[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]






  THE CONSEQUENCES OF DOL'S ONE-SIZE-FITS-ALL OVERTIME RULE FOR SMALL 
                     BUSINESSES AND THEIR EMPLOYEES

=======================================================================

                                HEARING

                               before the

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                            OCTOBER 8, 2015

                               __________

   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
   
   
   
   
                               

            Small Business Committee Document Number 114-025
              Available via the GPO Website: www.fdsys.gov
                                     ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

96-855                         WASHINGTON : 2015 
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                      STEVE CHABOT, Ohio, Chairman
                            STEVE KING, Iowa
                      BLAINE LUETKEMEYER, Missouri
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                        TOM RICE, South Carolina
                         CHRIS GIBSON, New York
                          DAVE BRAT, Virginia
             AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
                        STEVE KNIGHT, California
                        CARLOS CURBELO, Florida
                          MIKE BOST, Illinois
                         CRESENT HARDY, Nevada
               NYDIA VELAZQUEZ, New York, Ranking Member
                         YVETTE CLARK, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                       BRENDA LAWRENCE, Michigan
                       ALMA ADAMS, North Carolina
                      SETH MOULTON, Massachusetts
                           MARK TAKAI, Hawaii

                   Kevin Fitzpatrick, Staff Director
            Stephen Denis, Deputy Staff Director for Policy
            Jan Oliver, Deputy Staff Director for Operation
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Cresent Hardy...............................................     1
Hon. Alma Adams..................................................     2

                               WITNESSES

Mr. Kevin Settles, President and CEO, Bardenay Restaurants & 
  Distilleries, Boise, ID, testifying on behalf of the National 
  Restaurant Association.........................................     4
Mr. Ed Brady, President, Brady Homes Illinois, Bloomington, IL, 
  testifying on behalf of the National Association of Home 
  Builders.......................................................     5
Ms. Terry Shea, Co-Owner, Wrapsody, Inc., Bessemer, AL, 
  testifying on behalf of the National Retail Federation.........     7
Mr. Ross Eisenbrey, Vice President, Economic Policy Institute, 
  Washington, DC.................................................     8

                                APPENDIX

Prepared Statements:
    Mr. Kevin Settles, President and CEO, Bardenay Restaurants & 
      Distilleries, Boise, ID, testifying on behalf of the 
      National Restaurant Association............................    25
    Mr. Ed Brady, President, Brady Homes Illinois, Bloomington, 
      IL, testifying on behalf of the National Association of 
      Home Builders..............................................    33
    Ms. Terry Shea, Co-Owner, Wrapsody, Inc., Bessemer, AL, 
      testifying on behalf of the National Retail Federation.....    44
    Mr. Ross Eisenbrey, Vice President, Economic Policy 
      Institute, Washington, DC..................................    50
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    College and University Professional Association for Human 
      Resources..................................................    75
    Independent Insurance Agents & Brokers of America............   104
    International Franchise Association (685 individual member 
      letters...One (1) form letter submitted with list of 
      signatories)...............................................   108
    Partnership to Protect Workplace Opportunity.................   133
    Society for Human Resource Management........................   164

 
  THE CONSEQUENCES OF DOL'S ONE-SIZE-FITS-ALL OVERTIME RULE FOR SMALL 
                     BUSINESSES AND THEIR EMPLOYEES

                              ----------                              


                       THURSDAY, OCTOBER 8, 2015

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Investigations, Oversight and 
                                       Regulations,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Cresent Hardy 
[chairman of the subcommittee] presiding.
    Present: Representatives Hardy, Chabot, Rice, Bost, Kelly, 
Velazquez, Adams and, Takano.
    Chairman HARDY. Good morning. I would like to call this 
hearing to order. Sorry for being late.
    I would like to thank our witnesses for being here today, 
and especially those small businesses who have traveled so far 
to get her and testify. We really appreciate that.
    So I will start off with a statement here. Fair Labor 
Standards Act is a primary federal law governing the employee 
wages, hours worked, and overtime pay. When the Fair Labor 
Standards Act was enacted--it was in 1938--an exemption from 
the Act's overtime provision was provided for certain 
executive, administrative, and professional employees. This is 
commonly referred to as a ``white collar exemption.'' In March 
of last year, President Obama directed the Department of Labor 
to streamline and simplify the regulation governing the white 
collar exemption. The DOL issued those regulations on July 6th 
of this year. Judging by the reaction from small business 
owners across the country, this proposed regulation does not 
streamline or simplify. Instead, it increases the cost for 
small businesses and reduces flexibility for American workers.
    As we have seen too often, the DOL has done a poor job of 
analyzing the impact of the rule on small businesses as 
required by the Regulatory Flexibility Act, and it has vastly 
underestimated the number of affected small businesses and what 
the real ramifications are for those companies and their 
employees. The Administration's own Chief Counsel of Advocacy 
stated that the analysis relies on numerous assumptions and 
lacks detailed industry information, even though it was 
available. In addition, the small business owners have pointed 
out several other problems. For example, the proposed rule 
would raise the salary level under which the employees qualify 
for overtime pay, from $23,660 per year to $50,440 per year in 
2016. That is a 102 percent increase that will have a heck of a 
lot of impact on small business owners' bottom line.
    Another problem that I have heard from my constituents back 
home in Nevada is that the rule adopts the ``one-size-fits-
all'' standard. It simply does not recognize the geographic 
diversity of the American economy and will particularly hurt 
the rural small businesses that are recovering from this Great 
Recession. Simply put, $50,440 per year salary threshold might 
be fine for an employer in San Francisco or midtown Manhattan, 
but not so much in Ely, Nevada. The impact on the regulation 
and that of the countless other regulations we have examined 
here in the Small Business Committee shows that this 
Administration is tone deaf when it comes to actually helping 
small businesses. If the DOL finalizes this rule as written, it 
will make it harder for small business to grow and create jobs.
    I look forward to hearing from our small business witnesses 
who will tell us how this regulation will affect their 
businesses, their employees, and now I yield to Ranking Member 
Adams for her opening statement.
    Ms. ADAMS. Thank you, Mr. Chairman.
    The Fair Labor Standards Act is a result of the Great 
Depression, to ensure the protections of American workers. 
Included in that act were rules requiring overtime payment for 
hours worked in excess of the standard 40 hours per week. 
Overtime provisions are important for covered workers, 
including 75 million hourly wage workers. These workers value 
having a 40-hour work week and earning extra pay when they work 
overtime, yet more and more Americans are working longer hours 
while wages are flat. Preserving the right to overtime pay is 
particularly crucial at a time when lower and middle income 
family wages are stagnant. However, the regulations governing 
eligibility for overtime are severely outdated. For example, in 
1975, more than 65 percent of salaried American workers earned 
time-and-a-half pay for every hour worked over 40 a week. But 
by 2013, just 11 percent of those workers qualified for 
overtime pay. The Department of Labor's proposed regulations 
would extend overtime protections to nearly five million white-
collar worker within the first year of its implementation. Such 
a change not only puts more money in workers' pockets, it also 
strengthens our economy by driving consumer spending.
    Despite these positive outcomes, there remains some concern 
as to how these proposed regulations would impact our nation's 
small businesses. Increasing the salary threshold and the 
numbers of workers eligible for overtime pay will add 
significant compliance costs and paperwork burdens on small 
entities. This fact is particularly true for small employers 
located in low-wage regions and in industries that operate with 
low profit margins. More concerning is that small businesses 
have commented that the high cost of this rule could lead to 
hourly cutbacks to employees or even salary adjustments. Such 
actions run counter to the goals of this rule and could 
ultimately harm employees. And while these potential 
consequences are concerning, I am confident that today's 
hearing will be helpful in determining how to properly 
implement this rule that is beneficial to all sides.
    I want to thank all the witnesses for being here today and 
I look forward to your comments.
    Thank you, Mr. Chair. I yield back.
    Chairman HARDY. I would like to start with if there are any 
Committee members that have an opening statement, I would like 
to make sure they submit it for the record. I would like to 
also discuss the five minute rule. You will each have five 
minutes to discuss your testimonies. Then the light will start 
out green. When it gets down to one minute it will turn yellow. 
When it hits red, I would appreciate you wrapping up as soon as 
possible, and I would like you to adhere to that limit.
    I would like to start with introductions if I could. Our 
first witness is Kevin Settles, owner of Bardenay Restaurant 
with locations throughout Idaho. He was named Idaho 
Restauranteur in the year 2011, and his business has earned 
nationwide recognition in Forbes and Wall Street Journal and 
the television show Modern Marvels. He also serves as a 
commissioner on the Idaho Human Rights Commission as a member 
of the National Restaurant Association's Board of Directors for 
whom he is testifying on behalf of here today. Thank you for 
being here, Mr. Settles. We appreciate you coming here.
    Next up is Mr. Brady, president and CEO of Brady Homes in 
Bloomington, Illinois, testifying on behalf of the National 
Association of Home Builders today. He serves as first vice 
chair of the board. Ed is a second generation home builder, 
taking over his family business started by his father in 1962. 
Over that time, the company has built over 1,800 homes and has 
developed more than 2,000 single-family lots. He was also named 
the Builder of the Year in his local association in 1996 and in 
2001. We appreciate your participation here today, and thank 
you for being here.
    Our next witness is Terry Shea, co-founder of Wrapsody, 
Inc., a unique gift shop which offers a variety of home and 
personal products. Wrapsody started with a 2,700 square foot 
storefront in Hoover, Alabama, that has now expanded and moved 
into a 5,100 square foot space with the second floor opening 
soon. She brings over 30 years of experience to the retail and 
sales contributing to the success of notable companies like 
Nike and Proctor and Gamble. She is testifying on behalf of the 
National Retail Federation. Ms. Shea, thank you for being here.
    I now would like to turn the time over to the Ranking 
Member Adams for her to recognize her member.
    Ms. ADAMS. Thank you, Mr. Chair.
    It is my pleasure to introduce Mr. Ross Eisenbrey, vice 
president of the Economic Policy Institute. Prior to joining 
EPI, he worked as the former commissioner of the U.S. 
Occupational Safety and Health Review Commission and as the 
policy director of the Occupational Safety and Health 
Administration. Welcome, Mr. Eisenbrey.
    Chairman HARDY. I would like to start with Mr. Settles. If 
you would not mind.

   STATEMENTS OF KEVIN SETTLES, PRESIDENT AND CEO, BARDENAY 
RESTAURANTS AND DISTILLERIES; ED BRADY, PRESIDENT, BRADY HOMES 
   ILLINOIS; TERRY SHEA, CO-OWNER, WRAPSODY, INC.,; AND ROSS 
      EISENBREY, VICE PRESIDENT, ECONOMIC POLICY INSTITUTE

                   STATEMENT OF KEVIN SETTLES

    Mr. SETTLES. Good morning, Chairman Hardy, Ranking Member 
Adams, and distinguished members of the Subcommittee. I would 
like to thank you for the opportunity today to testify on the 
impacts to small business of the Department of Labor's proposed 
regulations on overtime. As said, my name is Kevin Settles. I 
own and operate the Bardenay Restaurants and Distilleries 
headquartered in Boise, Idaho. I am honored to share the 
perspective not only of my company but that of the National 
Restaurant Association as well. I am proud to say that I serve 
on their board of directors.
    My testimony will focus on four areas. One, the time period 
allowed to evaluate and comment on the proposals. Two, the 
minimum salary level. Three, the Department's desire to 
automate and annualized increases to the minimum salary level. 
And fourth, the potential adjustments to the current duties 
test.
    On issue number one, the time period allowed for comment 
was inadequate. It would have been helpful to have been allowed 
more time to review and comment on the proposed rules. The 
Department of Labor was asked by our association and many 
others, including the U.S. Small Business Administration, for 
an extension. In declining, they cited that the listening 
sessions held prior to the release of the proposed rules made 
this unnecessary. I, along with other board members and staff 
from the NRA, participated in one of the listening sessions. 
While we appreciated the conversation, it was a conversation 
focused on general ideas. There was too much vague issues in 
there for us to feel like we truly were allowed to participate 
and provide input.
    Two, the Department's proposed minimum salary level is 
inappropriate for our industry. The proposed rate of $50,400 
per year is a very large step from where we are today, but that 
is not our only problem with the proposal. We also have 
problems with the way the comparative salary survey was done. 
Traditionally, it was based on low income areas in the U.S., 
and it has now moved to a national average. In addition to 
moving to a national average, they moved from the 20th 
percentile of that average to the 40th percentile. This 
represents an increase of nearly $10,000 higher than what they 
currently use in California, or $15,000 higher than in New 
York. If that is high for them, think about areas like mine in 
the U.S. It means that we will not be able to take advantage of 
the exempt salary status. This status was originally created to 
allow for above average fringe benefits, greater job security, 
and better opportunities for advancement. The ability for me to 
delineate programs and perks by salaried versus nonsalaried 
status has been a great tool and a great benefit for my 
employees. Setting a minimum rate that is inappropriate for 
entry level managers in rural areas in our country will end up 
reducing the benefits available to them.
    On the third issue, automatic salary level increases, we 
think it will only perpetuate bad policy. The Department wants 
to switch from reviews to resetting the rate internally. We 
would only learn about the new rates when it is published in 
the Federal Register. No notice, no comment, no compliance with 
the Regulatory Flexibility Act. The Department is charged with 
regular review and updating of the minimum salary. They 
acknowledge that they have not done this for too long, and we 
agree, but they cite overall agency workload. Really? They are 
willing to put a key task for the Department on autopilot at 
the expense of America's employers and employees because they 
are too busy? This change would increase the likelihood that 
more employees would fail to qualify every year. One analysis 
that the National Restaurant Association has reviewed indicates 
that if just one quarter of the salaried workforce moved to 
hourly, in five years, the 40th percentile salary level would 
be in excess of $72,000 per year. If half were to move, by 
2020, the rate would be nearly $96,000.
    The fourth issue is adjustments to the duties test are not 
necessary and should be avoided. In 2004, the Department 
optimized the duties test to reflect the realities of the 
modern economy. The Department now says that this may have been 
a mistake. Our industry disagrees. Our managers need to have a 
hands-on approach to ensure that our operations run smoothly. 
Particularly alarming in this issue is the references in the 
documents to California's over 50 percent qualitative 
requirements. This reference increase our concerns that the 
Department may decide to enact changes without any comment 
period.
    In closing, I would like to state that we are not against 
increasing the salary threshold for exempt status but it has to 
be at a reasonable level. In addition, any future increases 
need to be subject to the regulatory process. When it comes to 
the duties test, we cannot emphasize enough that the restaurant 
industry does not want to see any changes. And finally, from 
the process standpoint, we believe the Department should have 
granted at least as much time for review and comment as it did 
in 2004.
    With that, I would like to thank you for this opportunity 
to testify today, and I look forward to any questions.
    Chairman HARDY. Thank you, Mr. Settles.
    Now, I want to recognize Mr. Brady.

                     STATEMENT OF ED BRADY

    Mr. BRADY. Thank you, Mr. Chairman, Ranking Member Adams. 
Thanks for the opportunity to testify today.
    My name is Ed Brady. I am a home builder and developer from 
Bloomington, Illinois. I also am the 2015 first vice chairman 
for the National Association of Home Builders. I have served as 
president of Brady Homes for the last 15 years. It is a family-
owned business my father started in 1962. We primarily build 
single-family homes, but we have also constructed several light 
commercial projects. In addition to the home building company, 
I own two RE/MAX franchises and a property management company.
    I am greatly concerned that the proposed overtime 
regulation could have negative repercussions for my own 
business and the broader home building industry. This ``one-
size-fits-all'' approach to the overtime rules will have a 
substantial financial impact on housing. The proposal to raise 
the standard salary level from $455 per week to $970 per week 
represents an unprecedented increase of over 102 percent. NAHB 
analysis shows about 116,000 construction supervisors would be 
affected by this proposal. The rule could also affect other 
occupations in the industry, including sales reps, 
administrative staff, and local trade association employees.
    NAHB and its members are concerned about the impact of the 
rule for several reasons. One is that the proposal fails to 
account for regional differences in pay. Construction wages can 
vary considerably from one area to the other even in my own 
state from town to town. What a construction supervisor earns 
in Tennessee is different from what one earns in California, 
sometimes significantly. Moreover, such a dramatic surge in the 
salary threshold is unlikely to result in an increase in 
workers' take-home pay. Instead, it would force business owners 
to scale back on pay and benefits, or to cut hours to avoid the 
overtime requirements. These are not acceptable outcomes.
    Employees who are currently salaried are likely to become 
hourly workers and view their nonexempt status as a demotion. 
They may even earn less money than before. These employees will 
also lose the workplace flexibility that comes with being a 
salaried employee, especially in my industry.
    I am also concerned about what the proposal means to my own 
business. I currently employ one construction supervisor who 
would become nonexempt under the new salary threshold. My 
supervisor currently receives a competitive salary with 
benefits, but the rule does not consider the workers' total 
compensation package. If the rule forces small businesses to 
choose between increasing a salary above the threshold or 
paying for health insurance, I do not think the employee is 
going to be better off. In fact, when all factors are 
considered, the employee may be worse off, if not unemployed.
    Flexibility is a key component to any job, but specifically 
in our industry. By their very nature, supervisors are 
schedulers. Workers representing an average of 22 specialty 
trades are needed to complete a home, and it is a supervisor's 
job to ensure the trades complete their work efficiently and to 
the proper specs. Because homes are constructed outdoors, the 
supervisor needs flexibility to account for bad weather, 
especially in the Illinois winters. He might not work for a few 
days due to a storm, but then work six days the following week. 
Scheduling changes occur frequently and it is important that 
construction supervisors have that flexibility to ensure 
projects stay on time and on track. It is also common for a 
construction supervisor to respond to phone calls after hours, 
emails, and even evenings and weekends.
    It is very important for my business to accurately predict 
cost so I know how to price a home. If the proposal becomes 
law, I will have to seriously consider replacing my 
supervisor--my employed supervisor with an outside contractor 
because it will allow me to accurately project my costs. 
Because of its overly broad approach, I think it is also likely 
that if the proposal is implemented we will encounter 
additional problems we have not anticipated.
    The bottom line is that more than doubling the overtime 
threshold will do more harm than good in the home building 
industry. NAHB strongly opposes this overtime proposal. I would 
like to thank you for your time and look forward to any 
questions.
    Chairman HARDY. Thank you, Mr. Brady.
    Ms. Shea?

                    STATEMENT OF TERRY SHEA

    Ms. SHEA. Chairman Hardy, Ranking Member Adams, and members 
of the Subcommittee, thank you for inviting me to testify 
before you today on the Department of Labor's proposed overtime 
rule. My name is Terry Shea, and I am the proud co-owner of 
Wrapsody, Incorporated, a gift boutique. I am pleased to be 
testifying on behalf of the National Retail Federation.
    Wrapsody is a hometown gift and home accessory boutique 
with storefront locations in Hoover and Auburn, Alabama. We 
also have a web store, Wrapsodyonline.com. In August of 2004, 
my business partner, Sarah Brown and I opened Wrapsody in 
Hoover, Alabama, with three part-time associates. By 2009, 
despite the recession, we had opened a second storefront in 
Auburn and hired our first full-time managers.
    Wrapsody invests in our staff. We employ four full-time 
salaried managers and 25-plus part-time associates depending 
upon the season. Managers and assistant managers have the 
opportunity to earn quarterly bonuses in addition to their 
annual salary. Management also receives two weeks paid vacation 
annually, and in 2015, we began a 401(k) plan with a 3 percent 
company match. We take our management team to Atlanta to Gift 
Market where they get to meet with key vendors and network with 
other retailers. We also have an offsite retreat. Our employees 
really value these opportunities to learn more about the 
industry and build professional relationships.
    I tell you all of this because the Department of Labor's 
proposed overtime rule will suffocate this type of employment 
development, company growth, and positive community impact. 
Wrapsody simply will not be able to increase our four salaried 
employees to the new minimum salary of $50,440 for many 
reasons. First, our labor costs are a fixed percentage of our 
sales, which means we cannot just increase everyone's salaries 
by such a large amount, nor can we pass on the more than 100 
percent increase along to our customers in the form of higher 
prices. If this new salary threshold takes effect, we will be 
forced to convert all salaried management to an hourly wage and 
require them to clock in and out.
    Second, in our area of the country, we pay a very 
competitive salary and we offer a generous benefits package, 
which is why we have such an awesome team. However, the 
overtime rule ignores the fact that the cost of living in 
Hoover, Alabama is very different from that in New York City.
    Third, converting salaried positions to an hourly wage adds 
pressure to get the job done in a 40-hour work week. An 
increase in overtime eligibility will not necessarily mean an 
increase in overtime pay for our workforce, but it will take 
away my managers' flexibility both personally and 
professionally. My managers' salary exempt status affords them 
a great deal of flexibility, which they truly value. For 
example, in August, our Auburn store manager asked to leave a 
few hours early because her four-year-old daughter was starting 
dance that day. She needed to register and get her comfortable. 
Of course we said yes. I mean, no-brainer. These types of 
incidents happen all the time. Our managers are constantly 
going above and beyond, and we give them the freedom to 
schedule themselves. They are just as much a part of our 
success as we are--as Sarah and I are.
    Diminished flexibility will also negatively impact customer 
service. Right now, if a customer walks into our store a few 
minutes before closing at 6:00, my managers assist them even if 
that means that they have to stay late or stay after closing. 
They would never ask them to leave right at 6:00. My business 
depends as much on customer service as it does on unique gifts 
and unique products.
    Beyond this loss of flexibility, converting a salaried 
manager back to hourly status will have a demoralizing impact. 
Salaried exempt status gives my managers a sense of pride of 
ownership and it is accompanied by a broader benefits package.
    This new overtime rule is bad for employees and small 
business owners. I am still trying to understand the 
implications of all these regulations and what it means for our 
business, but I can tell you right now that the Department of 
Labor's estimates of the regulatory burden are way too low. I 
am not the only one who thinks this. The Small Business 
Administration expressed concerns in its comments that the 
compliance burdens and costs of the rule are way 
underestimated. At Wrapsody, every dollar spent on compliance 
burden is one less dollar that we could have used to grow our 
business or reinvest in our employees and our community.
    In closing, we take great care of our employees. And like 
other retailers, we want to help our team grow. We believe 
careers are the answers, not timecards. The Department of 
Labor's ``one-size-fits-all'' salary threshold, the 
accompanying proposed annual increases, and any potential 
change to the duties test will both burden my small business 
and more costly mandates and limit career advancement for my 
team. We are trying to do what we do best at Wrapsody--we 
create a fun and happy environment. We sell great products. We 
create wonderful jobs and we give back to our community. The 
uncertainty and cost associated with this government overreach, 
like the new overtime rule, are making it much harder for us to 
do business and smile.
    Thank you, Mr. Chairman.
    Chairman HARDY. Thank you.
    Ms. SHEA. Thank you for the opportunity to share my views. 
I would be happy to answer questions.
    Chairman HARDY. Thank you, Ms. Shea.
    We now recognize Mr. Eisenbrey, I believe it is.

                  STATEMENT OF ROSS EISENBREY

    Mr. EISENBREY. Hi. Thank you for inviting me to testify. My 
name is Ross Eisenbrey. I am the vice president of the Economic 
Policy Institute, a nonprofit, nonpartisan think tank created 
in 1986 to include the needs of low and middle income workers 
in economic policy discussions. EPI believes every working 
person deserves a good job with fair pay, affordable 
healthcare, retirement security, and work-life balance, and we 
are a small business, too. Just a tiny bit bigger maybe than 
Terry Shea's business.
    Work-life balance is precisely what the Fair Labor 
Standards Act is about. Because of its requirement to pay most 
employees a premium for time worked beyond 40 in a week, the 
FLSA is the single most important family friendly law ever 
passed in the United States. Everyone claims to care about work 
life or work-family balance, but for many employers it is talk, 
just as it was 70 years ago. If not for the law's overtime 
rules, tens of millions more workers would be working 50, 60, 
or 70 hours a week for no additional pay, just as millions of 
Americans did before the FLSA was enacted in 1938.
    An uninformed person might think the 40-hour work week is 
part of the natural order, but of course, it is not. It exists 
in the U.S. because President Roosevelt persuaded Congress to 
pass the FLSA, which by imposing a duty to pay time and a half 
for overtime makes it expensive for a business to work 
employees more than 40 hours a week. If the FLSA's regulations 
are not updated from time to time as the law intends, the 40-
hour work week could become a thing of the past. I tis critical 
to remember there is no inherent difference between an hourly 
worker and a salaried worker. How they are paid us up to their 
boss. And salaried employees need time with their families and 
time for themselves just as much as hourly workers do. Congress 
recognized this in 1938 and made no distinction. Hourly workers 
and salaried workers alike were entitled to overtime pay, 
whether they were blue collar or white collar, whether they 
worked in a factory or an office. In fact, some of the most 
exploited workers at the time were women working 12-hour days, 
six days a week, in giant typing pools for $6 or $7 a week.
    It is equally critical to remember that the employees who 
work in small businesses are no different from those who work 
in medium-size and large businesses. They, too, need time with 
their families and for themselves. There is no rule that says 
small businesses get to exploit their employees, work them 
excessive hours, or deny them time with their families. For all 
of these reasons, the Department of Labor should enact its 
proposed rule that would in 2016 raise the threshold below 
which all workers are automatically eligible for overtime to 
$50,440. This would be the most important improvement in the 
labor standards of America's working families in many years.
    Now, the law is supposed to protect salaried workers, but 
in fact, large percentages of managers and other white collar 
employees say that increasingly the law is failing to protect 
them. And I quote this Ernest and Young Survey which shows that 
too little pay and excessive overtime are among the three most 
common reasons employees quit; that half of managers work more 
than 40 hours a week. Four in 10 say their hours have increased 
over the past five years, and that younger generations are 
seeing this more than the boomers did. Gen X and Millennials in 
particular.
    The implications of this overwork are obvious in terms of 
work-life conflict. Who will take care of the kids? Who will go 
to their ballgames, school plays, or counseling meetings? The 
conflict is especially intense because children increasingly 
have two parents working at least 35 hours per week. Ernst and 
Young finds that over half of full-time employees in the U.S. 
indicate that their spouse or partner works 35 hours or more a 
week, but for Millennials or Gen Xers, the rates are even 
higher.
    It is not just work-family conflict, stress, or lack of 
sleep that is at stake. It is also the physical health of 
workers. Overwork actually kills. People who work 55 hours or 
more per week have a 33 percent greater risk or stroke and a 13 
percent greater risk of coronary heart disease than those 
working standard hours.
    Now, you would think from the comments that you have heard 
that this rule is breaking some sort of new ground in setting a 
single standard for the whole nation. That has been the case 
since 1938. Every time the Department has set the overtime 
salary threshold it has set it a single level for the whole 
nation. That is not new. What is new is that the levels have 
fallen to the point that whereas as Ms. Adams said, at one 
point 65 percent of salaried workers were protected. It is now 
less than 10 percent in this year. And from more than 12 
million being guaranteed overtime, salaried workers being 
guaranteed overtime in 1979, we are down to three and a half 
million today. So what the Department is doing is absolutely 
essential to restore what Congress intended as the law to 
protect workers from excessive work.
    Thank you very much.
    Chairman HARDY. Thank you, Mr. Eisenbrey.
    Now we will start a line of questions. I am going to start 
with myself. Each member will have an opportunity to take five 
minutes worth of questioning.
    So with that I would just like to make one quick comment. 
Six hundred eighty five individuals from one organization sent 
letters to this Committee in opposition to this rule. It must 
be having a pretty good impact on their bottom line and on 
their employee status.
    I would like to start with the business folks here. Can you 
tell me a little bit about what this regulation and others like 
it this administration have handed down, what kind of impact it 
has put on your business, both for time to keep up with these 
compliance rules, and as we all know, time is money in 
business, and how much more you are going to spend now versus 
what you did five years ago and maybe even 10 years ago.
    We will start with you, Mr. Settles, if you would not mind.
    Mr. SETTLES. Thank you, Mr. Chairman.
    You know, for us, the biggest headache my staff, my 
managers have right now is managing the schedule for the hourly 
workers, and it has to do with healthcare. I kind of hate to 
take it that direction but we pay for healthcare for about 65 
out of our 200 employees, about half of our employees are half-
time. So managing their hours to make sure that they are fully 
qualified, et cetera. And so when we look at this new 
regulation, it is just one more headache. Our salaried 
employees are asked to schedule for 45 hours a week. That is 
it. We are not here to kill them. We are not here to do 
anything else. But it gives them the flexibility to manipulate 
the schedules and work with the schedules. And make sure that 
we are covered at all hours of the day. That is really their 
role. And so it allows the single mom that I have that is an 
assistant manager to come and go and pick up her kid and take 
him to sporting events and go back and forth. And so that is 
one scheduling difficulty. We have actually created a new 
position in our company with three locations that her whole job 
is to manage the schedule for each department. This is a brand 
new thing, and it is not to meet the employees' requirements or 
the needs of the business; it is to make sure we meet all the 
regulatory requirements of the ACA, and now we are looking at 
this requirement. So it has gone up tremendously.
    Chairman HARDY. Mr. Brady or Ms. Shea?
    Mr. BRADY. I would say the regulatory burden on our 
industry has been huge over the last 8 to 10 years. Every new 
regulation and compliance to those types of regulations, 
including this, is a burden on the business. It raises cost. It 
delays construction. For instance, where I used to build homes 
in 90 days, now because of some of the regulatory permits that 
are required and the cumbersome compliance issues that we have 
to comply with have really extended the time to provide our 
product where a manufacturing company just happens to be onsite 
throughout the country. And so anywhere from wetlands expansion 
to overtime pay increases the cost to our business which 
inevitably raises the cost of housing to the consumer. 
Specifically to the overtime pay, I concur that my supervisor 
works 40, 45, 50 hours a week at times but in the Midwest there 
could be three days of snow that they do not come to the job. 
My supervisor does not clock in. He does not come to the office 
every day. He leaves from his home to go to the jobsite, and I 
do not know what he is doing during the day. And so in this 
particular regulation, it is an overreach, and frankly, I think 
will hurt the employee opportunity.
    Chairman HARDY. Ms. Shea, I would like to take a little 
different direction if you do not mind with you. In the 
conversations testimony you talk about where Mr. Brady, he can 
pass it down to his consumer, and you stated that you cannot 
pass it down. Could you give me the reason why you cannot and 
what cause and effect that is?
    Ms. SHEA. Sure. Sure. You know, you are looking at a 100 
percent increase, for instance. I mean, I will just use a 
candle. If we are retailing a candle for $20, okay, we cannot 
take that same candle and then tell the consumer, our customer, 
oh, this candle is now worth $40. I mean, what makes that 
candle worth that much more money? It is not the candle. It is 
not a bigger candle. It does not burn longer. Nothing happens 
with the candle. We are saying we have to pass that expense on 
to our consumer and they just will not pay it. And the other 
thing is I do not think that the larger retailers, it will hit 
them as much. And those are the people that we actually compete 
with for that, for our products.
    Chairman HARDY. Thank you. My time is expired.
    I would like to recognize Ranking Member Adams.
    Ms. ADAMS. Thank you, Mr. Chair. And thank you all for your 
testimony.
    The DOL's proposed amendments set the minimum standard 
threshold at the 40 percentile of weekly earnings for full-time 
salaried workers, and based on 2013 data, this would amount to 
a minimum salary of $921 per week, or $47,892 annually. Yet, 
instead of using the 2013 data, they used projected numbers for 
2016, which is $970 per week. But they did not use the same 
projections for the exemption for highly compensated employees.
    Mr. Eisenbrey, can you explain the theory behind the DOL 
using projected numbers for one increase but not the other?
    Mr. EISENBREY. Actually, if that is true, I really cannot 
explain it. I think it does not make any difference in terms of 
what we are going to see as the rule. They are saying they will 
set it at the 90 percent level, and they will determine that 
next year when the rule becomes final, they will announce what 
that is. And for the highly compensated and for the regular 
standard threshold, it will be set at 40 percent and that will 
be determined next year. They are guessing, you know, what that 
level will be right now, but they will actually set it based on 
the data that they have in 2016. So at this point they are 
speculating for both of them what the value will be in 2016.
    Ms. ADAMS. Okay. Mr. Brady, what are the benefits and 
challenges with taking an incremental approach and raising the 
salary threshold over a longer period of time?
    Mr. BRADY. What are the benefits you are asking?
    Ms. ADAMS. Yes, and challenges.
    Mr. BRADY. Well, the challenges, I mean, this particular, 
the unprecedented 102 percent increases is unprecedented I 
should say. We are not opposed to increases, but to increase it 
so significantly and take many employees from a salaried 
position to an hourly position in particular industries, one 
size does not fit all. In my industry, I cannot clock in my 
supervisor, as an example. I cannot tell you how many hours he 
or she is working. So I think that the jump from 24,000 to 
50,000 is incredible and cumbersome.
    Ms. ADAMS. All right. What approach or which approach is 
more effective in achieving the goal of increasing overtime pay 
for workers, and what options are available to help ease the 
potential compliance burden of this threshold for small 
businesses?
    Mr. BRADY. I guess I would beg the question, is there an 
issue with overtime pay? I mean, many of us as small 
businesses, if we overwork somebody, they are going to move. 
They are going to go somewhere else. And my particular 
business, we are very loyal to our employees. If they are 
overworked, they are not going to be happy, and therefore, the 
customer service, the issues that we would have, they would 
move to another business. So I would beg the question that 
there is an issue on overtime and whether or not people are 
paying, or that is a problem in the industry.
    Ms. ADAMS. Mr. Eisenbrey?
    Mr. EISENBREY. Yes. I can say that I have read many of the 
comments that were submitted to the Department of Labor, and I 
have personally talked to people working in retail who worked 
70 hours a week for no additional compensation. They were told 
when they were hired that they would work 44 hours a week, and 
they were given so little staff that they ended up doing the 
work that the staff would have done, the hourly staff would 
have done. I know several cases where people worked themselves 
to the point that they were broken down physically. And they 
were not actually small businesses; those were larger 
employers--CVS and Dollar Store. But people are overworked in 
the United States.
    And I would like to correct one very important thing here 
which is there is no requirement in this rule that anybody be 
changed from salary to hourly when this threshold changes. That 
is a complete misunderstanding of the rule. In fact, the Home 
Builders did a survey and it is testified to today where they 
asked, ``What will you do? What will you as a construction 
employer do?'` And only a third of them said that they would 
make any change at all; two-thirds said they would make no 
change. And most of them said they would not change their 
employees from salaried even though they would have to pay them 
time and a half.
    Ms. ADAMS. Thank you, sir. I am out of time.
    I yield back, Mr. Chairman.
    Chairman HARDY. The gentlelady yields back.
    I would like to recognize Mr. Rice.
    Mr. RICE. Did you get the slide? The problem with this, Mr. 
Eisenbrey, you said just a minute ago that you know of several 
workers that worked themselves to the point of physical 
deterioration. This regulation, this new regulation from what I 
read in this memo here will affect 1.8 million people. And so I 
certainly do not want to see anybody overworked to the point of 
physical deterioration. But to say that that happens on such an 
isolated number of people and to dramatically affect the 
livelihoods, you know, the potential that their jobs will no 
longer exist for 1.8 million people, is such a dramatic 
overreach. And this Administration in six years has created 
more regulations than any administration since Johnson. In six 
years. And most of these presidents have had eight years. And 
the result of that is that household incomes are stagnant. They 
have actually dropped 8.7 percent since 2007. A lot of that was 
in the recession, but they have not come back. And there is a 
reason that they have not come back. It is because we are 
drowning these businesses in regulation. Between the Affordable 
Care Act, between the limit to access to capital under Dodd-
Frank. All these things are well-intentioned. I mean, I am not 
saying they are not well intentioned. But they are significant 
constraints on small businesses. The fact is, according to 
Gallup--and she is working on the slides, and I did not get 
them to her until just now--for the last five years, more small 
businesses closed than have opened. And that is the result of 
this huge regulatory overreach. And this is just more icing on 
the cake.
    Let me say one other thing. In reading this memo--and I am 
certainly no expert on this--but the Department of Labor--and I 
am not saying that we should abolish the Fair Labor Standards 
Act, and in your testimony that is what it sounded like you 
were trying to say. Nobody is suggesting that. What we are 
suggesting is that this is an enormous regulatory overreach to 
double this thing and make 40 percent of the salaried workers 
subject to it.
    Do you know when the last time that occurred? Because this 
memo says, ``In 1958, the Department of Labor set the standard 
at 10 percent,'` and there has been 10 percent, the way I read 
this, for decades. Why would we suddenly go to 40 percent?
    Mr. EISENBREY. So I am sorry to say the memo is wrong. The 
way the Department used to set this back in the '50s is they 
would look at all of the enforcement cases that they had done 
and where they had found somebody to be an exempt executive, 
for example, then they would take the 10 percentile salary of 
people who they had already in their enforcement determined to 
be executives. It is a very different methodology you are 
talking about and----
    Mr. RICE. Well, when they set it at 10 percent in 1958 for 
the next 12 years, the American worker enjoyed some of the most 
prosperous times in our history.
    Mr. EISENBREY. Yes.
    Mr. RICE. And their standards of living shot through the 
roof.
    Mr. EISENBREY. Yes. And the percentage of----
    Mr. RICE. And now we are going to pile more regulation on 
these businesses, and we are going to smother that very 
opportunity.
    Mr. EISENBREY. But you are misunderstanding. The percentage 
of salaried workers covered was over 50 percent then.
    Mr. RICE. I want to go through these slides here. If you 
will look at this Mercatus Center slide, this is a graph of 
every administration since the Johnson administration, and you 
will see the very top name there is Barack Obama has added 
120,000 new regulations on small businesses in six years. We 
still have two years to go. He has outpaced every other 
administration.
    Next slide. Skip that slide. Skip that slide. Skip that 
slide. All right. Back one.
    That is the business closings versus business startups, and 
you will see since 2010, the number of small businesses 
dissolved in this country has outpaced business formations. And 
you have got to understand, small businesses employ 70 percent 
of the workers in this country.
    Next slide. Next slide.
    This is the percentage of the American population in the 
workforce. There are more people outside the workforce now than 
since the numbers have ever been recorded because we continue 
to pile more and more cost and regulation. As of 2013, the 
Small Business Administration said the cost of regulatory 
compliance in this country amounts to $10,500 roughly per 
employee per year, and it seems to me this is going to be a 
huge cost, this proposal.
    Next slide.
    This is the median household income, which is exactly what 
you are hitting on. If you look at that blue line, you will see 
since 2007, median household income has actually dropped 8.7 
percent. In the same time, energy cost, utility cost, and food 
cost have all increased and due largely to regulatory burden 
placed by the federal government. Now, one point that I have 
here is I understand the last time this threshold was adjusted 
was 2004. Median household income has actually dropped since 
2004. How could we possibly think that it would be right to 
double the threshold from 2004 when median household income has 
dropped? It makes no sense to me.
    I am sorry. My time is up. It was more of a statement than 
a question.
    Chairman HARDY. The gentleman's time has expired.
    I would like to recognize the Ranking Member Velazquez over 
Small Business.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    I just would like to read and quote the Washington Post 
from 2012 regarding the cost of regulations issued by various 
precedents. In the last 10 fiscal years, the highest costs were 
imposed in 2007. The last three years of the Bush 
administration saw higher regulatory costs than the three years 
of the Obama administration. If you are looking for the year 
with the highest regulatory costs on record, you will have to 
go all the way back to 1992, under President George W. Bush. So 
I want the record to reflect that because it is always great to 
come here and make statements that do not reflect the reality. 
And so, look, we work in this Committee to make sure that we 
create a climate that is conducive for small businesses to 
continue to do what you do best, and that is creating jobs. But 
there has to be a balance, and we are trying to strike that 
balance here.
    Mr. Eisenbrey, we have heard from some of the witnesses 
today that their salaried workers get workplace flexibility and 
benefits, like healthcare and paid time off that they will 
otherwise not get if paid hourly. Is it realistic for the DOL 
to take these other benefits into account when setting a higher 
threshold, and how do we value them?
    Mr. EISENBREY. Well, I do not think that the Department 
should. I think that this has been--remember what this law is 
intended to do. The Fair Labor Standards Act was meant to give 
everybody the right to work a 40-hour work week and to 
discourage employers from working people any longer than that. 
So the question is--and there is a very narrow exemption for 
executives, professionals, and administrators--the question is, 
who are those people? Who is this small subset of people? The 
way it has always been done since 1938 is to look at their 
salaries and to say if you make less than a certain amount, you 
are not valued so much by your employer, or you are not so 
independent and important that you should be denied overtime 
pay.
    Now, when you look at what it costs in Bloomington or 
Auburn or Boise for a basic family budget, just a modest family 
budget, it is far greater than we are talking about with the 
$50,000 salary level. I mean, it is $72,000 a year in 
Bloomington; $62,000 in Auburn. To say that somebody making 
$50,000 is an executive who should not get this overtime 
protection when they cannot afford a basic budget I think is 
just wrong.
    Ms. VELAZQUEZ. So currently, only about 11 percent of 
salaried workers qualify for overtime.
    Mr. EISENBREY. Automatically qualify.
    Ms. VELAZQUEZ. Correct. The rules include an automatic 
inflationary adjustment. Why is this needed in the final rule?
    Mr. EISENBREY. Well, you look at the history. What happened 
for 29 years was because of bureaucratic hostility or neglect, 
the Department did not adjust the rule. Nothing happened, and 
the value, the protection fell to the point, as I said, from 12 
million people being protected to three and a half million. If 
it is not set automatically, we will go through the same thing 
again.
    Ms. VELAZQUEZ. Thank you.
    Mr. Settles, the duty test is an analysis of an employee's 
work duties and it is used to determine exemption eligibility. 
However, the DOL's proposed regulations did not propose any 
specific changes; rather, they asked for comments on how best 
to alter it. Mr. Settles, what is the best way to update the 
duty test to accurately reflect business reality?
    Mr. SETTLES. Thank you for the question, Ranking Member 
Velazquez. You know, I think that it is a robust conversation 
and some solid proposals that can be looked at. We like the 
current duties test. We feel in 2004 it was dealt with 
appropriately, and we would like to see that same sort of 
process gone through again if there is insistence. We really 
kind of feel like in this proposal that they did not recommend 
a change but they threatened a change, and it is either give us 
this higher amount, which is significantly higher than we are 
today, or we are going to do this. And we do not feel that is 
fair. This is supposed to be an open negotiation on the entire 
package, not just parts and pieces.
    Ms. VELAZQUEZ. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman HARDY. Thank you. The gentlelady's time has 
expired.
    I would like to recognize Mr. Kelly.
    Mr. KELLY. Thank you, Mr. Chairman. Thank you witnesses for 
being here.
    One size does not fit all. I come from Mississippi, very 
close to Alabama there, Ms. Shea. And we have a rural district, 
and I can tell you, if you make $72,000 a year in my district, 
you are not the poor people, you are the rich people. That is a 
fact of life. $72,000 a year in my district is an extreme 
amount of money.
    The other point I would like to make is one of the 
frontline managers in an entry level position, I started at 
$20,500 a year with McRae's many, many years ago in retail. But 
now our second lieutenants in our Army and the Marine Corps and 
our ensigns in our Navy are the frontline entry level leaders, 
the brightest, most committed, most dedicated members of our 
entire nation, and they make as a second lieutenant, in a 
managerial position, $34,862.40 a year in salary. They work a 
lot of overtime. I can tell you they do. They work 18 and 20 
hour days because they are committed to this nation, and they 
are committed to their business, the largest, or one of the 
largest employers in this nation. And I know that it does not 
apply to them, but I am saying that is entry level, the 
brightest of our bright, our managers, who we are training to 
be the leaders in the future which is what our small businesses 
do.
    Can you tell me, Ms. Shea, how this proposed rule will 
impact you on who you hire or what you have to do with your 
staff and your employees that you currently employ?
    Ms. SHEA. Sure. Actually, I feel like this regulation is 
really worse for the employee than it is for me because my 
expenses are fixed. I mean, I can only pay so much and still be 
profitable. That is just the bottom line, and I have to be 
competitive. I am competitive. Sarah and I are very competitive 
in what we pay.
    I asked my manager before I came up here, one of my 
managers, I said, you know, what do you think about this? 
Because I am really going to talk for everybody up here. And 
she said this just inspires mediocrity because you have an 
assistant manager that makes one thing and you have a store 
manager that makes this, this amount. Yet you are getting ready 
with this proposed regulation, I would have to bring them up to 
the same wage. That is just not right. The store manager has 
volume responsibility. They bring a lot more experience to the 
table. I mean, you know, they really do it all. And we do not 
overwork our employees. I know that there are probably some 
companies that do, and shame on them. You know, I think there 
needs to be a safety net, but this regulation just really puts 
us all in a cage and it just keeps you from advancing. It keeps 
you from, just like you said, coming in an entry level 
position. We do not hire girls out of college--I hate to use 
the word ``girls,'' but anyway, that is who comes to my store--
out of college--and pay them $50,440 to come in and manage a 
store with no management experience. You have to start 
somewhere. There has to be an entry level. And I really feel 
like this just totally does away with entry level positions and 
with middle management.
    Mr. KELLY. Mr. Settles, either you or Mr. Brady on this. 
$50,000 is quite a bit of money in Mississippi to be anything 
below that--or above that to be salary. That is a lot of money. 
And quite frankly, I am also a lawyer. I do not often admit 
that freely, but I was a prosecutor before I came here, and 
there is an inordinate amount of people coming out of law 
school who would give anything in my area to make $50,000 a 
year as an attorney, as a professional with an advanced degree. 
Do you find that in your areas--because they are different than 
my region--that $50,000 is an excessive wage to bring in to say 
you are salaried if you make or you are hourly if you make less 
than $50,000?
    Mr. SETTLES. I find it very interesting that there is this 
constant struggle in America right now to figure out how to get 
wages up, and I can tell you from personal experience the best 
way in the world to get wages up is to get unemployment down 
low. My managers make well above this. My full managers make 
well above this. It will not affect them at all. It is the 
people that are learning to be managers. It is the mid-level 
managers that will get it. Minimum wage, we do not pay that in 
our state. Three percent unemployment, it gets you wage 
increases. That is the most effective way I know.
    Mr. KELLY. Thank you. I yield back the balance of my six 
seconds, Mr. Chairman.
    Chairman HARDY. Thank you. I appreciate that.
    I would like to recognize Mr. Takano. He is a guest of ours 
today here on this Committee. Thank you.
    Mr. TAKANO. Thank you, Mr. Chairman. I appreciate the 
opportunity to join the Subcommittee this morning. As you 
discussed, the Department of Labor's proposed update to our 
nation's overtime rules. While I do not serve on this 
Subcommittee, I have been following the development of this 
rule closely, and I appreciate both the chairman and the 
ranking member for allowing me to join in today's discussion.
    There are many tradeoffs that business owners face on a 
constant basis, but at the end of the day, I believe the 
Department's rule is about a fair day's pay for a hard day's 
work. The intent of the white collar exemption was to exempt 
those with sufficient power in the labor market who are able to 
advocate for better wages and hours for themselves. That is 
clearly not the case today. In 1975, 62 percent of salaried 
workers were eligible for overtime. Now, only 8 percent of 
workers are eligible. And this is because we have not been 
enforcing the intent of this rule under the Fair Labor 
Standards Act, and we have allowed it to lapse. And all of a 
sudden we are realizing, oh, my goodness. Only 8 percent of our 
workforce is now eligible for overtime pay--salaried workforce.
    Americans are working longer hours and are more productive; 
yet, their wages are flat. Updating the overtime exemption will 
help millions of workers make ends meet and give an added boost 
to our economy. And I just do not agree with the idea that 
stagnant wages are only about regulation; that we have seen 
stagnant wages in our country. This has been a trend, and since 
the Great Recession, I just do not think we can say that what 
is killing jobs is regulation. We had a huge thing called the 
Great Recession that had a huge impact on employment.
    Mr. Eisenbrey, could you talk more about the argument that 
employers will have to pass along the increased labor costs to 
their consumers? Even though the income threshold is doubling, 
that does not mean labor costs will double. Employers will only 
be required to start paying for those hours over 40 hours. So I 
just want you to clarify that.
    Mr. EISENBREY. Yes. I think Ms. Shea gave the impression 
that because the threshold was doubling, she would have to 
double the cost of the candles she is selling. In fact, she 
said that she has managers who are paid in the mid-40s. If she 
wanted not to have to pay overtime to them and she gave them a 
raise to get them to the $50,000 level, that would be less than 
a 20 percent increase, not a 100 percent increase, and that 
would just be that one part of her cost. So it is just not true 
that this would have those kinds of effects.
    I think it is really important to look at--Mr. Settles 
complained about regulation, you know, and its impact on 
business, and in his testimony, I think he said he would not 
move to California because of the excessive regulation, the 
high overtime threshold, for example, and in the restaurant 
business they have the tip credit. California's employment 
growth is the fourth greatest in the nation. It is higher than 
the national average. They have added more jobs and wages are 
going up faster in California than in the rest of the nation. 
So the notion that regulation is somehow squashing employment 
growth is just wrong.
    Mr. TAKANO. To his point about more people being employed, 
is it the case that if employers have to make this choice 
between paying their managers overtime or hiring more people, 
hiring more people is expanding the workforce; right?
    Mr. EISENBREY. The Retail Federation itself, the National 
Retail Federation--Ms. Shea is representing them today--said 
that in their sector alone, over 100,000 jobs would be added as 
a result of this rule.
    Mr. TAKANO. So the rule creates jobs?
    Mr. EISENBREY. It is a job-creating rule. I mean, they put 
that into the record.
    Mr. TAKANO. Imagine that. A regulation that creates jobs. 
Amazing.
    Mr. Rice mentioned the high number of Americans outside the 
workforce. Mr. Eisenbrey, your testimony mentioned that there 
is a 10 percent employment rate. Can you talk more about the 
impact the rule will have on unemployment and the incentives to 
hire more workers? And we have just been talking about that.
    Mr. EISENBREY. I think it is very interesting to see what 
the home builders said in their comment that they submitted. 
They said that two-thirds of their businesses would make no 
change at all; a third would make a change. Of those that did, 
they would reduce overtime hours for some. Twenty-seven percent 
said they would raise salaries to put people over the 
threshold. And----
    Mr. TAKANO. So the rule would have the effect of raising 
salaries and causing people to hire more people?
    Mr. EISENBREY. Exactly. Exactly.
    Mr. TAKANO. Mr. Chairman, I yield back.
    Chairman HARDY. Thank you.
    I would like to recognize Mr. Bost for just a second.
    Mr. BOST. Thank you, Mr. Chairman.
    Chairman HARDY. A second is up.
    Mr. BOST. Mr. Eisenbrey, I do not know your history. I know 
where you are at now. But have you ever ran a business?
    Mr. EISENBREY. Yes.
    Mr. BOST. Okay. What business was that?
    Mr. EISENBREY. One that I have been at since 2002, the 
Economic Policy Institute. It is a small business.
    Mr. BOST. Okay. All right. I would question that but that 
being said, I just wanted to know what the background was.
    I am trying to figure out how it is that bureaucrats have 
the ability to understand what it is like to actually make 
payroll. What it is like to actually have a small business. I 
came from a small business. I came from several of them. And 
quite often what we end up having is we have government that 
sits here on the Hill or sits in our state capitols and truly 
does create such burdens on our business, and then they are 
shocked when they see people laid off, and they are shocked 
when they see businesses fail. But I need to probably just ask 
the panels some questions because I am listening to this and I 
am getting very, very frustrated because once again that is 
what we are doing here. We are not paying attention to the 
people who provide those jobs. We are not paying attention to 
them. We are actually almost talking down to them in the fact 
that why it is that they are not smart enough to understand 
that if they just raise their wages up to the point that they 
almost shut their business down, that everything is going to be 
hunky-dory. But the reality is that is not how it works.
    Now, when this rule was first put in, and I want to ask 
this of Shea, Brady, and the members there with the business 
groups, when it was first put in and Bush proposed it, there 
was a process that was in place there; is that correct? What 
was wrong with that process in your idea?
    Mr. SETTLES. We do not know.
    Mr. BOST. Okay, so Mr. Eisenbrey, what was wrong with it in 
your idea?
    Mr. EISENBREY. Well, I am not sure which process you are 
talking about. What was wrong with the 2004 rule?
    Mr. BOST. Yes.
    Mr. EISENBREY. Well, it set the salary threshold far below 
the level that it had been set, for example, in the Nixon and 
Ford administrations. It covered very few people. It said 
essentially that an executive was somebody whose salary was no 
better than the poverty level, which is crazy. It was a crazy 
rule, and I was opposed to it at the time, and I am very happy 
to see the Obama administration saying, no, an executive salary 
is a salary that is--it is not even the average salary in the 
United States, the $50,000 salary that they are proposing. But 
it is at least something that could support a family.
    Mr. BOST. Mr. Brady?
    Mr. BRADY. Two things I want to correct. I think Chairman 
Hardy suggested that we could pass cost on. That is not always 
the case. I know you cannot raise it to $30 on the candle, and 
I cannot raise the price of housing to the regulatory 
compliance issue that we have done. So I just wanted to correct 
that.
    The other fallacy is in our industry there is a labor 
shortage. We cannot just go out and find new people. So many 
people have left our industry, to replace them and not pay 
overtime, or just stop at 40 and hire somebody else, and in my 
case, project managers are project managers. You cannot have 
three or four project managers. So they have to stay on the 
job. To me this is anti-worker. This is an issue to where my 
employee who counts on his weekly paychecks guarantees that he 
is going to be able to pay his bills based on that. If I move 
him to an hourly and we go to a cold, hard winter, Congressman, 
in Illinois, and he does not work for a week, he is not going 
to pay his utility bills. And so from my perspective, you have 
got to look at this as not only a small business. We have to 
survive. We have to know our costs. We have to be able to make 
a profit in order to provide 70 percent of the employees in 
this country, and with this rule, we would not be able to know 
our costs. We could not hire as many people as it might take to 
do the job.
    Mr. BOST. Yeah, and I do not think any one of you there 
does not want to pay the best wage you can possibly pay, but 
you have got to do it based on what your business will provide 
for, and I think that is something that is just being missed 
here completely.
    And Mr. Chairman, I yield back.
    Chairman HARDY. Thank you, Mr. Bost.
    I would like to take, with indulgence, go another round of 
questioning if you do not mind, and I will begin myself.
    I apologize if there was a misunderstanding there, Mr. 
Brady. You may have the opportunity to do that where she was 
very clear that she could not pass it on.
    You know, I have 40 years in the construction industry 
myself, and I appreciate the fact that Mr. Eisenbrey keeps 
bringing up that industry because the reason our salaries are 
going up is because of the lack of trade craftsmanship and the 
ability that we have to find those type of workers. They are 
just not there. They are not available. People are not looking 
at that industry like they used to. You know, I made a living 
out of this, but I cannot find employees. So with that, when 
you have less employees, it drives that portion of it up, so to 
say that this salary benefit of raising those salaried 
employees up, I do not believe has any impact on whether we 
change how we are. We have to keep those employees.
    But Mr. Brady, I would like to go to you. With that 
experience, understanding that supervisor that you have hired, 
have you ever had a supervisor that would not rather have that 
salary over that hourly employee?
    Mr. BRADY. No. I mean, it is a bonus to them. I mean, they 
look at it as salaried employees get benefits that sometimes 
hourly employees do not, so it is a promotion when I move from 
an hourly employee to a salaried employee to run a job. So I 
cannot tell you that I have ever had a superintendent that says 
I would rather go hourly.
    Chairman HARDY. Ms. Shea?
    Ms. SHEA. No. The salaried employees definitely, I mean, 
they want to be salaried. They enjoy the flexibility. They know 
that they can count on that same paycheck. If they have to 
leave and go to a school play, you let them go. We are very 
flexible. They love the flexibility. We monitor how much our 
employees work, our salaried associates work, because we do not 
want them to work too many hours. Anything over 46 hours, we 
comp them with a day off. I mean, and they can use it whenever 
they want to. If they want to use it the next week, great. But 
if not, if they want to save it and use it another time and 
tack it onto vacation, we let them do that. I looked at my 
books before I came, and last year my store managers worked 40 
hours a week. That is what they averaged. There were some weeks 
when they worked more, but we compensated them for time off. 
And there were some weeks when they worked less because that is 
just the nature of my job, just like yours. You know, fourth 
quarter is when we make our money. That is when we go in the 
black, so you know, that is when the business is there, that is 
when the customer is there, and that is when management is 
there.
    Chairman HARDY. I would like to give you a quick minute, 
Mr. Settles, if you would not mind.
    Mr. SETTLES. You know, can I start by replying to Mr. 
Eisenbrey's comment about California? I have friends that do 
business in that state, and they are not happy, and what would 
the state be if I actually wanted to take my business there? So 
you have to count the number of businesses that are choosing 
not to open there because of the regulation.
    Secondly, I think that a lot of that, this process came at 
us fairly quickly. As I said, we had a conversation. When we 
read the rules we were like, did they pay attention? And we 
have not had the time to do the analysis. I do not think most 
people realize, yes, we have the option to keep them at the 
point they are today and then plus up for every hour that they 
work. Figure out an overtime rate. Well, to go find the 
calculator and understand the process and apply it to your 
staff, and from my standpoint, just figuring out how you get 
them to be able to clock in and clock out and make sure that 
they keep track of things, that is not what a salaried position 
in my business does. They come and go and are there when they 
are needed, and it may sound stupid, but it is a complexity for 
them to actually have to start to track their hours. So we sit 
down at our regular reviews and go, how much do you think you 
are working? And we are making sure they are not working to 
death.
    I have been open for 16 years. I have a GM that has been 
there for 15 years. I have a GM that has been there for 13. I 
have a GM that has been there for nine years, and that almost 
equals the length I have been open in every place. We are not 
losing employees because we do not pay enough. And this just 
changes. It is one of those things that just makes the job a 
little more irritating. And I will tell you right now, the 
number one complaint that my managers have is trying to keep 
track of hours that they did not have to keep track of at this 
level before. It just used to be just is it overtime or not 
overtime? Now it is do they get this benefit? Do they get that? 
Blah, blah, blah.
    Mr. HARDY. And what my earlier testimony stated is that 
this administration's own folks that represent small businesses 
stated themselves that they did not do a complete analysis with 
all the available stuff that was there to them, so I believe 
that this is kind of one of those surveys that might be a lot 
like a real estate appraiser. However hires the real estate 
appraisal is going to get the best appraisal. That happens in 
this Administration. That happens all over the country, one 
side or the other. So we have to look at all the data, all the 
folks that are happy versus ones that are not happy to make 
sure where we stand.
    With that, my time is expired. I would like to recognize 
Ms. Adams.
    Ms. ADAMS. Thank you, Mr. Chair.
    Just one question. Mr. Eisenbrey, the 40th percentile of 
weekly earnings represents a significant increase for the 
salary threshold but may still not be enough for workers. So 
what would the ideal salary threshold and what kind of impact 
would it have for employees?
    Mr. EISENBREY. Well, that is a hard thing to say. Other 
people here, Mr. Brady said that he liked the 1958 methodology 
that the Department of Labor used. If you used an inflation 
adjustment from that, the salary level would be about $65,000 
to $70,000 a year. So I am not saying that that is ideal, but 
that would be certainly, you know, using--not even taking into 
account the fact that we are more productive than we were in 
1958 as a nation. We are wealthier. Incomes are greater. Just a 
pure inflation adjustment from the 1958 level would give you a 
level of around $65,000 a year. So this is a very modest--my 
point is what the Department of Labor has chosen is a modest 
level that takes into account the south. It takes into account 
rural areas. It set the level at a level where you could say at 
least with a straight face that a true executive, a bona fide 
executive is making at least this much.
    Ms. ADAMS. Okay. Thank you, Mr. Chairman.
    Chairman HARDY. I would like to recognize Mr. Rice for five 
minutes.
    Mr. RICE. I do not have the median household income as of 
this moment in front of me, but I believe this level would be 
higher than the median household income in the country. And I 
know, I mean, here in Washington, D.C. versus where I am from 
in Myrtle Beach, South Carolina, costs are vastly different. 
And an apartment that I am paying $2,000 a month for in 
Washington, D.C., would cost $600 in Myrtle Beach, South 
Carolina. And food costs are different. And fuel costs are 
different. And every other cost. So to say that a ``one-size-
fits-all'' across the country is something that is justifiable 
is absolutely absurd and ludicrous, and by any standard it is 
ridiculous. And to say that placing more regulation and cost on 
small business creates jobs is La-la Land. It is absolutely 
absurd and ridiculous.
    You know, we have a very small sample here, and we have got 
a bureaucrat, so let us talk about our samples of employers.
    Mr. Settles, in your business, would this generate business 
for you and would you hire more employees if your cost per 
employee went up? In violation of all economic principles that 
I understand, would you hire more employees?
    Mr. SETTLES. Well, you know, if we were to do that, in our 
industry it would be more part-time employees and people under 
30 hours to keep our costs down, and that is really not where 
we want to be. We have a very complex business that it takes a 
trained professional to work, and I think people discount how 
difficult it is to work in the restaurant industry.
    Mr. RICE. And are there any other recent major federal laws 
that you are aware of that might encourage you to hire part-
time versus full-time employees?
    Mr. SETTLES. Absolutely.
    Mr. RICE. What would that be?
    Mr. SETTLES. Well, it would be the Healthcare Act.
    Mr. RICE. Yeah. So it seems that the Obama Administration 
is just on a direct course to let us force everybody in the 
country to part-time jobs.
    Mr. Brady--and maybe that has something to do with the fact 
that, you know, wages have dropped 8.7 percent since 2007 and 
are not recovering. You know, maybe that has something to do 
with that. Mr. Brady, let me ask you, in your business, would 
the imposition of this regulation, or any other federal 
regulation that costs you $500 per employee, plus have an 
increased salary cost, would that somehow magically cause you 
to hire more employees? Or do you see that generating more 
income for your business?
    Mr. BRADY. No. I think just the opposite. We probably would 
hire contract employees versus--so our employees would probably 
lose their jobs and we would go to a contract basis versus 
having to pay them on an hourly basis. And not only my 
employees----
    Mr. RICE. Well, there is another hot-button thing that we 
are looking to, I mean, the Obama Administration is looking to 
heavily regulate. Be careful there, too.
    Mr. BRADY. I understand. I understand. Not only my 
business, but I subcontract most of my labor, almost all of my 
labor, and those employees that are on an hourly basis or a 
salaried foreman basis of a carpenter crew would be hurt by 
this regulation because, again, they are a salaried employee. 
When there is work, they may work 60 hours that one week and 
they may be off next week, and they cannot afford that 
inconsistency and that flexibility or that inconsistent income. 
So I think the subcontractor base of our business, the actual 
worker, the skilled laborer this regulation hurts.
    Mr. RICE. Ms. Shea, do you anticipate under this 
regulation, or any other regulation that increase your cost per 
employee, do you think that would make you hire more employees 
or increase your income?
    Ms. SHEA. No.
    Mr. RICE. No, I do not think it would either.
    Ms. SHEA. Definitely not increase the income.
    Mr. RICE. That does not sound economically sound.
    Would you please back up a slide or two here? Yeah, that 
one right there is the one I want.
    I want you to look at that for a minute. You see this is 
since, what 1980, and you can see each recession in gray there, 
and you can see the result of every recession is a dramatic 
drop in employment, participation in the workforce. You can 
see, of course, the last recession was by far the deepest, and 
most erratic drop. Notice right after the recession what 
happens. In every case there is a huge snapback in employment, 
but you do not see that in this recession. I wonder why that 
is. Could it perhaps be all this additional regulation placed 
on these employers by the federal government? Could it perhaps 
be the Dodd-Frank law which limits access to capital and is 
stifling small business across our country? Could it perhaps be 
the Affordable Care Act which raises the cost per employee? And 
I think that this law is going to be one more nail in the 
coffin.
    Could you back up another slide for me, please? Keep going. 
That slide right there.
    I think that is the most telling slide, and the most scary 
thing, most scary fact that is occurring in this United States 
economy, and that is that more businesses are dissolving in our 
American economy than are being formed. Over five years in a 
row. And I do not think it has happened for one year since the 
Great Depression. This is a horrifying statistic, and it bodes 
very poorly for our children and our grandchildren. And if we 
do not get the federal government off the backs of small 
businesses, expect this not to turn around but to accelerate.
    My time has expired.
    Chairman HARDY. The gentleman's time has expired.
    I would like to thank all the witnesses, especially those 
small businesses that have traveled so far, again, for being 
here today. This ``one-size-fits-all'' regulation that will 
hurt small businesses and their workers, particularly those in 
the rural areas, I will be sending a letter to the Department 
of Labor about the concerns we have heard here today and urge 
them to reconsider moving forward on this rule as drafted.
    I am asking the members for unanimous consent; that I have 
five legislative days to submit the statements and supporting 
materials for the record.
    Without objection, so ordered.
    This hearing is now over. Thank you.
    [Whereupon, at 11:28 a.m., the Subcommittee was adjourned.]
    
    
    
    
    
    
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