After reading through the official Department of Labor’s brief on the new overtime rules and the non-profit sector yesterday, I made the mistake of tweeting my first thought. I don’t call it a mistake because I said something I regret or because some people had a knee jerk response but rather because 140 characters is not nearly enough to truly examine all the implications this new rule brings. It isn’t a matter of “just pay them more” or “just let them go home after 40 hours.” It is, like most things in life, much more complex than that, much more complex than a couple of tweets can handle.
Let’s start with a broad view of the current “normal” for work. I haven’t worked a 40-hour week since I was paid hourly a couple decades ago. I don’t know anyone who works a 40-hour week most weeks, much less all weeks. This isn’t just in nonprofit theatre, this is in most industries today. I’m not sure that a 40-hour week has ever been the norm in nonprofit theatre. Think about it, working from 9:00am to 6:30pm Monday-Friday (or 10a-6p Tuesday-Sunday) would put you at 47.5 (or 48) hours. At the ASC we try to compensate for this by having a very flexible paid time off policy with no set limit on the number of days a full-time employee can take off in any given year. We know we all work harder during portions of the year so we try to make sure to balance it by taking the time we need in our slightly less crazy times of year. The new overtime rule does not take any of this into account. It simply demands that we completely change our business model by December 1, 2016.
That’s my next issue: the time frame for compliance. For most rules issued by the Federal government we see a “ramping up” period of at least a couple of years. Not so for these new rules. They double the salary at which overtime exemptions come into play and says that they go into effect six and half months from the date of the announcement. The move from the previous threshold of $455/week ($23,660/year) to $913/week ($47,476/year) is tremendous and not easy to make up.
If we continued to operate as we do now, assuming that our (as of Dec 1) non-exempt employees currently average 48 hours/week, paying for eight hours of overtime per week would add over $20,000 to our MONTHLY payroll. Almost $250,000 per year. To put this in perspective, that is equal to 8% of our total budget. We have worked extremely hard over the past six years to get into the black and stay there, to pay off a sizeable amount of debt, and to start investing again in our people and our programs. Our success in these areas is due to very careful budgeting. We currently project being able to grow our expense budget by 2.6% next fiscal year if we want to stay in the black. This is not something we can turn on a dime.
The next answer I hear is “make your employees stop working after 40 hours.” Again, this is not something that can be reversed in a blink. We all have more work than we have time to do it in already. That is one of the reasons we are currently examining the costs and benefits of all our programming. Can we get the programs down to a level that can be sustained on 40 hours a week and still make the revenue to pay for those people and programs? I currently have no idea. Again, I’m not saying that it is not a worthy goal or that every single employee doesn’t deserve every single penny that this new rule requires. I’m saying that a fundamental business model change, an industry-wide cultural shift, takes longer than 6.5 months to figure out how to fund.
I’m even more concerned with smaller organizations. Sure, this rule doesn’t apply to companies with under $500,000 in business revenue (not including contributions), but what about those with $525,000 in revenue? Many of which have executive leaders that are suddenly non-exempt. How can they continue to function? Some of these are organizations that are scraping by with 2-4 employees doing all the work. This could very well put them out of business.
We need to improve wages and honor the time put in by everyone. However, this rule is too big an increase and too quick a turnaround. I’m very concerned we are about to see the next wave of nonprofit theatre closures (to say nothing about other small businesses). Is job loss better than incremental wage improvement? I think not.