Wage inequality and workers’ rights are themes you will hear often on the Presidential campaign trail this year. Even President Obama has made regulatory enforcement of labor policy a focus of his final term. The most vivid example is a new regulation about compensation that soon will go into force, without any public debate, Congressional hearings or formal legislation.
This binding rule will force a difficult conversation between employers and employees as to what compensation is designed to reward: merit and performance or schedules of service? And while it will impact a broad spectrum of organizations across the country, it will have particularly destructive effects on advertising agencies — how they manage and grow their businesses.
The new rule, "Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees," concerns the salary level at which U.S. companies must compensate full-time employees for overtime work. The rule will increase the current salary level from $23,660 per year to $50,440 per year — a 113% increase. Employees earning up to $50,440 on a full-time basis will become newly eligible for overtime pay. Given the composition of the typical agency workforce, the operational and payroll impacts to ad agencies will be significant.
But that’s not even the worst of it: once the rule goes into effect, companies will need to respond at breakneck speed to comply. It is likely that a grace period of only 60 to 90 days will be granted before Labor enforces the new rule. Additionally, the rule will auto-adjust annually to even higher pay thresholds.
We support entry-level raises, ones that ensure the health of the agency community. This rule — that looks simple on the surface as giving people more pay — would put agencies out of business, which would actually mean fewer jobs available.
Organizations as varied as small businesses, university research labs, state agencies, charities, and social service entities have expressed their concerns directly to the Labor Department. Labor received 270,000 written responses as part of their "public comment" period.
Even the Small Business Administration (SBA) — itself a federal agency under the Obama administration — has openly questioned the estimates and assumptions made by Labor in drafting the rule. SBA has requested more analysis before the rule is enforced.
As the leading association representing the U.S. advertising agency community, the 4A’s recognizes that agency workers put in extraordinary time and efforts in creating, producing, and placing advertising for great client brands. This is not about disenfranchising these workers or the devaluing of their work.
This is about creating a new working compact that doesn’t at the same time destroy the underlying business.
While pay increases may introduce degrees of difficulty for large, established agencies on the U.S. coasts, they represent a tectonic shift in the Southern and Midwestern markets where pay scales are vastly different. For the large number of small and mid-sized agencies based in these markets, a 113 percent increase in overtime pay can equate to wholesale contractions in hiring and managing personnel. It will compel a "punch-clock" mentality by forcing full-time workers previously accustomed to flexible working schedules to suddenly conform to arbitrary, time-based schedules. It will mean little latitude for childcare, family emergencies and other personal needs in the workplace. Is that a trade-off employees truly understand and willingly accept?
With these concerns in mind, the 4A’s has proposed amending the Labor rule as originally drafted. We feel these changes would achieve the goal of pay equity in a manner that organizations can capably support and reliably deliver. As examples:
- Establishing a more reasonable salary threshold of $35,490 per year;
- Allowing pro-rata adjustment for part-time workers as well as the inclusion of commissions and bonus pay in a "total compensation" calculation; and
- Phasing in the new regulation over the course of several years rather than a single year or a matter of months.
The 4A’s is part of a coalition called the Partnership to Protect Workplace Opportunity. PPWO has cited a 2015 poll finding that 65% of adults prefer increasing the salary limit to no more than $35,490.00 per year, which represents a 50% increase to the current limit of $23,660.00.
These are reasonable recommendations that can effectuate change in a more constructive way. At the same time, we are taking our message straight to Capitol Hill, to members of Congress with significant influence on labor matters. These include members of the House Appropriations Committee, the House Education and Workforce Committee, the Senate Committee for Health Education Labor and Pensions, and various sub-committees. A draft bill, "The Protecting Workplace Advancement and Opportunity Act," has been introduced by the House and Senate. Once passed, this Act would require the Labor Department to do a full impact analysis on small businesses, nonprofits, local governments and academic institutions before rolling out the new rule.
Members of the advertising community are urged to do their part. PPWO has opened a website for visitors to speak directly to their member of Congress. Now is the time to take action and protect the advertising workplace.
Peter Kosmala is the 4A’s senior vice president of government relations.