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Industry Groups Slam Overtime Rule

Friday, May 20, 2016

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Construction industry groups argue that the new overtime wage rule aimed at increasing wages for middle-income Americans will actually do the opposite.

The U.S. Department of Labor’s Wage and Hour Division’s changes to the Fair Labor Standards Act, announced Wednesday (May 18), are expected to extend overtime protections to 4.2 million more Americans who are not currently eligible under federal law, and are further expected to boost wages for workers by $12 billion over the next 10 years.

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Construction industry trade groups are critical of the changes set to take effect later this year.

The changes take effect on Dec. 1.

Overtime protections require employers to pay one-and-a-half times an employee’s regular rate of pay for any work past 40 hours a week. The rule follows a March 13, 2014, Presidential Memorandum directing the Labor Department to update the overtime standards. 

What Changes?

Most significantly, the final rule raises the salary threshold indicating overtime eligibility from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).

The Labor Department’s initially proposed threshold was $50,440, but was lowered in response to comments received during rulemaking. Officials said more than 270,000 stakeholder comments helped shape the final rule.

The rule also updates the total annual compensation level above which most white-collar workers will be ineligible for overtime, raising the level from the current $100,000 per year, to $134,004 per year.

Under the new rule, the salary thresholds will automatically update every three years, based on wage growth over time, which helps to increase predictability, according to officials. Those updates begin Jan. 1, 2020.

According to the Labor Department, to comply with the new rule, employers can:

  • Pay time-and-a-half for overtime work;
  • Raise workers’ salaries above the new threshold;
  • Limit workers’ hours to 40 hours per week; or
  • Some combination of the above.

The Labor Department specifically notes that the FLSA’s “duties test” was not modified. The test determines whether white-collar salaried workers earning more than the salary threshold are ineligible for overtime pay.

Impact in Construction

The Economic Policy Institute reports that construction is one of the major industries where the new rule will have the biggest impact.

Yet, construction industry trade groups are not pleased with changes, noting that the measure could backfire and hurt workers.

“DOL’s overtime rule will rob employers of needed flexibility and employees of career advancement avenues, and it will have a disruptive effect on the construction industry as a whole,” said Associated Builders and Contractors Vice President of Legislative and Political Affairs Kristen Swearingen.

“The unprecedented increase in the salary threshold may force some contractors to consider switching certain employees from salaried positions to hourly. This change may deprive employees of autonomy in their work schedules and may be perceived as a demotion to employees.”

The National Association of Home Builders echoed those sentiments. The trade organizations’ chairman, Ed Brady, a home builder and developer from Bloomington, IL, said, “By radically doubling the current overtime salary limit […] this blatant regulatory overreach will essentially hurt many of the workers the rule was meant to help.”

“Small business owners across the land, including the vast majority of home building firms, will be forced to scale back on pay and benefits, as well as cutting workers' hours in order to avoid overtime requirements and remain in business.”

Both those organizations and others support the Protecting Workplace Advancement and Opportunity Act, legislation aimed at withdrawing the rule.

For additional information and guidance on the new rule, click here.


Tagged categories: Business matters; Business operations; Construction; Good Technical Practice; Government; North America; Regulations; Workers

Comment from Phil Kabza, (5/23/2016, 10:06 AM)

The new rules are equally likely to have a positive effect for construction businesses by making careers in construction more attractive to potentially qualified workers. Certainly no one expected employer associations to react with glee to any rule that might increase their costs. However, improved compensation for workers will also upgrade their subsequent purchasing power in the new home market. Henry Ford understood that in 1908.

Comment from David Bishton, (6/2/2016, 12:13 AM)

Well said, Phil Kabza.

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