Thursday, May 19, 2016
"The first years of a company are very hard and most startups fail,” said Jake Sigal, CEO, Tome Software, a Detroit-based startup launched in 2014. “This proposal would accelerate the failure rate by limiting startups' access to talent and capacity to grow."
What is “
this proposal”?
Since last summer, while many of you were busy creating the next must-have product or service, the Labor Department was quietly tweaking the rules governing your workplace.
And this week, the U.S. Department of Labor released its plan to double the limit of who receives overtime pay. The new federal regulations, which go into effect Dec. 1, say employees making less than $47,476 per year are eligible for overtime pay. This is a 100 percent increase from the current level of $23,660.
Mercatus Center’s Donald Boudreaux
explains well how this will hurt employees:
“More overtime pay sounds great. But what Labor fails to mention—and its economists surely understand—is instead of paying more workers overtime, many companies will simply cut back their hours or lower their salaries. That’s not a story Labor is comfortable telling. So it doesn’t.”
The worst thing about Washington’s latest mandate is that it doesn’t take into account the startup culture. Our own Gary Shapiro
says it best:
“Startups — especially tech firms — are a primary source of job creation in the U.S., but most of them cannot pay the higher salaries of more-established companies. Still, startups are an attractive option for recent graduates who accept lower salaries and long hours in exchange for equity, a fair compensation option when a startup does have more cash. This detail has been missed by the administration's overly broad recommendation.”
Finally, the radical change will have unintended consequences for states whose salary levels are much lower. This will hurt states like California and New York, whose minimum salary exemptions are about $10,000 less than the new federal limit. This will force employers to make classification decisions that ignore regional economic differences, and it will cause significant disruption in the workplace.
Salary, rather than job duties, will determine exempt status. We hope the Obama administration or the future administration re-examines this harmful proposal.