Some call it disruptive change. Others refer to disruptive innovation, which is the same thing, but with a smiley face.
What’s the point?
A proposal to change the federal threshold for what justifies salaried treatment of an employee will be too disruptive to businesses large and small.
Such terms have become buzzwords in the 21st century world of business and industry. As a result of technological advancements and economic shifts, companies have either jumped at the chance to revamp their strategies and tactics or have been dragged kicking and screaming into a new way of doing things.
Business leaders have, to some degree, gotten used to the idea that "disruption" comes with the territory of operating companies in the 21st century. What they will never get comfortable with is the idea such disturbances should arise as a result of decisions by federal government bureaucrats.
Many businesses later this year will experience disruption at the hands of the U.S. Department of Labor, which after 12 years has decided to increase the pay threshold at which a company can designate certain employees as salaried.
The idea is reasonable. The agency's approach, however, is awful and is likely to lead to unintended consequences for employees the agency is supposed to be looking out for. In one fell swoop, the Department of Labor wants to raise that threshold from $23,660 a year to a staggering $50,440 annually.
What's that mean? Chaos in companies across the nation.
In the United States, the Fair Labor Standards Act requires that most employees be paid at least the federal minimum wage for all hours worked and overtime pay at one-and-a-half times the regular rate of pay for all hours worked beyond 40 hours in a work week.
That approach has successfully worked for many jobs, but the act also allows for exemptions for those employed in certain roles, such as bona fide executive, administrative, professional and outside sales employees. These are people whose duties for a company make hourly pay problematic and whose functions work most efficiently when they are allowed more flexibility in the way they contribute to a company's success.
Because it's been a dozen years since the minimum threshold pay for salaried positions has changed, it goes without saying that an increase should happen. But the massive change proposed by the Department of Labor -- a 113 percent increase -- would create an immediate and unmanageable burden on many employers. The agency should not attempt to recover more than a decade of inaction with a huge shift that packs too big a punch as employers try to sustainably manage their resources.
Let's take the newspaper business as an example. The Newspaper Association of America, after surveying its members, estimates the industry would have to spend more than $130 million to raise now-exempt employees to the new standard, even as the industry faces its own set of economic challenges.
Rather than meet the new threshold, companies would be forced to cut costs or restructure operations. Would the regulations of the Department of Labor make the hiring of more part-time employees a more attractive option? The change would most certainly dictate anemployee-by-employee review to determine ways to mitigate the impact of such a seismic shift.
Would anyone benefit from the loss of flexibility salaried employees give both the employee and the employer? With the high cost of making such a change, companies and employees would no doubt feel shock waves as they try to adjust.
As with many actions by the federal government, this change ignores important differences in regional conditions. Does anyone believe a $50,440 standard means the same thing in New York City as it does in Springdale, Ark.? Is there a realistic difference in what one labor market supports versus what another one will?
You bet there is. That's why even the federal government recognizes regional pay differences in its own employment and in the awarding of some contracts.
Developing a plan to phase in the exemption thresholds and to recognize regional economic differences is a reasonable and realistic approach to dealing with a real-world challenge. We hope members of Congress will urge the Department of Labor to apply some common sense to its proposal.
Commentary on 04/29/2016