In its waning days, the Obama administration is close tostriking a blow for workers’ rights that could have long-termimplications for employers, particularly small businesses thathistorically have had less flexibility when meeting significantchanges to the way workers are to be compensated.

In testimony before the House Small Business Committee recently,small business owners told committee members that the overtime rulechanges proposed for the Fair Labor Standards Act would representan extreme hardship for employersand might not have the effect on worker wages that the new ruleintends to have.

The change to the exempt salary threshold is a major one. Itwould raise the exempt threshold from the current $23,660 to$47,476. The U.S. Department of Labor has estimated that the wagesof 4.2 million workers would be increased because of the newrule.

This doubling of the threshold would force employers to eitherraise existing pay to the new level, or pay overtime to everyonemaking less.

Reporting on the testimony, the Society for Human ResourceManagement notes that the association supports anincreased threshold, but not a doubling of the existing one. Such adramatic increase would undercut small business efforts toaccommodate employees through increased job flexibility and othercreative measures to offset the overtime often required of smallbusiness workers.

“Small businesses and nonprofits in particular may bedisproportionately impacted by the rule’s dramatic — more than 100percent — increase to the salary threshold,” says ChristineWalters, SHRM-SCP, J.D., who testified on behalf of SHRM. The soleproprietor of FiveL Co., a human resources and employment lawconsulting practice, said her small businesses clients, “includingsmall government contractors and small nonprofits with limitedflexibility in the budget,” face a real hardship if the rule isadopted as currently written.

SHRM favors further study of the threshold revision, which wouldoccur if House Resultion 4773 were adopted. The resolution callsfor a deeper dive into the threshold increase and the effectsdifferent levels of increase would have on business.

“While SHRM supports an increase to the salary threshold overtime, challenges arise if the increase is too high; is implementedtoo quickly; or fails to consider economic, fiscal, geographic andindustry differences,” Walters says.

In an analysis of the potential impact of the rule, the New Jersey Law Journal writes:

“Generally speaking, employers have two options in confrontingthe Final Rule: either raise salaries to meet the new salary levelor reclassify affected employees as non-exempt and employ a varietyof payment strategies to cope with the potential for increasedlabor costs. The former would prove beneficial for employees whoare currently near the threshold salary, and who work a lot ofovertime, as increasing their salary to keep them exempt not onlyboosts morale, but also alleviates the need to compensate them forovertime.

“Conversely, it could be exponentially expensive for employersto universally raise salaries of workers not currently near thethreshold. Moreover, if employers raise salaries to satisfy the newsalary level test, pay compression could inadvertently resultwhereby lower level white collar employees may have salariescommensurate with those of more highly skilled and educated whitecollar employees, which, without adjustments, could create moraleissues and internal discord.”

(The New Jersey Law Journal is owned by ALM Media, which isthe parent company of BenefitsPRO.com.)