How new overtime laws will affect employers
The new overtime laws that go in place on December 1, 2016 will impact 4.2 million workers who will either gain new overtime protections or get a raise to the new salary threshold.
This is cause for concern for both employees trying to understand the new overtime laws as well as employers who are doing everything they can to understand how these changes affect their business, hiring plans, and compensation packages.
It could result in big changes for those who aren’t prepared, says Stephania Bruha, Operations Manager at Kavaliro, a national staffing agency that employs IT professionals, management, and administrative staff.
“We expect to see many more of our clients limiting employees to 40 hours per week, or requiring executive approval to work overtime hours,” says Bruha. “Recent graduates and new employees may have an advantage here, as they are starting fresh and don’t have to overcome habits from the past.”
Bruha recommends employers get in front of this change. “We will be reassessing our employees more than a month before the new overtime laws go into effect to ensure that if status changes take place, they are well adjusted prior to the go-live date,” says Bruha.
Communication will be key, as in all HR and hiring matters, to ensure your employees understand how they could be affected.
“The worst thing that could happen is for your employees to misinterpret policies and think you are saying they are not allowed to report more than 40 hours a week,” says Bruha. “This is especially important for people who are new to the workforce, like new college grads, who may not know their rights, or have a little experience with labor laws. Employees need to know that you must report all hours worked, but they also need to understand if their company has set requirements for time entry. Your employer may have severe penalties for violating the policy related to timekeeping because it is so strictly regulated by the Department of Labor.”
Small and mid-sized employers are going to take a hit
Employers – particularly small and mid-sized employers – are going to take a hit with the new regulations, says Kate Bischoff, a human resources professional and employment/labor law attorney with the Minneapolis office of Zelle LLP, an international litigation and dispute resolution law firm. Bischoff is co-leading a June 2, 2016, webinar titled Preparing for Changes to FLSA Overtime Regulations, discussing this topic and more. They will need to raise salaries over the $913 per week threshold or pay overtime.
“This may mean employers hire more people so the need for overtime is less or they raise the costs of their products and services to cover the additional labor costs,” says Bischoff.
New grads or interns looking for work typically don’t wonder whether their first post-grad job will be paid on an exempt (salaried) or a non-exempt (hourly) basis, points out Arlene Vernon, an HR consultant who works with small business owners and corporate clients providing HR strategy and management training. And it’s probably not a consideration regarding whether or not they take a particular job opportunity. However, since a new grad may find himself choosing between two job opportunities, employers need to realize that competitors may change how they present salary and compensation packages based on the new overtime laws, which in turn could affect the decision an employee makes when deciding between two companies job offers.
Exempt versus non-exempt employment offers
Let’s say Company A offers the grad $48,000 per year as an exempt position, and Company B offers the grad $46,000 as a non-exempt position. There is the potential that the resulting annual pay under Company B could be higher than Company A if the employee works overtime. If the person is choosing a job based solely on compensation, this would be a consideration. However, the real decision is whether the job is right for the person, not whether the employee is eligible for overtime.
“From an employer perspective, all companies, including those hiring new grads, need to re-evaluate all their positions paying less than $47,476 to determine how to handle any job reclassifications to non-exempt status,” says Vernon. “This could impact all or some incumbents in jobs paying around this new limit.”
In making someone hourly, companies are not required to merely take employees’ salaries and divide them by 2080 to get an equivalent hourly rate. Many companies will assess what overtime the person might be working and recalculate the hourly rate so that when the employee works overtime the employee’s final pay equals the full salaried amount, says Vernon, admitting that this can get confusing. But in this scenario, the employee may be making less per hour, but the same or even more on an annual basis when you factor in overtime, depending on the employer’s approach.
Some companies will be giving certain employees raises to bring them to $47,476 and keep them as salaried. “This may ultimately cost the employer less money than paying overtime at the lower wage,” says Vernon.
Employers must educate employees
Employers should educate employees who are moving from exempt to non-exempt on what work can and cannot be performed outside of regular work hours, adds Vernon. Exempt employees are accustomed to answering texts and emails at night and during weekends. They may work whatever hours are needed to get the job done. As a non-exempt employee, they must track and get paid for any non-scheduled hours worked which will increase their pay, but may be against company policy. Typically hourly employees don’t get to randomly create their own work schedules, while salaried employees do.
“This practice needs to be unlearned by managers and employees,” says Vernon.
For example, are managers who email the now-hourly employees at night and over the weekend now authorizing the employee to respond to the email and inadvertently approving overtime? Or do managers need to learn to save employee communication for the work week to control payroll costs?
These are among the many changes, challenges and questions employers are sorting out.
“December 1 will be here before we know it,” says Vernon. “This change will have considerable impact on all employers no matter their size and whether or not they hire one or more grads below, at or above the new FLSA range.”