The first of a wave of junk economic reports about the new overtime rule has washed ashore

The Department of Labor (DOL) is about to release a final rule that will require overtime pay for millions of salaried employees who currently can be required to work long hours for no more pay than they receive for a 40-hour week. This will give them either more money or more time with their families or for themselves.

But the overtime rule naturally makes some employers unhappy, since they can currently get 60 hours of work from many employees for only 40 hours of pay. Even some non-profit human service providers, which for the most part are not even covered by the Fair Labor Standards Act (FLSA), oppose DOL’s updated rule. This might be because they don’t understand the law, but that misunderstanding hasn’t stopped them from paying for and publishing the first of what will likely be a wave of spurious reports and cost estimates of the new rule.

An association of community providers serving people with intellectual and developmental disabilities (the American Network of Community Options and Resources, or ANCOR) commissioned a “study” by a company called Avalere to estimate the impact of the proposed overtime rule on its member agencies. Sadly, Avalere’s report is little more than a collection of baseless assumptions adding up to an absurd result. Neither the survey questions, nor the actual responses, nor the response rate were included in Avalere’s report.

Let’s examine Avalere’s assumptions:

  1. “Majority of those full-time salaried employees (95 percent or ~230,000) are currently exempt from the overtime pay.”

This is nonsense. There is no reason to believe that even half of the employees at ANCOR earning less than $50,000 a year are professionals, administrators, or executives. No basis is given for this assumption. Moreover, an examination of jobs offered in this salary range by employers with officials on ANCOR’s board of directors shows that professional employees are generally paid more than $50,000, while job descriptions for employees paid less than $35,000 do not indicate the kind of independent decision-making required for exempt status and do not require a specialized course of study beyond a Baccalaureate degree.

  1. “We assumed the majority (90 percent or ~139,000) work overtime; 35 employees per provider. This will be the number of employees directly affected by the DOL proposed rule.”

Surveys by the Bureau of Labor Statistics show that a minority of salaried workers currently work more than 40 hours each week.

  1. “An ANCOR survey indicates that 34 percent of providers might increase salaries to meet the new exemption threshold and 76 percent of providers might turn the currently exempt employees into hourly workers to continue employee exemption status.”

Besides the fact that the results exceed 100 percent of the providers, what employers “might” do is nothing more than speculation. Other surveys indicate that employers are unlikely to reclassify salaried employees as hourly. The Homebuilders, for example, found that only one homebuilder in 25 thought it would reclassify employees.

  1. “Nearly one third or 28 percent of providers would hire more lower-paid workers to eliminate/reduce overtime among affected employees.”

Even this positive result is unsupported by any data. The survey questions are not provided.

  1. Avalere assumed the average salary for non-exempt employees under the DOL proposed rule to be $37,050 which is the mid-point in the $23,660 and $50,440 and also aligns with the average salary for the affected employee reported by ANCOR members interviewed.

Far from being the mid-point, it is more likely that almost no one earning less than $37,050 is legitimately exempt even under the current rule.

  1. Avalere “assumed weekly overtime worked by an exempt employee to be 5 hours. Surveyed providers reported an average of 14 percent of hours worked by exempt employees in excess of the 40-hour week.”

These two statements are mutually exclusive. Moreover, because Avalere misidentifies the exempt employees, it cannot determine how much overtime they worked.

All of these assumptions are inventions designed to inflate the estimated cost of the rule. Because they have no basis in fact, they should simply be ignored. But these problems with the Avalere estimate are minor compared with the really fundamental problem: most of the non-profit entities in ANCOR are probably not enterprises covered by the Fair Labor Standards Act. For the most part, non-profit 501(c)(3) charitable organizations providing human services to disabled individuals are not subject to the FLSA because they are not commercial business enterprises with $500,000 of business revenue. To the extent that the FLSA’s overtime rules even apply, it is probably on the basis of individual coverage, affecting a small minority of employees engaged in interstate commerce.

In a comment submitted as part of DOL’s rulemaking, 57 law professors who are experts in labor and employment law explained this key aspect of the Act’s coverage:

FLSA coverage was expanded in 1961 to cover “enterprises” as well as individuals. The FLSA’s section 3(r)(1) defines “establishment” to include only those “activities performed (either through unified operation or common control) by any person or persons for a common business purpose . . . .” 29 U.S.C. sec. 203(r)(1). The Senate Committee Report accompanying this amendment explained that this “definition [of a covered enterprise] would not include eleemosynary, religious, or educational organizations not operated for profit. The key word in the definition which supports this conclusion is the word “business.” Activities of organizations of the type referred to, if they are not operated for profit, are not activities performed for a “business” purpose.” S.Rep. No. 1744, 86th Cong., 2d Sess., 28 (1960).

Accordingly, many charitable, religious, and educational establishments are categorically excluded from the FLSA’s enterprise coverage.

In summary, no one should take the Avalere estimate seriously. The overtime rule is not a threat to non-profit providers of human services.