August 31, 2023

Proposed overtime rule would worsen workforce, resident access issues, provider groups fear

McKnights Senior Living

A Labor Department-proposed rule that would make approximately 3.6 million more salaried workers and so-called highly compensated employees eligible for overtime pay is “ill-timed” and would worsen workforce issues for providers, threatening access for residents, senior living industry leaders told McKnight’s Senior Living on Wednesday, the day the rule was announced.

The Fair Labor Standards Act requires covered employers to pay their workers a minimum wage and, for employees who work more than 40 hours in a week, overtime pay of at least 1.5 times the employee’s regular rate of pay. Certain executive, administrative and professional employees are exempt, however.

If the proposed rule becomes law, most salaried workers earning less than $1,059 per week, or $55,068 per year, would be eligible for overtime pay when they work more than 40 hours in a week. The rule would increase the standard salary level for eligibility to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region (currently the South). Currently, employees earning up to $684 per week, or $35,568 per year, are eligible for overtime pay.

“ASHA is deeply concerned about the impact this proposed rule will have on our industry, which is still recovering from the COVID pandemic and also facing its after-effects, including record inflation, a historic workforce shortage and rapid and dramatic increases in interest rates,” American Seniors Housing Association President and CEO David Schless said. “The proposed rule from the Department of Labor layers additional regulatory cost and compliance burdens on employers.”

Annualized direct employer costs over the first 10 years of the rule would total $664 million, according to a Labor Department estimate. But the proposed rule also gives employees higher earnings in the form of transfers of income from employers to employees, and the department estimates that those annualized transfers would total $1.3 billion.

Noting that the proposed salary threshold represents an increase of almost 55% since 2019, Schless said that the rule is “tone deaf, ill-timed, excessive, and will needlessly make senior living less affordable to some older adults and their families, if implemented as proposed.”

The rule also calls for increasing the total annual compensation threshold for the highly compensated employee exemption to $143,988, which would match the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally. Currently, the threshold for highly compensated employees to earn overtime pay is $107,432 per year — they are considered exempt from overtime pay if they earn more than that amount.

In total, the Labor Department estimates that 3.6 million more salaried workers would be eligible for overtime pay under the changes in the first year after implementation, including 3.4 million people earning $55,068 or less per year annually and 248,900 highly compensated employees.

‘A cornerstone of workers’ rights’

Acting Labor Secretary Julie Su said in an agency press release that “the right to a 40-hour workweek” has been “a cornerstone of workers’ rights in this country” for more than 80 years.

“I’ve heard from workers again and again about working long hours, for no extra pay, all while earning low salaries that don’t come anywhere close to compensating them for their sacrifices,” she said as the department announced the proposal.

But Argentum Senior Vice President of Public Affairs Maggie Elehwany said that the proposal comes “at a difficult time for employers, who are already facing higher inflation and costs related to care.”

Approximately 600,000 of the 3.6 million employees who would be newly eligible for overtime pay under the proposal work in the healthcare industry, she said, adding that the proposal “would have a disproportionate and potentially devastating impact on the long-term care industry.”

To recruit and retain needed staff members, 92% of assisted living communities already offer higher wages, 69% provide signing bonuses, “and many are dipping deep into their reserves to cover staffing agency fees, which cost two, three, or more times as much per hour as full-time employees,” Elehwany said. “A significant percentage of these costs cannot be absorbed and will ultimately be passed on to residents and their families and exacerbate affordability challenges.”

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