compensation at the end of someone's work week. I would also like to say that the concept that a salaried exempt employee earns $0 after 40 hours in a week is a fallacy. And the simple fact of the matter is that employee earns the salary when they work hour one. So, by that logic, they also get paid $0 for hour two and hour three and hour four, all the way up to however many hours they work in that work week. That is the point of the salary. It covers work from when you start to when you end in any particular work week. Mr. Allen. Mr. Rounds, as far as your university, I mean, again, you know, you are trying to educate people to go get a good job. How is this going to affect your ability to do that? I mean, are you going to have to cut back on the number of students, or are you--what are you going to do to deal with this? Mr. Rounds. Sir, as I mentioned, we will likely change the status of many of the employees that are impacted by the law. Mr. Allen. Many of those hourly, to an hourly rate? Mr. Rounds. Move them to a nonexempt status, so they would--for anything over 40 hours that we have to pay them overtime. As Dr. Bernstein has pointed out, there are multiple options that we have, but the bottom line is anything over 40 hours we have to pay them. And if that is true, many of these employees right now have very flexible approaches to doing their jobs. And those flexible approaches are tied to meeting the needs of students and our concern is that they will lose that flexibility and, therefore, they will not meet the needs of the students in the same way, which obviously reduce the services and impacts the quality of the education that we can provide. Mr. Allen. Well, I am just about out of time. Ms. Sharby, I want to tell you how much I appreciate what the Easter Seals does. I am a former president of the Augusta Easter Seals Board and great work. We are actually making folks who basically cannot do a job. We are teaching them how to do jobs and putting them to work. And I think that is what America is all about and I appreciate your service. I yield back. Chairman Kline. The gentleman yields back. Mr. Takano. Mr. Takano. Thank you, Mr. Chairman. The Department of Labor's update to the overtime rule is long overdue and, according to the Economic Policy Institute, would benefit 1,076,000 working people in my home state of California. I would like to point out that this update will directly benefit my colleague, Mr. Allen's state, by 493,000. Nearly half a million people of Mr. Allen's state would benefit from this rule. The overtime rule is one of the most significant actions the administration has taken to support working families and fight income inequality. While we can get bogged down in details, it is important not to lose sight of the millions of workers and their families the rule will help, workers such as Soledad, a member of Mom's Rising and a mother of four from California. Soledad wrote in support of the rule saying, ``I work as a salaried employee and always work more than my regular 40 hours a week. My usual weekly hours can amount to 50 or 60 hours a week and I do not get paid for the extra time. Sometimes I work 12 hour days without compensation due to being salaried. This has got to stop for people that work more than 40 hours a week. Overtime takes away the quality of life with our families. We are too tired to do anything with our families and are still not being compensated.'' According to the Economic Policy Institute, 12.5 million salaried workers such as Soledad will directly benefit from the rule. It helped 6.2 million women, 4.2 million parents, and 5.5 million workers between the ages of 35 and 54. Well, changing gears, as we have heard this morning, the FLSA does not contain a specific exemption for nonprofit organizations, but that does not mean that there is no nuance in how the rule will apply to nonprofits. Dr. Bernstein, can you provide some examples of nonprofit institutions? Are all nonprofits small entities that are engaged in charitable work? Mr. Bernstein. Some nonprofits, and this is something I speak to in my testimony, including social welfare and some educational institutions are exempt based on characteristics of the institutions themselves and the workers within them. Although typically, somebody in there is probably going to be nonexempt. The DOL has worked hard, however, to both provide guidance and accommodate some of these concerns, as is mentioned for the Medicaid funded providers is a service for intellectual development disabilities, the new rule does not take effect for three years and, in addition, higher education institutions worry about the effect of their postdocs are comforted by this national research award point I have been making where NIH will raise the grant level to the new higher cap. Mr. Takano. Okay, as a follow-up, can you talk about enterprise coverage and the types of nonprofits that are exempt under the provision? Mr. Bernstein. Sure. Based on the nature of their activities and whether they involve revenue-generating sales of above half a million dollars. Some nonprofits or individual workers at those nonprofits may be exempt from the new rule. This has a lot to do with the extent to which you are operating something that looks a lot like a business within a nonprofit. So, to the extent that you are generating revenues by making sales that go over a half a million dollars, you would be covered, but if you are doing volunteer activities, you are not engaged in the type of work that looks like a business that would be covered, then your institution, your establishment may be exempt. Mr. Takano. So, plenty of nonprofits are exempt and it is just that, that $500,000 level. Thank you. It is important that we look at the numbers here. According to the Department of Labor analysis, only 1 percent of employees at nonprofits who will be affected by the rule regularly work overtime. Is that correct, Dr. Bernstein? Mr. Bernstein. That is right. Mr. Takano. Well, it is an adjustment, but it is not a burden nonprofits cannot handle. In fact, I would like to ask unanimous consent to insert in the record a letter from nearly 140 nonprofits that write in support of the final rule and who are committed to complying with the new regulations. Chairman Kline. Without objection. Mr. Takano. Thank you. Dr. Bernstein, would you like to add a little more to just the idea of the number of nonprofits that can comply? Mr. Bernstein. Well, I think that the points that we have heard from both Ms. Sharby and Mr. Rounds are very important in the following sense. Their problem is not with the rule, it is with the fact that their funding has often been cut. So, if you are talking about an education system that is taking a 20 percent cut in its support, they are going to have all kinds of problems of which this rule is the least of them. What we are trying to do here is establish fair pay for fair work and that is a separate problem from the fact that, in many ways, Congress and State legislatures, especially in Kansas where they have aggressively cut taxes, are underfunding their university system. Chairman Kline. And the gentleman's time has expired. Mr. Thompson. Mr. Thompson. Mr. Chairman, thank you so much for this hearing. You know, to me, I have heard the word ``poverty'' mentioned a lot and I would be hard pressed--I do not think there is anyone on either side of the aisle is not concerned about that issue, is not concerned about providing opportunities for--a greater opportunity for success, for realizing the American dream, which really is greater opportunity. But the pathway to greater opportunity and out of poverty is not an arbitrary executive branch dictate. I am sorry. It just does not work. Those cookie cutters rarely work. They usually wind up with unintended consequences and make matters worse for people and that is what we are trying to defend and push back on here. To me, rather it is really looking at a pathway out of those situations, a pathway for Soledad, a mother of four that I just heard about, and I have met lots of those folks just like that. You know, around my congressional district, they need a pathway. They need something like, quite frankly, I shamelessly plug it, a career in technical education training. And with the Chairman's support, I think everybody on this Committee is going to have an opportunity to talk more about that in the days to come here, hopefully, before we leave, you know, before that third week in July. And so, you know, my first question is for Ms. Sharby. Tina, I have just this past weekend, I had the privilege of speaking at the closing ceremony at the Pennsylvania Special Olympics Games, 2016 Games, which I love organizations like yours, like Special Olympics. I am a long-time Scouter, so I look at the hours, the evening hours, the weekends I have been involved doing my part as a volunteer. I know how important it is to fund the mission, you know. And I look at the good that it has done, which is amazing with those resources, and I looked at the quality of individuals. Last week, I was at a Goodwill facility up in Erie County and I look at the job training that goes on there. So, my question for you is, first of all, thank you for your tremendous work you do as a part of the nonprofit community. And organizations like yours, I have mentioned some of those, Easter Seals, Special Olympics, Goodwill, the Boy Scouts of America, the Girl Scouts, they help boost the quality of life for so many people and families every year. And as legislators, we should be working tirelessly to support your mission, not making it harder for you to succeed. Given the widespread presence of Easter Seals across the United States, and as a former rehab professional, I work very closely with the Easter Seals, when I had a real job is the way I like to describe it. How will the final overtime rule affect the ability of individuals to access crucial services, specifically in rural and underserved areas? Ms. Sharby. Thank you for the question. It is a really good question. I can give you the example of our care coordinators and our military and veteran services programs. The individuals that we serve work very closely with the care coordinators and they develop a relationship where trust does not come very easily amongst that population that we serve. So, we are looking at potentially having to develop an on-call system where only one of eight of our coordinators would be on call for the week because we cannot afford to pay the overtime. It is a non-funded program that we run. The concern that we have about that is now the person that needs the emergency help maybe in the middle of the night, losing their home or thinking about suicide, they are going to that on-call person who might not be their care coordinator, they are not going to want to talk to them. They want to talk to their care coordinator. That is where we think that the services are really going to impact the individuals that we serve. Mr. Thompson. How important is that at a time of crisis, because that is what you have described? And you cross that over to agencies, nonprofits are facing manning suicide hotlines and services, children in youth, how important is it to have the right person available at time of crisis when people actually reach out? Ms. Sharby. It is literally the difference between life and death. Mr. Thompson. I do not think an arbitrary executive--it would be a shame to see the loss of lives as the result of some executive branch action. Mr. Passantino, the Department of Labor's final overtime rule includes an extremely narrow, non-enforcement provision for entities which provide Medicaid services for disabled individuals and facilities of 15 or fewer beds. Given your expertise, can you speculate on how many employers or employees this provision would actually help? And additionally, would these employers be protected from legal action during this non- enforcement period? Mr. Passantino. I am not sure to your first part of the question about how many will be impacted, but I suspect it is very small. The more consequential pieces, a non-enforcement policy does not mean the regulation is not in effect. It means that the Department of Labor is not going to take any enforcement action against someone based on those regulations. The private rights of action continue to exist and that non- enforcement policy does nothing to the private right of action. Mr. Thompson. So, the bull's eye would be put on the backs of those agencies for frivolous litigation. Thank you. Chairman Kline. And the gentleman's time has expired. Ms. Clark. Ms. Clark. Thank you, Mr. Chairman, and thank you to all the panelists for joining us today. I have to say, I want to go back to the comments of my colleague, Mr. Pocan, and say I feel like we are missing in this discussion some of the macro issues. Of course, it is critically important that our veterans, that the clients you serve, Ms. Sharby, are able to talk to their case manager when they are in crisis and that the students--and that we are lucky enough just yesterday to join K.U. in a discussion of the critical importance of funding scientific research at our incredible universities across the country, including Kansas. But it is not the overtime regulations that are going to cause a loss of life, as my colleague just stated. It is so many other economic pressures. And if we want to create a robust economy one of the best ways to do it is to help address income disparity, to help address stagnant wages, the overwhelming cost for many families of child care and of housing and transportation. These are the big macro factors that are coming to play, and really causing a hard time for many nonprofits to deliver their critical services, of which Easter Seals, certainly in New Hampshire and around the country, delivers critical services as do our institutions of higher education, and those issues are the ones that we need to offer this critical relief. In Massachusetts, with the overtime, new regulations are going to mean for working people in my State are 262,000 people are going to get a raise. That is a real benefit. That is a real help to all of you at the table. In Mr. Thompson's state of Pennsylvania, 459,000 people will be able to have a raise due to these regulations. So, I think that we have to remember to look at the overall economic picture and what are those levers that we need to move to bring that relief. Because I don't believe that it is the overtime rules that are going to cause your ultimate staffing and your ultimate woes at K.U. Dr. Bernstein, I wanted to start large and then go to detail. But I do believe that this is a critical piece of addressing income inequality as you mentioned in your testimony. What are some other factors and policies that we should be looking at to address that? Mr. Bernstein. The minimum wage has been stuck at $7.25, this was mentioned earlier, at a Federal level since 2009. Raising that would certainly help lift the fortunes of low- income workers. There is some bipartisan support for another idea that would help low-income workers, which is expanding their earned income tax credit to reach childless adults who now get very little from that. In terms of tightening up the job market, we really could use a deep dive into infrastructure investment. The erosion of unions has really hurt the bargaining power of lots of middle class workers. But I very much take your point about the connection to the overtime rule as well. You remember the chart from my testimony shows that when inequality was a lot lower than it was today the threshold was a lot higher, and vice versa. Ms. Clark. And specifically, I also think that one of the pieces that we are going to help address is the pay equity gap for women. What do you see the role of these new rules in helping with that as well? Mr. Bernstein. Well, a slight majority of those affected by the new rule are women. By the way, a much more significant majority affected by a higher minimum wage are women, because women are disproportionally low wage workers as well. So I do think that this is a help in terms of gender pay equity. I would also note, not on the gender side, but Mr. Rounds might appreciate this, according to DOL numbers, 80 percent of the workers, of the affected workers, helped by this increase have at least some college education. So it is actually a real boon to the people that K.U. and other institutes are training and sending out into the workforce, where they will be compensated for their overtime by dint of the new rule. Ms. Clark. And I have certainly heard--I appreciate you mentioning the minimum wage. It is something I certainly support, but we also have to look beyond that and look at our higher and mid-income earners. Mr. Bernstein. Absolutely. Ms. Clark. And I think this gets to that point. Thank you very much and I yield back. Chairman Kline. The gentlelady yields back. Mr. Grothman, you are recognized. Mr. Grothman. Okay, I am sorry. I am updating my notes here. I am just finishing up on the questions of Congressman Takano. I got to talk to him later about how many men are going to be helped by this new rule. Maybe I missed it. Okay, questions. I am trying to think how this rule would impact--I look at past jobs I have had. I have heard from the golfing industry, but there could be a variety of jobs that you have it is a lot busier one time of year than another time of year. Maybe it gets busy at the end of the year. Maybe it gets busy during tax season, whatever. And, you know, when you go into the job there is sometimes you are going working 50 hours a week and other times you might just be hanging around the office and not getting a lot done. Well, that is because of the expert on the bill. Dr. Bernstein, how do you think this affects how those sort of jobs work if I hire somebody knowing that some days are going to be super busy, other days not so busy? I think it is kind of going to mess up those businesses and hurt those employees. What do you think about that there? Mr. Bernstein. Well, I disagree. I mean, I think you have to look at the record. Certainly, the last time we increased the threshold, the slight increase in 2004, you can see that on my chart, we didn't see those kinds of impacts. I do think that when it comes to people with variable schedules, as you suggested before, remember the rule does not get invoked until they cross 40 hours. So there are ways to work around that for employers. Mr. Grothman. Right, well, not to cut you off, I think there are jobs in which you are expected sometimes to work 55 hours a week and other times you can take off and work 28 hours a week. And that is the nature of the real world. You know, there are times that are busy, times not so busy. You know getting involved, you are a salaried employee. There are sometimes you are going to work and get it done and sometimes they don't. It seems it is going to make it very difficult for those sort of workers. Mr. Bernstein. Again, I mean, I think you make great points and I agree with your points-- Mr. Grothman. I think so, too. Mr. Bernstein.--and I agree with the way you characterize this, but if you go back to the 1960s, 1970s, remember the threshold was $1,100 in today's dollars and the unemployment rate was lower than it was today. Productivity growth was faster. So there is no evidence of the kinds of disruptions that you are suggesting. Mr. Grothman. Okay, I will give you another thing that concerns me when I think of people in these jobs. What it is going to do is it is going to put pressure on to get out the door at 4:30 or 5:00, or whatever. There are times when you are working on a project where you might say, jeez, in another half-hour, hour I might get this right. I just want to make sure I get it done right. Instead, you are going to get pressure from your employer to get out the door. Are you afraid it is going to result in a worse work product because this is what is going to happen? Mr. Bernstein. Well, again, if we are talking about--the kind of workers you are talking about sound a lot to me like people like myself and maybe yourself as well. You know, we are exempt, so that is not really relevant. Mr. Grothman. No, no, no. All sorts of people under $52-, whatever it is, $51,000 want to get their job done right. Mr. Bernstein. Forty-seven. Mr. Grothman. Want to get their job done right. Okay, if I am making 46 grand a year and I am hired to do something and I feel things are not getting done right and I want to hang around another hour to make sure that report is right-- Mr. Bernstein. So I guess I don't see anything inconsistent with what you are saying. And again, I think you are raising great points. And the idea that worker has to be paid time and a half for that extra hour because there is something called the 40-hour work week that was enshrined in the Fair Labor Standards Act of 1938, and is more relevant today than it was then in my view, given the issues around bargaining power and the extent to which middle-wage workers have been hurt. Mr. Grothman. Look, if I have a job I want to make sure I get those things done right, Okay? Mr. Bernstein. Mm-hmm. Mr. Grothman. In part because of the customers, in part because of my boss. Okay, what you are doing here, or the people who put together this rule, are you creating an environment in which the boss feels you better get out the door at 4:30 p.m. So, put your employee in a position in which either I submit the report on a so-so, not sure it is right basis or get my boss mad by hanging around until 5:30 p.m. to go over it again to get it right? I mean, there are certain jobs that are salaried by nature, in which you work until you get it done. Are you not afraid you are putting those employees in a bad situation? If I am an employee like that, I want to hang around that business as long as I can, I want to grow with the business. I don't want to be in a position in which I have to choose between turning in a lousy report at 4:30 or getting my boss mad at me because I had to hang around until 5:00. Mr. Bernstein. Well, with respect, I think we have to distinguish between the kind of compelling story you are telling me and the actual numbers about who is going to be affected here. We are talking about 3/100 of a percent of the national payroll. Now, you may just believe that we should not have a 40-hour work rule for covered workers under the FLSA and that is just a fundamental disagreement between us, but in fact the economy has performed perfectly well with thresholds far above today's levels. Mr. Grothman. I will give you another question. It occurs to me that what is going to happen here is you are going to make the workplace less friendly. Okay. Right now, I think sometimes people may hang around past 4:30, maybe it is a more easy going workplace. Maybe at the end of the day employees are talking with each other about who knows and they know they can hang around until 5:30 p.m. and 6:00 p.m. and get the job done, if they have to work to 5:15 they can talk about, I don't know where you are from here, the Redskins or whatever. Instead it is going to be, we have to get out the door by 4:30 pm. Do you not think it is going to make for a less friendly, more intense work environment? Chairman Kline. All right, the gentlemen's time has expired. Ms. Davis. Ms. Davis. Thank you, Mr. Chairman, and sticking with some of the flexibility issues there, because I think that we have the notion that somehow because we are in the 21st century and that we do use electronics and we do provide different ways of flexibility that this would all stop. And, you know, Dr. Bernstein, you were starting to comment on that. Mr. Bernstein. Yeah. Ms. Davis. Can you tell us why is that not going to be the case? Mr. Bernstein. Well, I mean, I guess I would say first of all, following up on the discussion we were just having, it does not really create a flexible or high morale or welcoming workplace when somebody is misclassified as an exempt worker because they are called an assistant manager and they work 5, 10, 20 hours for zero extra pay when they should be getting time and a half overtime. In fact, as I discussed earlier in my testimony, instead of assertions about these flexibility issues, research done by Professor Lonnie Golden has found that if you actually look from survey research at the kinds of flexibility, the sort of work-family balance flexibility that hourly and salaried workers have at around the cap, around $50,000, it is about the same. So there is no evidence that moving someone from nonexempt to exempt coverage would reduce their flexibility. What it would increase is their pay when they work overtime and that is critically important. Ms. Davis. Yeah, I think one of the points made also with the NIH is that many of our young scientists are going to be affected in a more positive way with this new rule rather than negatively. Mr. Bernstein. Well, that is a good point. I have talked to at least one postdoc who said he likes the rule a lot, in no small part because the NSF, as I have mentioned, is raising the grant level to meet the higher cap. Ms. Davis. Right. One of the articles--The New York Times had an article, just the other day. You all may be familiar with it without talking about the Prada Economy or the Prada Industry, and the fact that we do have a lot of low-wage but high-potential jobs that young 20-somethings, for example, might be willing to take. They are obviously engaging with people in a way that pushes them. They want to show their aggression. They want to show that they are ambitious and they are going to stay on the job just as long as they can in the hopes of looking good, quite frankly. That is what people do, and that is perfectly acceptable. But we also have to know that those kinds of jobs may possibly affect demographics differently by those who can afford to do that more than those who cannot. Maybe young people can do it more, especially if they have a lot of support at home, versus people who have a family at home and trying to work in that fashion does not suit them. Do you think that, in fact, as we are looking at these issues that some of these new overtime rules could possibly change the socioeconomic diversity of the workforce in this so-called Prada Industry? Mr. Bernstein. Well, I certainly think it is possible. I think it is important. I don't know that we have quite gotten to this in the hearing so far, to note the rule will disproportionally help some of the types of workers you are talking about; black and Hispanic workers are disproportionally affected. They are 21 percent of the salaried workers, but 28 percent of those who would directly benefit from the new threshold, and millennials between the ages of 16 and 34 will also disproportionally benefit. They are 36 percent of the affected group and 28 percent of the workforce. More than a third of all workers with less than a college degree will be directly affected and that will also help over seven million children. And as I mentioned there is a slight majority of workers who are helped who are women. Ms. Davis. Right. What is the benefit of that? Of diversifying? Mr. Bernstein. Well, I think there is a tremendous benefit to that diversity. If I may wax philosophical for a slight second here, I am struck by the fact that we are now in a country that has twice elected an African-American President and now has nominated to a major party for the first time a woman. I think this type of diversity is extremely healthy and I also think the extent to which minority workers have been hurt through the erosion of labor standards, whether it is minimum wages or the overtime threshold, cannot be over- exaggerated either. And this rule is an important correction to that. Ms. Davis. Thank you. I appreciate that and I know others have talked a little bit about the work-life balance and whether there is something to be said for having people be more productive when that work-life balance does come into consideration. Would you all agree that there is something to be said for that? Mr. Bernstein. I would. Ms. Davis. I see some nods, but, okay, all right, thank you. We do need to, I think, realize that in some ways this really is forcing people to manage the productivity in businesses and I think that is very positive for all of us. Chairman Kline. The gentlelady's time has expired. Ms. Davis. Thank you, Mr. Chairman. Chairman Kline. Mr. Rokita. Mr. Rokita. I thank the Chairman. Mr. Passantino, what do you think the best way is to manage productivity in a business? Mr. Passantino. To let people work. Mr. Rokita. Manage to a profit motive perhaps? Mr. Passantino. Sure. I mean they want to be profitable. That is the point of the business. Mr. Rokita. Efficiency, manage to effectiveness, those kinds of things. Mr. Passantino. Sure. Mr. Rokita. Those principles apply to urban areas as well as rural areas, I grasp, correct? Mr. Passantino. True. Mr. Rokita. I represent a lot of rural areas, a lot of suburban areas, a lot of small towns I am very proud of and they are great places. What is the effect of this rule on places like that? Mr. Passantino. I think it disproportionally affects those rural, nonurban areas. We have already seen clients who have-- it is the same position, people are performing the same work. So, there is no question the duties qualify for the exemption. Right? So the duties tests have not changed. They are exempt now; they will be exempt under the revised salary test. But some of their workers work in urban areas and earn an excess of $47,000, and some work less--I am sorry, earn less because they live in rural areas. So what you have is the same exact position and people earn above and below the new threshold, which fundamentally indicates that not everybody earning under $47,000 is not performing exempt work. There are plenty of people under 47,000 who are performing exempt work, which is sort of the point of the salary test. The salary test is supposed to screen out all of the clearly nonexempt people and then you go to the duties test to see whether they meet the rest of it. So, what you have is a situation where you are including people who clearly meet the duties test and now employers have to decide what is, frankly, not a great decision. They have to raise everybody up to that $47,000, which means that they are going to have to raise the people over $47,000 as well. They can convert the entire workforce to nonexempt in that position, which is not the best solution for them, or they can have a split position and they can have some people being nonexempt and some being exempt and that is a recipe for disaster. Mr. Rokita. Yeah, because in your experience inside that workforce, folks that you represent, what would that do? Mr. Passantino. Well, you are going to run into situations where the exempt person can stay until 5:30 or 6:00 p.m. and get the job done. The nonexempt person is going to be limited in their overtime hours. Mr. Rokita. To Mr. Grothman's earlier point, that cannot be good for morale. I mean, that cannot be good for running a business or working at one like that. Ms. Sharby you are nodding your head. I will indicate that for the record. Do you want to add something? Ms. Sharby. Well, I struggle because I am honestly not sure how Easter Sales is going to be able to absorb these changes. We run with maybe a 1 percent budget margin. The difference between in the black and being in the red, so-- Mr. Rokita. And just to be clear in my opening comments you are a nonprofit. Ms. Sharby. Nonprofit. Mr. Rokita. So the ``profit motive'' is the ability to stay in business, right? Ms. Sharby. Correct. Mr. Rokita. If you are not making positive revenue--if you are nonprofit you cannot be there. Correct? Ms. Sharby. Correct. And currently in the State of New Hampshire we have a 2.6 percent unemployment rate. So it is not a matter of saying that I will bring in more employees and not pay the overtime. I just do not have employees to bring in, into the State. So the moral issue with our staff is significant. We have people who feel that, just yesterday, said, what does that mean to me? I am used to going and helping out at certain events. I like to go to some of the kids' birthday parties or graduations. Mr. Rokita. Nope. Nope, cannot do that. Ms. Sharby. I cannot pay you to do that now. And that is really very tough to be--and it impacts the quality of the services we are able to provide. Mr. Rokita. And so my question about the rule nature of my district, I think, correct me if I am wrong, either the two of you that spoke already, applies regionally? Ms. Sharby. Right. Mr. Rokita. I mean, there are differences in regions of this country that rule or not that would--what you are testifying to would have the same effect. Is that correct, Ms. Sharby? Ms. Sharby. That is correct. So if an average salary in New Hampshire is $35,000 and we used to have business in New York that same salary would equate out to a little over $50,000 in New York. But yet, New Hampshire is forced to comply with the higher salary. Mr. Rokita. Unbelievable. Mr. Passantino, last word. Mr. Passantino. I think that is exactly right. You are going to see differences in how people are treated based on where they are or employers are going to have to make some very difficult decisions. Mr. Rokita. Central planning at its worst. I yield, Mr. Chairman. Chairman Kline. The gentleman yields back, Ms. Adams. Ms. Adams. Thank you, Mr. Chairman, and thank you for your testimony. The Department of Labor's update to the overtime rule is long overdue. And according to the Economic Policy Institute, it would benefit 425,000 working people in my home State of North Carolina. I want to begin by asking Mr. Passantino, you served in the Labor Department under President Bush. How much time were employers given to comply with the 2004 change to the rule? Mr. Passantino. I believe the effective day on the 2004 rule was 120 days. But that rule was really catching up, fixing some issues that had existed in the salary test. There were two tests at that time. One of them was basically nonfunctioning. No one used it. So it really was a catch-up whereas this is clearly jumping over a large number of people who perform exempt duties. And so it is going to be far more difficult under the current rule for employers to come into compliance. Ms. Adams. But the current rule, though, does provide an additional two months to come up with compliance, which was beyond what the Bush Administration provided for, is that not correct? Mr. Passantino. The current rule provides approximately six months, I believe, for employers to get into compliance. Ms. Adams. Okay, so that is more. Mr. Bernstein, we talk about a better outcome for employees. You have made some comments about that. Can we, with the better outcomes for employees, can we expect that this will lead to better outcomes for employers? Mr. Bernstein. Well, certainly in the past, as I have mentioned, in fact, I would take issue with one of the things my co-witness Mr. Passantino just said. The new rule simply partially replaces the extent to which inflation has eroded its value since the mid-1970s. If you look at the value in today's dollars of the overtime threshold, the level, it would have been about $1,100, $57-, $58,000 per year. Now we are talking about $913 per week or about $47,000 per year. So it is a partial adjustment. And, in fact, to speak to your question, when the rule was in effect unemployment was low, GDP growth was faster than it is today. Productivity growth was faster than it was today. I don't know that worker morale was negatively impacted at all. In fact, one of the things that numerous analysts predicted from looking at the rule based on past history-- not based on assertion, not based on what you think might happen, but based on research driven by what has happened in the past when we have changed thresholds-- the expectation is that there will be some number of new jobs created at straight-time pay. Maybe 100,000 according to Goldman Sachs, maybe 150 or so according to the National Retail Federation. I think this is positive for the economy and positive for the workplace. Ms. Davis. Thank you, Mr. Rounds, and thank you for your service, sir. You mentioned that workers cared more about their exempt status than getting paid for the time they work. Well, I find all the discussion around higher education fascinating because I served 30 years, 40 years in academia. But, you know, the people that I talk to really find it demeaning and demoralizing to be asked to put in extra hours at work for no pay. What would your response be to that? Mr. Rounds. First, I would like to say thanks for your service in academia. Obviously it is essential to the country and we appreciate your willingness to work in the academic sector. I would say that as I look at the employees at the University of Kansas and I look at the ones that we are talking about who are primarily responsible for providing services to students, the ones that would be impacted by this legislation is that their passion is for positive outcomes for students. They will lose some of their workplace flexibility and their lack of ability to meet the needs of students will be of great concern to them. I have talked in my testimony that is most important, the culture of higher education and being able to serve our primary customer, our students. That will be eroded. Ms. Adams. Thank you, Mr. Chairman. I believe I am out of time. I yield. Chairman Kline. The gentlelady yields. Mr. Jeffries. Mr. Jeffries. Thank you, Mr. Chair. Mr. Passantino, would you agree that the 40-hour work week has become a classic part of the American Dream? Mr. Passantino. I do not know that I would describe it as that. Mr. Jeffries. So it was enacted into law in the late 1930s as part of the New Deal, which was part of the effort to make sure that we have a more even playing field in terms of working class, middle class Americans. Correct? Mr. Passantino. It was enacted in the late 1930s, I think, to make it more expensive for people to work more than 40 hours. Mr. Jeffries. You think the objective of President Franklin Delano Roosevelt was to make it more expensive for people to work more than 40 hours a week? That was his objective, part of the New Deal? Mr. Passantino. Well, the second part of that is that makes more people work for the same amount. So you can pay at a straight time. Mr. Jeffries. Now, you were part of the Bush administration, correct? Mr. Passantino. That is correct. Mr. Jeffries. And do you think that President Obama and his administration, his policies-- whether that the Affordable Care Act, whether that is the Dodd-Frank legislation that was passed into law, whether that is the overtime rule -have been job killing? Mr. Passantino. Have they been job killing? Mr. Jeffries. Right. Mr. Passantino. I think that they have. Mr. Jeffries. They have? Mr. Passantino. Yes. Mr. Jeffries. So, you spent time in the Bush administration, which brought us two unfortunate wars and tax cuts to benefit the wealthy and the well-off. But also, presumably, you made your best efforts to be part of an administration that was going to improve the employment situation in this country. Correct? Mr. Passantino. Correct. Mr. Jeffries. But the eight years under President Bush we lost 650,000 jobs, correct? Mr. Passantino. I do not know the figures. Mr. Jeffries. Okay. Under President Obama's seven and a half years we have actually gained 14 plus million jobs in the private sector, correct? Mr. Passantino. I do not know the numbers on that either. Mr. Jeffries. But you are here as an expert to talk to us about employment and the impact of this rule and you do not know these basic numbers, including the ones that relate to your time being spent in the Bush administration. Is that your testimony? Mr. Passantino. My testimony and my expertise is on advising clients how to deal with these issues and so on, on a very micro level. I have a very good understanding of how that works. On a macro level I don't have that data. Mr. Jeffries. So on a micro level, you think that the 40- hour work week, which is working five days a week, presumably Monday through Friday, 9:00 to 5:00, is not part of the basic American Dream in terms of being able to work hard, earn a good living, but also be there as a father, as a mother, as a son or daughter to a parent or grandparent that may be ailing to have a good work-- life balance? You have a problem with that? Mr. Passantino. I believe that I am living the American Dream and I am not subject to a 40-hour work week, so, yeah, I think it's possible that the 40-hour work week is not an inherent part of that. Mr. Jeffries. Okay. Mr. Rounds, thank you for service in terms of working in the academic realm. Higher education is incredibly important. A few things you talked about that in the limited time I have I would like to touch on, you said that the University of Kansas is a not-for-profit public university. Is that correct? Mr. Rounds. That is correct. Mr. Jeffries. And so presumably, what you ultimately strive to do is provide some form of public benefit to your students, but also in the context of being part of the State government out in Kansas. Is that correct? Mr. Rounds. Correct. Mr. Jeffries. And you said 262 employees of Kansas University would be impacted by the overtime rule, is that right? Mr. Rounds. Actually 354, 92 of those are postdoctoral employees who we have made the determination to raise their salaries to the new threshold. Mr. Jeffries. Okay, so that means that they are actually going to put more money in their pocket at the end of the day. That will either go into the economy or go to the benefit of their families. Is that right? Mr. Rounds. That is correct. But at the same time, as we looked at the fixed grants that their principal investigators are responsible for managing is the concern. This has also been expressed by the Postdoctoral Association as we are not going to be able to maintain the same number that we have had in the past, which you can argue will have an impact on research. Mr. Jeffries. Okay. I mean, I would simply say I think K.U. is a great university, great basketball program. I mean, it does interest me that, I believe, Bill Self earns about $230,000 directly from the university and as I understand it $3 million in total salary, and that the chancellor of the university earns approximately $510,000 per year. So I think maybe there needs to be a reassessment of priorities before the complaint is directed at the effort of the Obama administration just to make life better for working families. Chairman Kline. And the gentleman's time has expired. All time for questions has expired. I want to thank the witnesses and turn to Mr. Scott for any closing remarks he might have. Mr. Scott. Thank you, Mr. Chairman. As the gentleman from New York just indicated, in 1938,-- 1938-- Congress established 40 hours as a normal work week. And if you make more than that, you are supposed to get time and a half. After 40 hours, if you work more, you are supposed to get more. The law covered about 60 percent of salaried employees back then, but because we have not updated the laws we should have, now only 7 percent of salaried workers are covered. This new regulation will increase it to 33 percent. We've heard a lot from colleges. We have not heard enough about all the exemptions in colleges: teachers, grad students, many coaches, many academic administrators, all hourly employees not affected by this law. In fact, Department of Labor estimates that only 3.4 percent of college workers will be affected. In 0.5-- one-half of 1 percent would be both affected and usually work overtime. One-half of 1 percent of college workers. To honor the 40-hour work week you are only talking about one-half of 1 percent-- of workers that will get a little extra when they work over 40 hours. We also heard from Easter Seals honoring the 40-hour work week, rather than working people without pay after 40 hours would cost less than 1 percent of the budget. Suggesting that people are going to die because you cannot work people more than 40 hours is obviously absurd. And also you could be more honest; if you expect them to work 60 hours a week, you can restate their salary, expect them to make the overtime and they would get the eventual salary that they are expecting to get. But it would be more honest to say what it is for the 40 hours and more than that after that. Now, some of this Committee think that we should honor the 40-hour work week, and if people work more than 40 hours they should get paid for additional hours. The rule means, as I said, one-third of salaried employees will benefit from the 40- hour work week: up from 7 percent, but way under the 60 percent who were covered in the 1970s. And incidentally, businesses, colleges, and nonprofits complied with those regulations without complaint. So, Mr. Chairman, I hope that we will honor the 40-hour work week. We actually ought to get above the 33 percent I would have hoped they would have done more, but they've done what they've done. Chairman Kline. And the gentleman yields back. I thank him for his comments. It has been a good discussion today. I am always fascinated how we hear statistics here. We've had a number of my colleagues on this side of the aisle have been citing how many more people are going to be getting raises and work from a far left-leaning think tank. But that is just the world we live in here. I very much appreciate the expertise of the witnesses. You are all very, very fine witnesses. We, and most of my colleagues on this side, are entirely for people getting fair pay for their work, but we have great concerns, as we heard from some of my colleagues today, that this rule is going to have a negative impact. And I appreciate Mr. Passantino talking about the differences in response to Mr. Rokita's question. Ms. Sharby as well addressed it. We have a very different pay scale in Manhattan than you do, for example, in the center of Minnesota, as so $47,000 means one thing in one part of the country and something else in another. This rule does not recognize demographic differences. Anyway, thank you all very much for the witnesses being--yes? Mr. Scott. Mr. Scott. I was just going to ask to submit to the record a fact sheet from the Economic Policy Institute that shows the effect on jobs, hours, and salaries. Chairman Kline. The aforementioned left-leaning think tank and, without objection, it will be entered. I thank the witnesses. We are adjourned. [Additional submission by Mr. Hinojosa follow:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [Additional submissions by Mr. Kline follow:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [Additional submission by Mr. Scott follow:] [ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [Additional submission by Mr. Takano follow:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [Questions submitted for the record and their responses follow:] [ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [Whereupon, at 12:44 p.m., the Committee was adjourned.] [all]