Even if the new Fair Labor Standards Act proposed salary test threshold increase is cancelled, 2017 will still remain an exciting year for pay. America will become a living laboratory. Claims about the effects of government mandates to increase the cost of labor will be studied and examined, even as exempts continue to be exploited.
The new FLSA guaranteed weekly salary threshold level was scheduled to more than double to $913 on 12/1/2016, so most workers earning under that amount would get time and a half overtime. That nice pay bump, if supported by the incoming President, will be expensive for employers suddenly facing major increases in their fixed payroll costs.
Before the last-minute temporary injunction, most employers went ahead and made the necessary changes to wages, salaries and payroll practices, anticipating the new rule. The few that held back until the last moment or who continued with the old system now become a control group. This is perfect for truly objective tests.
If the rule change is cancelled, rolling back increases already announced and other changes already implemented may be impossible. Right there, another test group will emerge: those who continue with the suddenly stalled new pay mandate and those who instead re-adjust to return to the old system. Broad issues of morale, motivation, engagement, credibility and economic survival will play out before your eyes.
Old pay equity problems and entitlement status issues will get worse. How will you explain why two people doing the same job side by side are paid so differently, if one gets handsome overtime pay and their co-worker receives nothing. Of course, the best excuse will be that the exempt individual already earns a higher salary, thus fitting above the new short test cutoff point. But if there are not orders of magnitude differences in their weekly take-home pay, those gifted with exemption may see this as simple exploitation by a heartless employer. They might be right, too.
Exemption from overtime might inspire accusations of bias. Denial of extra income is not generally seen as A Good Thing. Exempts may feel victimized, forced to work "without pay" for many hours (and weekends) longer than their better-treated "wage earner" peers whose paycheck gets larger for the same time spent at work.
Many longstanding assumptions about work, wages, salaries and the dignity of labor will be shaken. The traditional myth that exemption implies you are a member of management still persists in many places. Another common belief is that exemption means you are a true professional. Holding non-exempt status is considered somehow shameful for college graduates. Conventional wisdom for as long as I can remember has been that FLSA OT eligibility is a demeaning condition reserved for mindless wage slaves. Maybe these ideas will change ... or maybe not.
Many truly professional workers employed in highly skilled occupations will be "on the clock" for the first time, one way or another. How they behave can be more clearly compared to peer-level workers who are paid differently.
Problems will certainly multiply. Many managers will be stunned to learn that FLSA in general and its new income threshold specifically applies to individual workers rather than job titles or broad occupational classifications. Inequities will appear when incumbents of a peer occupation are split between overtime-eligible and exempt in the same grade or even in the same job title. When faced with a situation where duties are identical but individual pay varies, only workers whose personal income falls below the new regulatory salary threshold will be entitled to overtime; others with higher guaranteed incomes will "continue to be exploited." That will also happen in cases where the threshold bump is cancelled but the employer proceeded as if it went into effect.
Overtime income treatment decisions determined by rigid employer classification choices based on cost control rather than "equity" or "fairness" or "justice" will be challenged. Bias will be claimed whenever some workers are treated better and given more favorable breaks. It will also be both educational and interesting to learn later just exactly how people judge such different treatments.
2017 should be a year of great excitement with much attention focused on compensation people. Sorry about that!
E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR and consulting roles in most industries, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.
Waterdrop image by francescoprocida, courtesy of Creative Commons