A Labor Department regulation that will go into effect later this year could increase employment costs for some financial advice firms, possibly forcing them to limit excess employee hours or curtail hiring plans.
Under the DOL regulation, any employee who makes less than $47,476 annually, or $913 weekly, will earn overtime compensation. The salary and overall compensation levels triggering overtime pay would automatically be updated every three years to reflect wage growth.
An increase from the current $455 per week ceiling, the rule is the first update to overtime standards since 2004 and will extend eligibility to an additional 4.2 million workers overall, according to the Obama administration. The final rule was released in May and will go into effect Dec. 1.
The new pay levels could affect advisory firms and branch offices with support staff, according to the Financial Services Institute.
“It would be a significant additional expense,” said David Bellaire, FSI executive vice president and general counsel. “The unplanned nature of it makes it all the more challenging.”
Mr. Bellaire said some members of FSI, which represents independent broker-dealers and financial advisers, may have to limit employee hours or curtail hiring plans, depending on where they are located and the prevailing salaries in the area.
The DOL argues that the overtime standards had to be changed to make them fairer for professionals.
“Too many salaried, white collar workers today are overworked, and their employers have no incentive to limit hours because they aren't required to provide additional pay when employees work more hours,” a summary of the rule states. Employers “can either increase their employees' salaries to at least the new salary threshold, pay workers the overtime premium for extra hours or limit their work to 40 hours in a week.”
President Barack Obama directed DOL to overhaul overtime rules in 2014. The proposed rule was introduced in July 2015 and drew 270,000 comments, according to the agency.
Mr. Bellaire said the rule was only tweaked between the proposed and final versions.
“They were not the more significant changes we were hoping for,” he said.
The FSI argues that the rule should be phased in over a number of years and that salary limits should be determined by region.
“We don't think a threshold that applies to New York City and to Dubuque, Iowa, makes a lot of sense,” Mr. Bellaire said.
Unlike the DOL fiduciary rule, which raises investment advice standards for retirement accounts, the overtime rule has not yet generated lawsuits to stop it.
Sen. Tim Scott, R-S.C., and Rep. Tim Walberg, R-Mich., have introduced identical bills that would halt the rule. Each of them only has Republican co-sponsors.