Before the new federal overtime rule goes into effect on Dec. 1, 2016, many U.S. employers will need to evaluate their current pay practices and job classifications to ensure compliance. In doing this, they will need to be mindful of the impact on the morale and mindset of the workforce that the required changes will likely incur.
To summarize the new ruling, it raises the standard salary threshold from $23,660 per year to $47,476 per year. Employees making less than the new threshold ($47,476) must be paid time-and-a-half for any hours worked beyond the 40-hour work week. According to the U.S. Labor Department, more than 4.2 million white-collar workers will be affected by the final rule. Businesses that will be most impacted include retail shops, restaurants, call centers, non-profit organizations, and small businesses.
Once employers have identified the employees affected by the final rule, they will have three options to adjust their compensation practices.
First, they may choose to increase the affected employees’ salaries to above the $47,476 threshold to keep them exempt from overtime provisions. For many, this seems to be the easiest approach. It would save the employer time by eliminating the need to track, record and report hours worked, while improving morale by giving additional compensation and retention of exempt status. On the other hand, it could result in salary compression and the need to readjust the salaries of those employees up the ladder.
A second option for the employer is to reclassify positions that pay less than $47,476 per year from exempt (salaried) to non-exempt (hourly). Those employees are then eligible for overtime when they work more than 40 hours in a week. This option could be costly to employers and create liability for the employer if hours worked are not tracked, recorded and reported accurately. Furthermore, it could damage morale for those employees who prefer the flexibility of being a salaried employee. However, this option could boost morale by giving employees additional time-and-a-half compensation.
The third option is to reclassify the positions that pay less than $47,476 per year from exempt to non-exempt and significantly reduce or eliminate overtime hours and then hire extra (part-time) staff as needed. Again, this option could damage morale for those employees who prefer the flexibility of being salaried, lead to loss of productivity and inefficiencies, and create liability for the employer if hours are not tracked, recorded and reported accurately. However, it offers management the opportunity to be creative and resourceful in its staffing patterns and minimizes employer costs. The result is part-time help can be hired and trained to complete reallocated work.
Employers may face additional challenges as a result of the final rule. Recruitment and retention of middle management may be a concern, and some industries may feel an impact on career growth and promotional opportunities for high-performing employees. Additionally, the final rule requires all time and attendance records to be accurate, requiring employers to ensure that non-exempt (hourly) staff are not working “off the clock.” This poses an immediate concern in today’s technological environment, reducing options for telecommuting for these newly reclassified workers and placing restrictions on the time employees spend using smart phones for work purposes. These reclassified employees will need to carefully record all time worked, and the fifteen minutes spent checking work email before bed will have to be recorded for pay purposes.
Organizational leaders will play a key role in transforming the mindset of the workforce in order to rise above these challenges.