```

[Senate Hearing 114-676]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-676

                 AN EXAMINATION OF THE ADMINISTRATION'S
                   OVERTIME RULE AND THE RISING COSTS
                           OF DOING BUSINESS

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 11, 2016

                               __________

    Printed for the Committee on Small Business and Entrepreneurship

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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------
                              
                   DAVID VITTER, Louisiana, Chairman
             JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                Meredith West, Republican Staff Director
               Robert Diznoff, Democratic Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1

                               Witnesses

McCutchen, Tammy, Principal, Littler Mendelson, P.C., Washington, 
  DC.............................................................     3
Gupta, Sarita, Executive Director, Jobs With Justice, Washington, 
  DC.............................................................   216
Mantilla, Octavio, Co-Owner, Besh Restaurant Group, New Orleans, 
  LA.............................................................   222
Eisenbrey, Ross, Vice President, Economic Policy Institute, 
  Washington, DC.................................................   232
Duncan, Nancy, Associate Vice President of Human Resources, 
  Operation Smile, Virginia Beach, VA............................   243

          Alphabetical Listing and Appendix Material Submitted

American Bankers Association
    Letter to Chairman Vitter and Ranking Member Shaheen Dated 
      May 10, 2016...............................................   262
Credit Union National Association
Letter to Chairman Vitter and Ranking Member Shaheen Dated May 
  11, 2016.......................................................   264
Duncan, Nancy
    Testimony....................................................   243
    Prepared statement...........................................   245
Eisenbrey, Ross
    Testimony....................................................   232
    Prepared statement...........................................   234
Gupta, Sarita
    Testimony....................................................   216
    Prepared statement...........................................   218
Mantilla, Octavio
    Testimony....................................................   222
    Prepared statement...........................................   224
McCutchen, Tammy
    Testimony....................................................     3
    Prepared statement...........................................     6
Partnership to Protect Workplace Opportunity
    Letter to Chairman Vitter and Ranking Member Shaheen Dated 
      May 11, 2016...............................................   273
    Support Letter Dated April 18, 2016..........................   275
    Sampling of Higher Education Impacts from the Register and 
      Media Stories..............................................   284
    Sampling of Non-profit Comments from the Federal Register....   287
    Sampling of Public Sector Comments from the Federal Register.   296
    Sampling of Small Business Comments from the Federal Register   299
Shaheen, Hon. Jeanne
    Testimony....................................................     3
    Prepared statement...........................................   260
Vitter, Hon. David
    Opening statement............................................     1

 
                 AN EXAMINATION OF THE ADMINISTRATION'S
                   OVERTIME RULE AND THE RISING COSTS
                           OF DOING BUSINESS

                              ----------                              

                        WEDNESDAY, MAY 11, 2016

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m., in 
Room SR-428A, Russell Senate Office Building, Hon. David 
Vitter, Chairman of the Committee, presiding.
    Present: Senators Vitter, Rubio, Scott, Gardner, Cardin, 
Heitkamp, Markey, and Booker.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good morning, everybody, and thanks for 
joining us today for the Senate Small Business and 
Entrepreneurship Committee hearing to examine the Obama 
administration's proposal to more than double the current 
salary threshold under the Fair Labor Standards Act's overtime 
exemption for administrative, executive, and professional 
employees.
    We are going to hear from a diverse panel of experts and 
stakeholders on the impact this proposed rule would have on 
small businesses and organizations around the country. And I 
want to thank all of our witnesses for being here today.
    In previous hearings, this Committee has focused on the 
need for regulatory reform in light of how Federal agencies 
often issue new rules and regulations that cause extreme undue 
burden on small businesses.
    As one of the most controversial labor regulations pushed 
by the Obama administration, the ``white collar'' overtime 
exemption from the Department of Labor certainly falls in this 
category.
    Under current rules, most employees making up to $23,660 a 
year are automatically entitled to overtime pay when working 
more than 40 hours per week. The proposed rule we are 
discussing today would more than double the threshold to extend 
overtime requirements to anyone earning up to $50,440. 
Additionally, the proposal sets the minimum threshold at the 
40th percentile of weekly earnings for full-time salaried 
workers--meaning the amount could increase every year going 
forward.
    While President Obama's administration believes this is the 
correct way to increase pay for workers, it will actually have 
the opposite effect for small businesses. It is very likely 
that employers will respond to higher overtime costs in several 
ways that will actually reduce workers' opportunity for long-
term advancement and increased pay.
    Many employees could see their hours cut or limited to less 
than 40 hours per week and lose the benefits that come with a 
salaried position, such as flexible work hours and health 
insurance. These reactive changes would have severely negative 
effects in the workplace.
    Along with small businesses, several different types of 
employers are particularly vulnerable to the negative effects 
of this rule, including: nonprofits, charities, State and local 
governments, and colleges and universities.
    My colleague and Chair of the Senate Health, Education, 
Labor, and Pensions Committee, Lamar Alexander, found that the 
new rule would increase operating costs for at least one 
Tennessee college by more than $1 million annually. The 
increased labor costs would ultimately have to be passed down 
to students in the form of an $850 tuition increase or result 
in job cuts for the college's employees.
    Senator Alexander joined our Committee member, Senator Tim 
Scott, to author S. 2707, the Protecting Workplace Advancement 
and Opportunity Act, which would prevent the Department of 
Labor from finalizing President Obama's proposed rule. I 
strongly support these efforts to move forward with the bill 
and want to commend their work on this important issue.
    Along with the Small Business Administration's Office of 
Advocacy and Members of Congress from the House and Senate, I 
have raised several concerns about the role and representation 
of small businesses throughout this rulemaking process.
    I strongly believe this proposal lacks adequate economic 
analysis, and I was alarmed when the Office of Advocacy 
submitted comments that sharply criticized the manner in which 
the DOL crafted the proposal. Their comments stated that the 
DOL's initial regulatory flexibility analysis was inaccurate 
and severely undercounted the number of small businesses that 
would be affected by the rule.
    I hope our conversation today will also touch on the impact 
the rule will have on small nonprofit organizations. Advocacy's 
comment letter referenced a roundtable discussion that was held 
in New Orleans where a small nonprofit operating Head Start 
programs in Louisiana stated that this proposal would result in 
$74,000 in first-year costs.
    Since 80 percent of this organization's operating budget 
comes from Federal programs, which cannot be used to pay for 
management costs like labor, they may have to cut critical 
community services to reduce labor costs. This is really 
unacceptable, especially for rural and poor areas that rely on 
different services provided by nonprofits.
    After hearing from many concerned workers and business 
owners, I urged Secretary Perez to extend the public comment 
period to allow small business owners and employees the 
opportunity to examine the proposed rule and comment carefully.
    Shortly after, the Office of Advocacy wrote a similar 
public comment letter requesting a 90-day extension of the 
comment period. Unfortunately, all of these requests were 
denied by Secretary Perez.
    I have serious concerns with President Obama's proposed 
changes to overtime regulations which will negatively impact 
the ability of small businesses and other organizations to 
operate effectively. While the rule is expected to become 
finalized within the next several weeks, it is crucial that the 
Administration reconsider their one-size-fits-all approach.
    Now, let us get today's conversation started. Again, I 
would like to thank everyone for being a part of this 
discussion.
    I am going to go ahead and introduce our entire first 
panel, and then each of you will have 5 minutes in the order in 
which you are introduced and, of course, can submit any 
additional written comments for the record.
    Ms. Tammy McCutchen serves as the principal at Littler 
Mendelson, P.C., a law firm specializing in representing 
employment and labor law. Ms. McCutchen also serves as vice 
president and managing director of strategic solutions for 
compliance HR and previously served as the Administrator of the 
Wage and Hour Division at the U.S. Department of Labor.
    Ms. Sarita Gupta serves as the executive director of Jobs 
With Justice, a union rights organization focused on workers' 
civil rights.
    Mr. Octavio Mantilla is from my home State of Louisiana. He 
resides in New Orleans and is the co-owner of the Besh 
Restaurant Group, where he oversees the operations of more than 
ten restaurants across the country. In addition to his 
responsibilities at the Besh Group, he is a board member of the 
Louisiana Restaurant Association, the Louisiana Hospitality 
Foundation, the New Orleans Tourism and Marketing Corporation, 
and the John Besh Foundation.
    Mr. Ross Eisenbrey has been the vice president of the 
Economic Policy Institute in Washington, D.C., since 2003. Mr. 
Eisenbrey focuses on labor and employment law, along with 
pension and regulatory policy.
    And Ms. Nancy Duncan is the associate vice president of 
human resources for Operation Smile, a nonprofit medical 
service dedicated to providing cleft lip and palate repair 
surgeries to children worldwide. Ms. Duncan is based out of 
Virginia Beach and has more than two decades of HR experience.
    So, again, welcome to all of you. Thank you for being here. 
And we will start with Ms. McCutchen.

STATEMENT OF TAMMY D. McCUTCHEN, PRINCIPAL, LITTLER MENDELSON, 
                              P.C.

    Ms. McCutchen. Mr. Chairman and members of the Committee, 
thank you for giving me the opportunity to speak with you today 
regarding how the Department's changes to the overtime 
regulations will impact small businesses.
    Of course, of most concern to small business is the 
Department's proposal to increase the minimum salary level for 
exemption by 113 percent, from the current $23,660 to $50,440. 
The purpose of setting a minimum salary level for exemption, as 
the Department itself has stated since 1949, is to provide a 
``ready method of screening out the obviously nonexempt 
employees.'' DOL's proposed 50,440 level does exactly the 
opposite, excluding from the exemption many employees who 
obviously perform exempt duties, including employees found to 
be exempt by Department investigators and the Federal courts. 
Such a large increase is unprecedented in the FLSA's 77-year 
history, and using any reasonable method to set the minimum 
salary level yields a much lower number: $30,000, for example, 
the salary level if the Department used its methodology from 
2004, setting the salary level to exclude from the exemption 
the lowest 20th percentile of salaries employees working in 
retail and the South; $32,000, the salary level if the 
Department applied increases in the Employment Cost Index since 
2004; $34,000, the salary level if the Department used its 
methodology from 1958, setting that salary level to exclude the 
lowest 10 percent of employees found in DOL investigations to 
be exempt in the lowest wage regions, the lowest wage 
industries, the smallest businesses, and the smallest cities; 
$35,000, the minimum salary required for exemption under the 
laws of New York, also, by the way, the salary level if the 
Department looked to the historical percentage of increases 
from 1938 through 2004; $42,000, the minimum salary required 
for exemption under the laws of California, also, by the way, 
the starting salary for Federal Government employees with 
master's degrees.
    Instead of using any of these reasonable methods, the 
Department arrived at $50,440, a number higher than either New 
York or California, both high-cost-of-living states with very 
generous labor laws, by using instead the 40th percentile of 
all salaries nationwide. It is irresponsible, particularly with 
the recent disturbing economic news, to use nationwide data 
that fails to distinguish salaries by region, industry, size of 
business, or size of city.
    I am not suggesting that we adopt different salary levels 
for different regions or industries, which would be a 
compliance nightmare for employers. But I am stating that the 
minimum salary has to be set at a level that will work for 
high-income and low-income states, for high-profit/low-profit 
industries, for large, small, and nonprofit businesses in large 
cities and in small rural communities.
    The purpose of the salary level is to exclude obviously 
nonexempt employees. The duties tests in the regulation then 
come into play once the obviously nonexempt have been 
eliminated. For 77 years, it has been the duties test that 
serves as the primary method of distinguishing exempt from 
nonexempt, of identifying who is the executive, administrative, 
and professional employee.
    Let me close with four quick points.
    First, thousands of small business owners and advocates and 
even more nonprofit businesses filed comments objecting to the 
propose rule, including the SBA's Office of Advocacy, the 
National Federation of Independent Businesses, and the National 
Association of Women Small Business Owners.
    Second, both the NFIB and the SBA Office of Advocacy 
concluded that the Department's flexibility analysis grossly 
underestimates the cost of the rule to small business. I was 
personally shocked by the Department's low-ball estimate of the 
amount of time business will need to spend to comply with the 
rule. I would never tell my clients, my employer clients, to 
spend so little time on FLSA compliance.
    Third, the costs to small businesses will be even higher if 
the Department decides to automatically increase the salary 
levels every year or to make changes to the duties tests.
    Finally, increasing the salary level to $50,440 or even to 
the $47,000 that Politico recently reported will not result in 
giving America a raise. Employees are unlikely to see higher 
paychecks. The small business owners I have talked to cannot 
afford to give a salary increase or pay overtime, so they must 
adjust in other ways: demoting management employees to hourly 
workers, requiring them to clock in and out, closely monitoring 
the hours that they work, decreasing the flexibility to take 
time off for family without losses in pay, taking away bonuses 
and other employee benefits, and depriving employees of 
opportunities for advancement. The one thing small businesses 
cannot do is redistribute money they do not have.
    Thank you.
    [The prepared statement of Ms. McCutchen follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much.
    And now, Ms. Gupta.

   STATEMENT OF SARITA GUPTA, EXECUTIVE DIRECTOR, JOBS WITH 
                            JUSTICE

    Ms. Gupta. Chairman Vitter and members of the Committee, 
thank you for the opportunity to testify today about the 
Administration's proposed update to the overtime rules under 
the Fair Labor Standards Act.
    My name is Sarita Gupta. I am the executive director of 
Jobs With Justice. Jobs With Justice is an independent 
nonprofit organization dedicated to advancing working people's 
rights and an economy that benefits all Americans. We bring 
together labor, community, faith, and student voices at the 
national and local levels through a network of coalitions 
across the country.
    At Jobs With Justice, we believe the Fair Labor Standards 
Act's protections are central to ensuring that all Americans 
can enjoy the country's prosperity to which they contribute.
    The United States Congress and President Franklin Delano 
Roosevelt recognized in 1938 what today's working women and men 
know to still be true: that economic stability can only be 
achieved through family-supporting wages and hours. If today's 
employees are to realize the law's basic promise of a reprieve 
from overwork in order to spend time with their families, the 
FLSA's overtime protections must be strengthened and protected. 
We believe the U.S. Department of Labor's proposal to adjust 
the salary test for determining overtime eligibility will do 
just that.
    Raising the salary threshold from $23,660 in annual pay to 
$50,440 in 2016 will broadly benefit millions of working 
people, whether they are newly eligible for overtime 
protections or are more squarely protected against overtime 
misclassification that can occur under the more ambiguous 
duties test.
    The current threshold covers only 8 percent of salaried 
employees today. Employers are even currently within their 
rights to deny overtime pay to employees who earn less than the 
poverty level for a family of four. Real lives will change for 
the better by updating the overtime rules--real people like 
Wanda Womack, who earned under $40,000 managing a Dollar 
General Store in Alabama. Wanda put in 50 to 70 hours a week, 
most of it spent doing nonexempt work like running the cash 
register and unloading merchandise from trucks.
    Part-time hourly employees also stand to benefit from a 
higher salary threshold. Too many people who stock the shelves, 
sweep the floors, and service food are working fewer hours than 
they would like.
    In our recent study of employers' scheduling practices in 
Washington, D.C.'s service sector, 80 percent of survey 
respondents told us it was very important or somewhat important 
that they receive more hours. Many of these individuals will 
likely have an opportunity to gain additional hours as 
employers shift assignments from overworked, low-paid salary 
employees who were previously exempted from overtime 
protections.
    As a nonprofit employer, I also have had to assess the 
proposed update to the overtime regulations. The proposed 
overtime rule update will require some of our local coalitions 
to examine and amend their employment practices. We believe 
this is a positive development. A higher salary threshold will 
require Jobs With Justice and nonprofits like us to promote 
practices that allow people to spend more time with their 
families, likely increasing employee satisfaction and lowering 
burnout rates along the way. This is good for our employees, 
for our organizations, and for the people we strive to serve.
    I know some nonprofit organizations have expressed concerns 
about the proposed overtime rule update and the impact it could 
have on their budgets. I also know that much of the ``concern'' 
for nonprofits' ability to comply with updated overtime rules 
has been raised by Big Business lobby groups that do not 
typically advocate for the interests of nonprofits or the 
people served by them.
    These concerns are vastly overstated, and, frankly, they 
dismiss the rights of working people. Employees of nonprofits 
deserve a fair return on their work.
    I know firsthand that for nonprofit employees the work, 
while often rewarding, can be stressful, emotionally tolling, 
and lower paying. These conditions only further substantiate 
the need for nonprofit employees to have time away from work to 
recharge and reconnect with family and friends, just as was 
intended by FLSA.
    Nonprofits that contract with State Medicaid departments 
can push the state to increase rates. Many states revisit their 
Medicaid budgets throughout the year, since Medicaid costs 
fluctuate based on the economy, enrollment, eligibility, and 
other factors. The State's investment will be less than many 
people may assume. The Federal match for Medicaid spending can 
range from 50 percent to 74 percent, depending on the state. 
Regardless, no nonprofit should condone a business model that 
only succeeds based on its ability to take advantage of its 
employees through lax overtime rules.
    The FLSA was enacted with the belief that Americans should 
earn a fair day's pay for a fair day's work. Yet today the 
inverse is true for too many of America's salaried employees 
who are putting in more than a fair day's work for far less 
than a fair day's pay. The Administration's proposed update to 
the FLSA's overtime rules will serve as a crucial step to 
restoring this basic tenet of economic fairness--a tenet that 
should apply to all people, no matter the industry they work in 
or the size of their employer.
    In the interest of time, I will reserve the remainder of my 
comments and take questions from the Committee members. Thank 
you.
    [The prepared statement of Ms. Gupta follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much.
    And now, Mr. Mantilla, welcome.

STATEMENT OF OCTAVIO MANTILLA, CO-OWNER, BESH RESTAURANT GROUP, 
 ON BEHALF OF THE NATIONAL RESTAURANT ASSOCIATION AND THE BESH 
                        RESTAURANT GROUP

    Mr. Mantilla. Thank you, Chairman. Good morning, Chairman 
Vitter and distinguished members of the Committee. Thank you 
for the opportunity to testify today on the impact that the 
proposed overtime regulations would have on restaurants like 
mine and the concerns we have with some of the ideas floated by 
the Department of Labor for the final regulation.
    My name is Octavio Mantilla. I am co-owner of the Besh 
Restaurant Group. I am honored to share the perspective of my 
company.
    Today my testimony will focus on some of the issues that my 
company and the industry have been struggling with in preparing 
for potential changes to the current overtime regulations. At 
the end of the day, I need to ensure that the Besh Restaurant 
Group is fully compliant with the law, while remaining 
economically healthy and vibrant.
    The three main issues that I would like to address today 
include: adjustments to the duties test being considered, the 
proposed salary level, and the proposed automatic increases.
    I would also like to point out that the overall overtime 
regulatory proposal is adding to the tremendous amount of 
uncertainty created by the level of Federal regulations from 
the last 5 years.
    I was born in Nicaragua and moved to New Orleans as a 
child. At the age of 16, I got my first job in a restaurant as 
a dishwasher and later waiting tables. I continued to work my 
way up and eventually moved through all managerial levels.
    While working in the industry, I earned a bachelor's degree 
from Tulane University and an MBA from the University of New 
Orleans. I would not have been able to achieve these milestones 
without the flexibility that being a manager provided me. As a 
manager, while making less than many waiters, I had more 
flexibility to manage my work schedule and attend classes. The 
flexibility of being on salary was a big help to me. I would 
not be where I am today without that opportunity.
    After graduating, I helped open Harrah's Casino & Hotel in 
New Orleans and then worked in St. Louis, Missouri, as Harrah's 
director of operations. I have opened numerous restaurants for 
Harrah's nationwide. My story is repeated in our industry over 
and over.
    In fact, nine in ten restaurant managers started in entry-
level positions, and eight in ten restaurant owners also began 
in our industry with an entry-level position. Doing away with 
the flexibility entry-level salaried managers have to, among 
other things, go back and forth from work to school would 
diminish professional growth opportunities in our industry.
    I returned to New Orleans to be reunited with my friend 
Chef John Besh. John and I became partners in the Besh 
Restaurant Group. Since becoming John's partner, the Besh 
Restaurant Group has expanded to include several additional 
restaurants, one of them being Shaya, which was voted Best New 
Restaurant in America last week by the James Beard Foundation, 
a modern Israeli cuisine restaurant, with my partner Israeli-
born Alon Shaya, who also was an entry-level manager.
    As to the duties test, it is clear to operators in the 
industry that any reduction in litigation that the Department 
seeks to obtain with the proposed rule's increase in the salary 
threshold would be lost if the changes being considered to the 
duties test become final. A long duties test would mandate a 
percentage limitation on nonexempt work that a manager can 
perform. The problems with the long duties test structure are 
well known and also acknowledged by the Department of Labor in 
the 2004 Overtime Rule. In 2004, the Department stated that the 
strict percentage limitations on nonexempt work in the long 
duties test would impose significant monitoring requirements 
and recordkeeping burdens.
    In our industry, managers need to have a hands-on approach 
to ensure that operations run smoothly. Any attempt to 
artificially cap the amount of time exempt employees can spend 
on nonexempt work would place significant burdens on 
restaurants, increase labor costs, cause customer service to 
suffer, and result in an increase in wage and hour litigation. 
Just imagine a manager in a restaurant not being able to fill 
up a glass of water for you or having to write it down during a 
service period. It is just not possible.
    As to the minimum salary threshold, the Department believes 
its proposed salary level does not exclude from exemption an 
unacceptably high number of employees who meet the duties test. 
However, when applied to my industry, the contrary is true.
    Even before adjusting for regional economic differences, 
most managers and crew supervisors in our industry do not meet 
the proposed salary level of $970 per week. Some of these 
employees would qualify as exempt under the new proposed salary 
level only if the Department allowed bonuses to be used to 
calculate the employee's salary level. Furthermore, the median 
annual salary paid to crew and shift supervisors in our 
industry is $38,000.
    It is clear that, at least in reference to the restaurant 
industry, the proposed salary level does exclude from exemption 
an unacceptably high number of employees.
    I think I will stop there for the purpose of time.
    [The prepared statement of Mr. Mantilla follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Okay. Thank you very much, Mr. Mantilla.
    And next we will hear from Mr. Eisenbrey.

 STATEMENT OF ROSS EISENBREY, VICE PRESIDENT, ECONOMIC POLICY 
                           INSTITUTE

    Mr. Eisenbrey. Thank you for inviting me today, Mr. 
Chairman and Committee members. In my 5 minutes, I will make 
five points.
    First, America's middle class has suffered through decades 
of wage stagnation and rising inequality that cannot be 
corrected without changes in a range of Federal policies that 
have worked against them. Those changes include: restoring 
appropriate tax rates on high incomes and inheritances, raising 
the minimum wage, fixing overtime rules, enacting paid leave 
and fair scheduling legislation, ending unfair trade practices, 
and giving employees the right to bargain collectively.
    Two, the Department's updated salary threshold will help. 
It is long overdue and much needed. The rule will raise wages 
for some employees, reduce excessive work hours for others, and 
create jobs. No one paid less than $50,000 a year should work 
more than 40 hours a week without additional compensation.
    Three, indexing the salary threshold for exemption as wages 
and prices increase is critically important and well within the 
Department's authority.
    Four, employers will adjust to the rule, as they did to the 
original Fair Labor Standards Act and every improvement in the 
law and regulations since then. California, it is important to 
note, the State with the highest State overtime standards, 
including a 50-percent primary duty test, has outpaced the rest 
of the Nation in employment growth for the last 5 years, and in 
that period of time, Louisiana's employment has actually 
fallen.
    Five, small business employees need time with their 
families just as much as employees of larger businesses, if not 
more. They tend to be paid less and, therefore, to be less able 
to pay for time-saving help with children, chores, and home 
maintenance. They suffer from the same stress and health 
effects as anyone else.
    So, point one, from 1979 to 2013, inflation-adjusted wages 
rose only 15 percent for the bottom 90 percent of Americans, 
less than one-half of 1 percent per year, while wages for the 
top 1 percent increased 137 percent. The economy and total 
national income grew, but most Americans were left out. CEOs 
and top executives take an oversized share of income. CEO pay 
for the 350 largest corporations grew almost 1,000 percent 
since 1978 while the pay of typical workers increased only 11 
percent.
    Corporations have relentlessly squeezed labor costs to the 
detriment of their employees while increasing profits for 
shareholders and executives with stock options. Profits have 
been at all-time highs while tens of millions of workers 
struggle to get by.
    The Federal policies that have reduced employee bargaining 
power, lowered labor standards, and offshored jobs should all 
be reversed. Overtime is one part of the solution.
    The current salary threshold, as Sarita said, is less than 
the poverty line for a family of four. It does not begin to 
reflect the status and financial reward that characterized 
executives, administrators, or professionals. The salary 
covered 12.6 million employees, salaried employees, in 1979. 
Today it covers 3.5 million in a workforce that is 50 percent 
bigger.
    Three, Goldman Sachs, the National Retail Federation, and 
the Department of Labor all agree: The rule will lead to job 
creation, wage increases for some employees, and reduced hours 
for others. The history of this rule tells us that employees 
will be better off, and as Lonnie Golden's research using the 
General Social Survey shows, it is not true that employees who 
make less than $50,000 a year have more flexibility if they are 
salaried than if they are hourly. This survey showed without a 
doubt that they are no better off in terms of flexibility, so 
they have nothing to lose when the salary level is raised, even 
if their employer changes from salaried to hourly.
    To prevent the kind of neglect that led to a 29-year 
decline in the real value of the threshold, it has to be 
indexed, preferably to growth in compensation of salaried 
employees. The Labor Department for decades failed to carry out 
its statutory mandate to update the rules, and indexing will 
prevent that kind of failure in the future.
    Finally, employers, including small businesses like mine--
we have 40 employees--will have no trouble adjusting to the 
rule because our competitors all face the same requirements, 
and, in fact, this is the easiest rule ever promulgated to 
comply with. You are already making determinations about 
whether employees are covered. Now for people making less than 
$50,000, it is simple. They are entitled to overtime pay. That 
is the end of the issue. You do not have to worry about the 
complicated duties test that you have heard about.
    The home builders are a perfect example of how much hype 
and phony melodrama surrounds the opposition to this rule. They 
did a survey that shows that only one home builder in 25 is 
even thinking about reclassifying salaried workers as hourly. 
Far more will raise their salaries, but most will have to do 
nothing at all to comply because they are already in 
compliance.
    Thank you.
    [The prepared statement of Mr. Eisenbrey follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you.
    And, Ms. Duncan, you are going to wrap us up. Thank you.

 STATEMENT OF NANCY DUNCAN, ASSOCIATE VICE PRESIDENT OF HUMAN 
                   RESOURCES, OPERATION SMILE

    Ms. Duncan. I would like to thank the Committee for the 
invitation to speak with you today. Operation Smile is an 
international medical charity that has provided hundreds of 
thousands of free surgeries for children and young adults in 
developing countries who are born with a cleft lip, cleft 
palate, or other facial deformities.
    I am here today to express the concerns of our leadership 
team over the Department of Labor's proposed changes to 
overtime exemption regulations, specifically, the drastic 
increase to the threshold salary level of $50,400.
    While all employers will feel the impact of such a drastic 
change, there will be a tremendous negative impact on the 
nonprofit organizations, especially taking into account the 
unique challenges of an organization operating globally. We 
have made tremendous efforts over the last years to align our 
salaries to be more competitive with the for-profit space. Yet 
still, this proposed update will increase our payroll cost 
nearly $1 million annually, affecting over 50 percent of our 
workforce. This is not a financial cost we can absorb. 
Considering that a cleft surgery costs an average of $240, this 
would mean nearly 4,200 fewer surgeries provided globally each 
year.
    Let me take a moment to provide a very specific impact of 
the proposed increase to the salary threshold. The largest 
group of our professionals affected is our program 
coordinators. These individuals are responsible for planning 
and executing our international medical missions. They travel 
to low- and middle-income countries where we conduct medical 
missions, and they have responsibility to manage our medical 
teams. Our program coordinators are often working in mission 
countries with the ministers of health, leaders in the local 
hospitals, and even high-level government officials who support 
our cause. The program coordinator position at Operation Smile 
has served as a training ground for many young professionals 
with a career goal to continue on to law school, medical 
school, and many other professional careers. The experience 
they receive at Operation Smile is unprecedented and highly 
valued.
    Annually, we receive approximately 700 applicants for these 
positions. Their qualifications are incredible, many graduate 
degrees, multiple languages, leadership positions throughout 
their academic life, and thousands of volunteer hours. If this 
new policy is implemented, we fear we will have to look to 
other resources such as hiring in our mission countries. This 
change would unfortunately reduce the employment opportunities 
for recent college graduates. It would be a shame to take this 
opportunity away.
    Less measurable is the impact this change will have on our 
support staff for a global organization that operates 24/7. 
Many of our exempt positions have enjoyed schedule flexibility 
and need the ability to work with partner countries remotely at 
hours often outside our normal office schedule. If we have to 
convert these employees to nonexempt status, we will have to 
impose policies such as strict core working hours and 
restrictions on email and phone usage after hours. The result 
would be a negative impact on both our responsiveness and 
effectiveness. Our focus needs to be on managing programs not 
overtime.
    There are additional obvious flaws to the proposed 102-
percent increase to the minimum salary level. At Operation 
Smile, we offer employees a rich medical and dental plan with 
their employee premiums covered at 100 percent. In addition, we 
provide a 401(k) plan with up to a 9-percent employer 
contribution. These are all areas we will have to turn to and 
evaluate cuts to offset increased salary expenses.
    Another flaw is the lack of consideration of geographic 
location. Regional economies play a part in starting salaries. 
According to a website source, a salary of $50,400 in 
Washington, D.C., equates to an approximate salary of $34,000 
in Virginia Beach.
    Finally, we are extremely concerned about the impact this 
will have on our donations. Donors evaluate the percentage of 
resources spent on administrative versus programmatic activity. 
An increase in administrative cost will have a negative impact 
on our revenues from donors who want their donations spent on 
surgeries not salaries.
    We strongly urge the DOL to re-examine the newly proposed 
salary threshold, taking into consideration the many negative 
impacts such a change will present. These changes should be 
adjusted to reflect a better balance between employer and 
employee needs, a nonprofit's charitable mission, and donor 
expectations. At the very least, we request the DOL pursue 
adopting special provisions similar to those found for teachers 
by allowing nonprofits to remain exempt from these salary 
thresholds and to be better able to focus on their charitable 
missions.
    Thank you for allowing me to be here today to speak to you 
in regard to the nonprofit community.
    [The prepared statement of Ms. Duncan follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much, and thanks to all of 
you. I will start our discussion with 5 minutes of comments and 
questions.
    Ms. McCutchen, you were Wage and Hour Administrator at the 
Department of Labor previously. If at that time SBA's Office of 
Advocacy had sent you a letter similar to the one sent to 
Secretary Perez that was critical of the proposed rule and that 
asked for more comment time, what would your reaction have 
been?
    Ms. McCutchen. We would have sent our economists back to 
work. The flexibility regulatory impact analysis is 
particularly important to the small business community. It has 
to be accurate. You have to be able to accurately estimate the 
cost, both in the cost of compliance and in wage transfers. And 
so we would have gone completely back to the board. And I think 
if you compare the economic analysis from our regulation in 
2004 to what the Department of Labor has put out today, you 
will see that we did a much better job.
    Chairman Vitter. And also specifically with regard to a 
request for an extension of the comment period, what was your 
experience at the Department of Labor?
    Ms. McCutchen. We did grant an extension, and we gave more 
time to begin with. These rules are complex. There is a lot of 
time and study that needs to go into determining what the 
impact is going to be on your business or your industry. So a 
90-day comment period, which is all the Department of Labor 
gave us, was incredibly inadequate, and there were over--from 
my reading of the public record, there were over 3,000 requests 
to extend the time for comment, and they were all ignored.
    Chairman Vitter. Okay. Thank you.
    If we can put up the chart we have somewhere, do we have 
that handy? Ms. McCutchen, you touched on one thing that I am 
really concerned about, representing the State of Louisiana, 
which is a relatively low-wage State, and that is sort of 
disparate impact on lower-wage areas. Could you comment a 
little bit more on that? And as background, I want to point out 
that, according to a study by Oxford Economics, Louisiana would 
have nearly 51 percent of full-time salaried workers below this 
dollar level proposed. So what effect do you think this rule 
would have on potential growth for small businesses 
specifically located in a State like that which tend to be in 
the red?
    Ms. McCutchen. I think it is going to stifle growth, job 
growth, in an economy that is already sluggish, and jobs, and 
in particular, full-time good jobs, right? We might see growth 
in part-time jobs and jobs without health care, but not in good 
jobs. And just that report from Oxford, what you see in the 
percentages of that report is states like Louisiana, you are 
right, it is about 51 percent of salaried workers who will be 
impacted. Contrast that to a higher-wage State like 
Massachusetts, where only 27.3 percent of salaried employees 
are below that $50,440. So it is not 40 percent--right?--if you 
look at state by state. It is 27 percent in some states, 52 
percent in others, depending upon whether they are rural or 
more urban states. And so I think that every business owner, 
every representative of employers and employees in states like 
Louisiana, Arkansas, and Mississippi have to be incredibly 
concerned that their states are going to be disproportionately 
impacted in a way that is going to really freeze job growth.
    Chairman Vitter. All right. Okay. Thank you.
    Mr. Mantilla, thank you for your testimony. Obviously, the 
restaurant and hospitality industry is enormously important in 
Louisiana, as in other places. Do you believe these proposed 
changes to the overtime threshold would make it harder to 
attract and train new managers in your restaurants?
    Mr. Mantilla. Yes, I do. A company like myself and most of 
the restaurant industry, for entry-level managers it is an 
opportunity that we seek when we are hourly employees. By 
increasing that salary level so high, it forces our restaurants 
to put a lot more people in hourly positions, so we lose the 
opportunity for people that want to grow to move into salaried. 
That is what we look for. When I was waiting tables, I wanted 
to be a manager. It will be demoralizing for my entry-level 
positions to move them back into hourly positions. That is what 
we want. And we are in our industry because we have a passion 
for it, not because we are doing it for the sake of doing it.
    You see the growth especially in New Orleans, from pre-
Katrina number of restaurants and the opportunities. We had 800 
restaurants in New Orleans, to 1,400 now, and it is people like 
myself that were young, eager, and wanted to take the 
opportunity. The restaurant industry is very similar--it is 
just like the United States. It is an industry opportunity. And 
we want to take the chance to become entry level, and a 
restaurant cannot afford to pay $50,445.
    Chairman Vitter. And to take you yourself as an example, 
you went from a very entry level hourly position to manager to 
owner of a group. Do you think this sort of proposal, had it 
been in place at the time, would effectively have been a much 
bigger barrier to that sort of progression?
    Mr. Mantilla. Yeah. Being a salaried employee, it gave me 
the flexibility to attend school, to attend college, to further 
my education. I could not go to work 8 hours a day, you know, 
all the time. I woke up in the morning at 6:00 a.m., took 
classes at 8:00 a.m., went to work at a restaurant, managed a 
shift, went back to school, studied, took more classes, or 
worked Friday, Saturday, and Sunday so that I can further my 
education, which allowed me to take the risk and be an 
entrepreneur, which was my dream. And we started one 
restaurant, and everybody in my company has developed from 
within. We have given the same opportunities that I took when I 
was a young boy to be part of a restaurant. And every 
restaurant we own, we have people that were entry-level that 
are now part owners in our business. A perfect example is Alon 
Shaya.
    Chairman Vitter. Thank you very much, and, again, 
congratulations on that recognition for Shaya.
    Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    To start out, I just want to kind of make it clear. I, too, 
am concerned that the small business advocacy group did not get 
a chance to provide comment. I think that with further debate 
we might have gotten more clarification on the need for this 
rule.
    But, Ms. McCutchen, right now the rule sets at, I think, 
$11.38 an hour. In North Dakota, the extension agency at NDSU 
does a study. They do a study that involves a single mom, two 
kids, living in a very modest apartment with a very small car, 
spending only, I think, $50 a week on clothing. How much do you 
think they calculate in Fargo she needs to earn to make ends 
meet in a 40-hour work week?
    Ms. McCutchen. I am not aware of that study, so I do not 
know.
    Senator Heitkamp. Okay. Well, I will tell you. It is $24 an 
hour just to make ends meet. So what do you think the number 
should be?
    Ms. McCutchen. I think the number should be $35,000, but 
let me----
    Senator Heitkamp. How do you calculate that?
    Ms. McCutchen. Based on past methodologies and the data 
that we have about wages and lower-income states and small 
businesses. I will point out, please, that North Dakota under 
their State law, if it makes sense in the economy in North 
Dakota, can adopt a higher salary level, as has New York and 
California, New York at $35,100 and California at $41,600. And 
so if that works in North Dakota at that level--it probably 
will not work in Louisiana, and that is why the Federal level 
has always been set at a lower level to exclude only----
    Senator Heitkamp. But I am telling you that economists in 
North Dakota have looked at what would be, in fact, a 40-hour 
living wage for a single mom, and they have calculated it at 
$24 an hour. And that is the challenge that we have here. We 
have got a process problem with this rule. But we have an 
economic problem for middle-class families in this country who 
struggle every day to make ends meet.
    And think about this: That same mom, if she works in a 
salaried position, she cannot get a second job if she is 
working 60 hours a week. So she is stuck. In fact, she is worse 
off.
    And I think the other point that we need to make is that no 
one is telling anyone that they have to go on an hourly wage. 
No one is saying that. They are just saying if they are a 
salaried employee making less than this, they can only work 40 
hours a week, right? Is that a correct analysis?
    Ms. McCutchen. Correct.
    Mr. Eisenbrey. Well, we can actually pay overtime to 
salaried workers.
    Senator Heitkamp. Right. My point is that I do not think 
that we have enough information, and so I am a little disturbed 
by the process here because I do not think that we really know 
how many people will be impacted by this and what the 
consequences will be. I am concerned about what happens in 
universities. That is who I have heard from the most. I am 
concerned about what happens in nonprofits where people have to 
be on call, people who work with the homeless, people where it 
is very difficult to calculate what, in fact, would be their 
hourly wage.
    So I think we have got some issues with this rule. But I 
think we have to acknowledge that what we have here is a 
dramatic problem with people not working as hard as they know 
how to work, getting up every morning and doing a great job, 
and getting further and further behind. And you do not have to 
look any further than this Presidential campaign to understand 
the challenges and, I think, the insecurity that American 
families feel in these kinds of situations.
    And so where I share the concern and I think Senator Scott 
has expressed some concern about process, I share the concern 
about process. I think this is a pretty dramatic increase to do 
it in a way that does not allow full analysis and full 
response. But I am concerned about maybe the general overall 
attitude of, ``Suck it up, workers, just work harder,'' and you 
will get further behind. And, oh, by the way, if you work in a 
nonprofit where you do tremendous benefit for society, you 
should even get paid less.
    So it is a real challenge that we have here. I think that 
we need to put this in the perspective of what this hourly wage 
is and what it means for an American family. And I think $24 an 
hour for somebody who works 40 hours a week and is struggling--
you know, maybe they should have an opportunity to get a second 
job, and that is not exactly possible when you are working 60 
hours a week.
    Chairman Vitter. Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. Thank you for 
holding this very important hearing. And, Senator Heitkamp, I 
am looking forward to continuing our discussion on this 
legislation that I have sponsored. I look forward to you being 
one of our cosponsors in the near future. We have 36, but we 
could use 37. You could be the one.
    Thank you to the panelists for being here this morning as 
well as we discuss such an important issue, and I will tell you 
that having listened to the comments of some of the panelists, 
I wonder where the real world is because the comments are so 
far apart. And the reality of it is having been a small 
business owner, having been a business owner with 5 employees 
in one company and 7 or 8 in another and then 15 or so, the 
fact of the matter is that when you think about the impact of 
this rule on the average person, not on the nonprofits 
specifically, not on the universities, not on small businesses, 
but on employment opportunities, they are going to go down, not 
up. What we will see is more part-time employees.
    If you think about the current state of affairs for small 
businesses to digest, the ACA pushes wages down, pushes hours 
down. If you think about Dodd-Frank and the ability to have 
access to capital so that there are more small businesses in 
distressed communities, not growing. I think in 2015 we saw 
fewer businesses, not more businesses, much in part because of 
the impact of the regulatory environment.
    As I have thought about some of the comments I have heard, 
the only word that keeps coming to my mind is, ``Hogwash.'' I 
am not sure if they have ever actually been in the real world 
working. It appears to me that perhaps you have not.
    Ms. McCutchen, a couple questions for you, one on the 
impact of geography. I think the fact of the matter is that 
thinking of this from a Federal perspective, having a low point 
where states can figure out what is best for their states based 
on their geography, based on their wages, is an important 
consideration.
    The second question I have is one on the flexibility. I 
heard someone mention the fact that salaried employees have 
just as much flexibility as folks who are hourly, or the hourly 
workers have as much flexibility as ones that are salaried. In 
my business where I had salaried employees, they had a whole 
lot more flexibility than the hourly folks.
    Ms. McCutchen. You are exactly right, and that is because 
of what we call the ``salary basis test,'' which is one of the 
tests from exemptions. If you are an exempt employee, you have 
to be paid a guaranteed salary, regardless of the number of 
hours you work a week. So the quid pro quo here is that an 
exempt employee does not receive overtime for working over 40, 
but they also do not receive less pay for working under 30. So 
unlike an hourly employee who is only paid for the hours you 
work, if you need to go home early to deal with a family issue, 
to go to a child's sporting event, you can leave, and your 
employer cannot dock your salary. You are going to get that 
same guarantee week in and week out, and that is very valuable 
and valued by exempt employees.
    Senator Scott. The assignment of duties concerns me as well 
because when you look at a small business owner like I was, 
five employees, my managers had to do some work that perhaps 
they would not have had to do if we were--in our busy season, 
everyone worked a little harder. When it was slower, you had 
more flexibility. And you went to more soccer games, you went 
to more dental appointments, and you still got paid the same 
amount.
    I think that when you look at the impact of the assignment 
of duties and the impact this rule will have on the 
classification, you will really have many people making the 
decision it is just not worth it. So the reclassification 
process will be expensive. The employers will have to bear more 
costs. The employees will have fewer dollars to take home 
because they will be working fewer hours.
    Ms. McCutchen. Absolutely. In fact, some of our panelists 
in their written comments basically said reclassification is 
like flipping a switch; it takes only minutes. And I say that 
is hogwash. And those people have never actually helped an 
employer reclassify. I have--dozens and dozens and dozens. It 
is at least a 6-month process, and it requires a tremendous 
amount of decisions. You do not just flip a switch and say, 
hey, somebody is going to be hourly. You have to figure out: 
Are they going to be hourly or salaried? How much is the hourly 
rate going to be? Am I going to continue to pay benefits or 
not? Do I have to change my benefit plans because their 
eligibility provisions say only exempt employees?
    Then you have to think about are you going to give people--
changing your policies, right? All of a sudden, you have to pay 
these people for travel time, for time they spend on their 
emails and on their smartphones after work. So you have to look 
at all of your policies. You might have to reprogram your 
timekeeping systems and your payroll system.
    It is a huge and complex process, which the Department of 
Labor thinks is going to take an hour.
    Senator Scott. Hogwash?
    Ms. McCutchen. Hogwash.
    Senator Scott. There has been some confusion from listening 
to all of the comments on the impact that this rule will have 
on nonprofits. On the one hand, you hear from Ms. Duncan's 
organization, you hear from the Red Cross, the YMCA, expressing 
very serious concerns about a drastic and abrupt increase in 
the threshold.
    At the same time, on the other hand, there have been some 
reports that many nonprofits are not covered by the FLSA and 
will not be impacted by the change. I was hoping, as a former 
Wage and Hour Administrator, you might be able to provide some 
clarity on this issue.
    Ms. McCutchen. Well, the challenge for nonprofits is they 
do not generate revenue from selling, right? So you hear about 
people from the Fight For $15 and other things. Do not worry. 
For-profit companies, all they have to do is raise their 
prices. But, unfortunately, with nonprofits, they do not have 
that option. They operate on Government funding and donations.
    I was talking to Ms. Duncan earlier today, and she said, 
you know, their 2017 budget is already done. They have no more 
money. And that is why she is contemplating cutting benefits.
    And in Ms. Gupta's written comments, and what she said 
today, well, we just ask states for higher reimbursement rates 
for Medicaid. Really? Is that going to happen? What is the 
reality that nonprofit disability service providers are going 
to get increased reimbursement rates in order to increase the 
money they have to pay their employees? It is not going to 
happen.
    Senator Scott. I am out of time.
    Chairman Vitter. Okay. Thank you.
    As I turn to Senator Cardin, I am going to ask Senator 
Scott to take the chair so I can vote relatively early on the 
floor and come back immediately so we do not have to interrupt 
this hearing for the floor vote.
    Senator Cardin.
    Senator Cardin. Well, thank you, Mr. Chairman. And I just 
really wanted to come by to show my support for this hearing. I 
think it is important that the Small Business Committee is 
holding a hearing on the impact of regulations, particularly as 
it relates to small companies. I know that we have gotten a 
little bit of drift from just small companies, but I think 
there is--I was listening to Senator Heitkamp, and I agree with 
much of what she said.
    Here is the challenge. The challenge is that we have a 
growing economy, but not everyone has been able to benefit by 
the growing economy. And Congress has taken little initiative 
to deal with some of the fundamental issues that would allow 
for the mobility that you were referring to from the restaurant 
work that you did. You need to have access to affordable higher 
education. You need to have protection as far as being able to 
work the hours that allow you to be able to do that. You have 
got to deal with potential abuses within the workforce. And 
those are some of the issues that we need to deal with. We need 
a Tax Code that provides an incentive for you to be able to 
benefit from your own skills.
    And I do not begrudge the Administration trying to deal 
with these issues, and the overtime rule is one of those 
examples to try to deal with it. And, yes, we can talk about 
how they draw the line and whether it is done right or wrong. 
And I agree with Senator Heitkamp that we need to have an open 
process, and I very much welcome the comments that have been 
made here today.
    But the bottom line is that Congress has not really been as 
definitive as they need to be in some of these workforce 
issues. We are the legislative branch of Government. We are the 
ones who should be trying to come to a consensus here. But 
instead it looks like we are not working towards that type of 
consensus. And, Senator Scott, I applaud your efforts trying to 
reach out across party lines to get some of these issues 
resolved.
    Senator Scott. Yes, Senator.
    Senator Cardin. So I look forward to the discussion. I do 
think, though, that we have to deal with some of the points 
that Senator Heitkamp mentioned, and that is the general 
frustration that is out there. We see that is very evident in 
this campaign cycle, and it is an area that I think this 
Congress needs to deal with.
    I thank you all for being here.
    Mr. Eisenbrey. Senator, could I just answer a couple of 
things that have been said to try and correct the record on a 
couple of things?
    Senator Cardin. I would be glad to let you do that. I have 
2 minutes left.
    Mr. Eisenbrey. Okay. The notion that somehow this is a 
change in how we deal with local areas, Senator Heitkamp is 
exactly right. We looked all across the country, including 
Louisiana. There is no place where you can earn an executive 
salary at less than the level that the Department of Labor 
suggested because a basic family budget is, as she said, close 
to $50,000 everywhere in the country.
    But the fact is that all the Department did was try to 
restore what we used to have in this country, which was a rule 
that said most salaried workers are entitled to overtime pay, 
and that was the rule from 1938 until 1975, and we lost sight 
of that. That 50 percent, big deal that 50 percent of salaried 
employees would be covered by the rule in Louisiana. It used to 
be 60 percent nationwide.
    So we are just trying to get back--the Department is moving 
us not all the way back to where we were. This is not even a 
full inflation adjustment.
    Senator Cardin. I agree with that point. The point I was 
trying to raise is that if Congress through the Tax Code, the 
Earned Income Tax Credit, through the Child Tax Credit, we 
could strengthen the ability of families to be able to have the 
budget they need. So it is not just working through the 
executive branch. Congress also needs to be paying attention.
    Mr. Eisenbrey. Absolutely.
    Senator Scott [presiding]. Senator Rubio.
    Senator Rubio. Thank you.
    Ms. Duncan, one of the overlooked downsides of this 
regulation is the effect that it is having on nonprofits. In 
Florida I have had a number of important communities--we have 
an important community of nonprofits, and I have had a number 
of them, care providers for children and adults with 
developmental disorders, that are telling us they would be 
forced to relocate current patients and would have to reduce 
the number of the disabled that they take in their doors. This 
rule is most disruptive for the patients that depend on these 
services.
    So in your testimony, you state that the flexibility of 
your employees is key to your ability to help the population 
you serve. In the nonprofit sector, rigid corporate schedules 
do not always apply to people who choose to work for your 
organization out of their desire to help people, not just for a 
salary.
    How key is pay flexibility to the kinds of people that you 
employ? And, therefore, what impact will this have?
    Ms. Duncan. For pay flexibility or hour flexibility?
    Senator Rubio. Both, but hours especially.
    Ms. Duncan. We are a global organization in over 60 
countries around the world, and many of our employees are 
working with individuals at these foundations, and so the 
ability to have a conference call with China, almost 12 hours 
ahead of us, is key to be responsive to the needs they have at 
the time instead of waiting 12--by the time we have come in to 
work 12 hours later. And while we could still consider that 
time and pay overtime, it certainly provides quite a burden to 
constantly have to figure out how we do that, how we clock in, 
how we count those hours.
    So I think that flexibility--I think most of our employees 
are professionals. I would say over 90 percent have college 
degrees and are on a professional track. And really even the 
motivation or the desire to be in that more professional 
position, I think it would be very de-motivating if they had to 
turn around and now all of a sudden be considered either 
nonexempt or the impact of us meeting the salary requirements.
    As I stated, we have come a long way. I think traditionally 
there was an idea that, hey, we are doing great work so you 
should feel good at the end of the day and we can pay you 
nothing. We have come a long way since then, and many 
nonprofits are very competitive salary-wise. And the 
responsibility that our folks have is huge, and they need the 
flexibility to get that work done without asking permission.
    Senator Rubio. But just based on what you said, the 
implementation of this rule as currently anticipated would be 
deeply disruptive to work schedules and the ability to provide 
services. At least that has been the testimony we have gotten 
from multiple nonprofits throughout Florida, and I would 
imagine--from your testimony, I gather you are saying that 
would be as well.
    Ms. Duncan. Yes, because we would have to, you know, from a 
financial standpoint look at how we cover the cost of any 
increases if we increase salaries, so that is fewer surgeries 
because our fiscal year budget is already done, and unless a 
donor comes up and says, ``Okay, here, I am going to fund your 
changes,'' which is most likely not going to happen in the next 
month, so we would have to reduce the number of surgeries that 
we are providing. Or we would have to look at, alternatively 
from offering the jobs in-country, coming up with a way to hire 
in-country candidates, which would not be the level of--we like 
the training and the corporate environment of having people 
here at our headquarters.
    Senator Scott. Thanks, Senator Rubio.
    One more question, from me at least, for Ms. McCutchen. Can 
you talk about the practical implications of the automatic 
increases?
    Ms. McCutchen. Well, the practical application is in the 
past there have been changes to these regulations, salary 
increases generally every 5 to 9 years, duties test changes 
less often. But every time there is a change, an employer has 
to do an analysis. Which employees can still be exempt? And 
which one of them do I need to reclassify? And then for the 
ones they are going to reclassify, they go through what in my 
experience is a 6-month process to implement that 
reclassification.
    Imagine having to do that every single year. No employer 
today--actually, one employer that I know of today does--
reviews on an annual basis their exemptions. So that is 
something totally new. It is going to have a lot of costs and a 
lot of time, and costs, by the way, which the Department of 
Labor has not analyzed whatsoever in their proposal. They only 
analyzed first-year costs, not taking into account that this 
is--with the annual increases, this is going to happen every 
single year. You are going to have the same problems, the same 
decisions, the same issues with: Do I reduce my employees? Do I 
reduce my surgeries? How am I going to pay for it?
    Senator Scott. Thank you.
    Mr. Mantilla, businesses in South Carolina, certainly 
restaurant businesses in South Carolina, the goal is always to 
move from where you start, perhaps washing dishes and cleaning 
tables, to being in a position where you are in management and 
then perhaps ownership one day. It appears to me that the 
pipeline of opportunities starts to vanish as we see more and 
more red tape from the Federal Government. Your competition no 
longer is simply other businesses, other restaurants, but the 
oppression sometimes it feels like that comes from the red tape 
in Government also creates a competitive disadvantage from my 
perspective.
    Mr. Mantilla. It does.
    Senator Scott. Could you talk about that a little bit?
    Mr. Mantilla. Yeah, especially in our industry, entry-level 
jobs, management jobs, when you go from--and, remember, the 
restaurant industry is an industry where you do not even have 
to have advanced degrees to be an owner, to be an entrepreneur, 
to reach the American Dream. You can be a waiter and take that 
entry-level position, which probably pays less while you are 
waiting tables at $38,000 a year on average, and get on-the-job 
training on managing, on timekeeping, on labor costs, on food 
costs. And you are doing that. You do that because you want the 
opportunity to be able to move on.
    Once you increase the level to a point that restaurants 
cannot afford to pay $50,000 a year for entry level, what 
happens is we have less of those jobs. That is what is going to 
happen to my restaurants. We cannot bring in an entry-level, 
which that person wants the opportunity to come in at $38,000 a 
year and do on-the-job training so that they can own their own 
restaurant or they can move into management or they can move up 
to a managing partner or it can be a profit-sharing manager, 
and it leads to further growth. Well, if that opportunity, that 
middle level, is gone, then, yes, there are no more 
opportunities.
    Senator Scott. Yes. Thank you very much. There is one thing 
for certain. Our economy is growing at an anemic rate. I think 
it was 0.5 for the first quarter. There are at least 6 million 
people who are involuntarily working part-time because of the 
absolute oppressive environment that we have in this country 
from Government red tape.
    I think this has been a fairly informative hearing. Thank 
you all for your participation, and we look forward to working 
with Committee members to find additional ways to protect small 
businesses and ensure their voice is heard in the Federal 
rulemaking process.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 10:40 a.m., the Committee was adjourned.]

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