State’s proposed overtime rule could pile on another unfunded mandate
Though a federal regulation to increase the number of workers who qualify for overtime has stalled, some New York-based nonprofits are responding to a proposed state rule that would grant more workers overtime – but potentially undercut their struggling budgets.
The proposal by the New York State Department of Labor, introduced Oct. 19, reflects a push for better pay for low-income workers and would take effect on Dec. 31. While the rule would cover the for-profit sector as well, nonprofits are in the awkward role of questioning a policy that aligns with their values, but not their already stretched bottom lines.
In a Dec. 2 comment to the state DOL, the Human Services Council of New York, an umbrella group of social service organizations, asked for a reconsideration of the proposal, which, beginning Dec. 31, would make $42,900 the new salary threshold to be exempt from overtime for those working for large companies in the city – an increase of nearly $8,000.
“Faced with arbitrary limits on indirect costs by both government and philanthropic funders, as well as with stagnant contracts that have not kept pace with inflation, many organizations are already precariously balanced,” wrote HSC’s executive director, Allison Sesso.
The proposed rule follows the spirit of federal regulation introduced earlier this year by the U.S. Department of Labor, which was slated to take effect Dec. 1, before a federal court in Texas temporarily blocked the rule. Though White House lawyers appealed the injunction, the incoming Trump administration is unlikely to defend the regulations. New York’s rules will have a major effect on the nonprofit sector. With 1.3 million workers, New York had more nonprofit workers than anywhere else in the country, according to a recent State Comptroller’s report. (The report, which used data from 2012, found the average wage was $47,700.)
Once fully phased in, the state’s rule would ultimately push New York City workers’ threshold to earn time-and-a-half pay for every hour worked after 40 hours a week about $11,000 the Obama administration’s proposed cutoff of $47,476.
The thresholds were formulated based in part on the minimum hourly wage increase signed by Governor Cuomo in April. Starting next year, the base pay for employees in New York City will range from $10.50 to $11 an hour.
Neither the state DOL or governor’s press office responded to inquiries on the proposed timeline or the concerns from nonprofits. In the meanwhile, organizations are planning for the implications.
The rule will be applied based on size and geographic tiers, with large organizations in New York City operating under the highest threshold. For companies in the city with more than 10 employees, the weekly rate to be exempt from overtime pay, which is now $675 per week, will increase to $825 on Dec. 31, $975 at the end of next year, and $1,125 by the end of 2018. Smaller employers will phase in their increase in smaller increments to meet that number at the end of 2019; suburban counties will align with the new rate by 2021. By Dec. 21, 2020, employees across the rest of the state earning less than $937.50 per week will qualify.
A public comment phase ended on Dec. 3. In her letter, Sesso noted that providers have already lost almost $1 billion in funding since the financial crisis and that nearly one-third of the state’s nonprofits ended the 2014 fiscal year with an operating deficit. “The sector is struggling, and one more unfunded mandate would send many organizations over the fiscal cliff,” she continued.
She asked the DOL to consider the effect on nonprofits, wait until the federal litigation is resolved and, if approved, work with the state legislature to secure funding increases to help support implementation of the rule. Two dozen organizations signed on to the HSC letter, including Heights and Hills, MercyFirst, Housing and Services, Inc., HANAC and COFCCA.
Nonprofits have regulatory and compliance burdens similar to government agencies, but unlike those agencies, nonprofits and private sector businesses are usually responsible for covering the mandates out of their own budgets. “We get all of the burden and none of the benefit,” said Tracie Robinson, a senior policy analyst at HSC.
She said the group supported its members paying their workers more money but also wanted to see more funds in government contracts to support the additional payroll costs, particularly since it can be hard to get donors to pay for overhead. The group hasn’t yet determined how much more in government funding would be needed to make up for the new threshold.
Robinson also said she happened to find out about the regulation through a Google alert, noting that the state needed to communicate with the nonprofit sector and offer more transparency when drafting rules.
Rochester-based East House, a 50-year-old organization which has about 200 employees and a $13 million budget, can be understaffed at times. Managers - many of whom are currently exempt from overtime - sometimes handle extra work during additional hours, according to East House’s President and CEO Greg Soehner. “We think people deserve their overtime,” he said. “We’re real sticklers about reporting overtime and I think we would do the same with our management positions that are going to be affected by this.”
Soehner said the inability to pay wages high enough to compete with nearby fast food restaurants – whose workers will reach a $15 base hourly wage by 2019 – puts the organization at a “competitive disadvantage” when recruiting and retaining staff.
He said the cost to his organization would be modest in the first phase of the overtime schedule, but would become “significant” over the next five years without a correlated cost-of-living adjustment in his government contracts. “As we get into a less competitive position on the wages and benefits side, it’s only going to get worse,” he said.
Chief Executive Officer of the New York Council of Nonprofits Doug Sauer said it supported the regulatory change as an equity issue, saying that nonprofit workers earning $35,100 shouldn’t be subject to 50 to 60 hour work weeks. “We are supportive of all funding sources - state government, local government, federal government as well as the philanthropic community - to value and make the increased investments in our workforce that is required,” he said.
Social services organizations have found an unlikely ally in the Business Council of New York, which opposes the rule. In a letter to the DOL, Kenneth J. Pokalsky, the organization’s vice president, brought up the possibility the rule could be litigated, based on the federal challenge, and said the state should compare the state and national standards.
“In this context, we question the justification for adopting a state threshold that will start at a level 60 percent above the national standard upstate, and 80 percent above the national standard in New York City, and quickly rising to levels more than double and nearly two and one half times the national standard, respectively,” he wrote.
Leake & Watts, which employs about 1,300 employees providing residential, special education, foster care and other services,had already prepared to comply with the federal rule. Alan Mucatel, the organization’s executive director, said the raises or transitions to non-exempt status for 10 percent of its employees cost it about $560,000 this year. The agency’s budget is about $100 million.
While supportive of the minimum wage increase, he said both mandates increase costs for organizations that have little flexibility to change their products’ costs. And many are bound by regulations concerning staff-to-patient ratios and caps on worker caseloads.
“If I was making hamburgers, I could take the cost and I could take the increasing expense and raise the price of my hamburgers,” he said. “I also possibly could make other changes in terms of having fewer employees by using technology.”
The mandate could manifest itself in layoffs and unfilled positions across the board, Mucatel said. “What happens is these organizations all continue to cannibalize themselves.”