When Overreactions Rule Over Overtime Rules

Tuesday May 24, 2016 comments

By now, you’ve probably heard that the long-debated Department of Labor Overtime Rules have finally been released. There is all the normal hoopla from those who think this will put more money in working families’ pockets to those who think it will have the unintended consequence of decreased pay; from those who think it was a fair process, to those who think it was a travesty; from those who see benefits, to those who see detriments. Such is life in our democracy. Gotta love it!

All of us have probably seen numerous articles sounding the alarm about onerous things employers need to do right now with this imminent change looming over us. As a business leader, you know that overreactions can be worse than no reaction; that unintended consequences to decisions can be worse than the problem that created the need for the decisions. My advice?

Do very little… at least right now. You’ve got time to think and make the best decisions. Don’t make a knee-jerk reaction. Here’s why:

  1. It doesn’t take effect until December 1. That’s a huge amount of time for the government to give employers, and a huge amount of time for a business to implement a change.
  2. There are some big things coming. Think about what will happen between now and then, particularly on Tuesday, November 8, 2016.
  3. Legislation to block it has already been introduced. The Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773) would nullify the rule and require the Department of Labor to conduct comprehensive economic analysis on the impact of changes on small businesses, nonprofit organizations and public employers.
  4. Lawsuits have already been threatened and will be filed. Since the salary threshold of almost $47,500 will have a different impact in New York, NY than it will in Biloxi MS, expect to see challenges from less affluent areas of the country.
  5. It’s not as bad as it seems. It’s bad, yes. The threshold is about double what it’s been for the last 12 years. But the Duties Test that defines the types of jobs that can be exempt, didn’t change. That would have been huge and might have warranted some of the reaction happening now.
  6. You might make a mistake. The salary threshold can be met with a combination of base salary and non-discretionary bonuses, incentive pay, or commissions. 10% of the threshold can be these forms of variable pay, as long as it’s paid out quarterly. So that means someone with a base salary of at least $42,728.40 can still qualify as exempt as long as the person is receiving at least $4,747.60 per year in non-discretionary variable pay, with payments at least quarterly. The payments do not have to be equal. By the last payment of the year, you have to have paid at least $4,747.60. You don’t hear much about that yet, but if you hurried up and made changes without that information, you could be making more painful decisions than warranted.

All of the above doesn’t mean that this change is not a hassle, nor that I agree with it. I just believe business leaders can find ways to work through it just as we do with other changing conditions, whether those are brought by technology, increased competition, opportunities, the employment market, increased materials costs, etc. We hate it when change comes from the government that we wish would provide stability. But it is just change. And as the saying goes – constant change is here to stay.

This is what you should start doing:

  • Determine who is impacted. See who is below the cap of $47,476 per year… or who is below $42,728.40 receiving at least $4,747.60 per year in non-discretionary variable pay.
  • If you’re not already doing so, decide if implementing some form of variable pay with the lower threshold makes sense for your organization.
  • Decide whether it works better to increase pay above the thresholds, or pay overtime for those who fall below them.
  • If you increase pay, decide what you will do with any salary compression created. If you bump up people below the threshold up to the threshold, think through what will you do with those at or slightly above it – especially if the latter are the supervisors of the former.
  • If you move people to non-exempt status, decide how you are going to explain it. Those who think of themselves as professionals may take the change as a demotion.
  • Decide if it would be more cost effective to hire more people to get the work done with everyone at or under 40 hours per week, or to pay overtime to less people.
  • Decide if you want to reduce pay to offset expected overtime pay. Decide if the double whammy hit to morale for those impacted is worth it. (Hint… it’s not; there have to be better ways).
  • Decide what systems you will use to track time, and how you will educate people to use them.
  • Decide how you will learn and train managers on all the nuances of paid time as defined by federal and state governments, such as uninterrupted and duty-free meal breaks, for jobs that those nuances will be harder to live within.

For some ideas on ways to de-hassle the new regs, click here.

Almost all of the above are decisions – mostly philosophical ones - and you’ve got quite a bit of time to make them. You’re used to making bigger changes with less time. Don’t overreact. Think through these, implement whatever you may need to by December 1, and move on. You’ve got a business to run.


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