Getting Ready for the DOL's New Overtime Rule

In case you've been crazy busy putting out fires, it's time to notice that the DOL is expected to release its final overtime rule any day now. The new regulations are bound to create mixed feelings in a subset of your employee group -- those who have long been salaried but are soon going to be responsible for recording their time. 

They'll be able to earn overtime, of course, so who wouldn't be celebrating? It's a win/win situation, isn't it? A recent article released by SHRM should bring us all down to earth. The trade off between money and status is complex for many employees. And then there are the semantics.

To many, the word "salaried" seems much more reputable than the more fickle-sounding "hourly" designation. It's not like we don't have other evidence of how people develop perceptions of labels that are deeply meaningful to them. Think about the cultural unease that gets stirred up when something as minor as a sought-after area code or zip code get changed. For some New Yorkers, changing their 212 area code to 646 was a jolt to their identity that they still haven't completely gotten over more than 15 years later. I got to keep my 415 area code in a recent change in the San Francisco area or I might be singing the blues, too.

Please don't kid yourself. Explaining to your employees that the exempt/non-exempt designation is only for payroll purposes (a suggestion in the article) isn't going to smooth any feelings. We're going to have to handle this with a large dollop of sensitivity -- which calls for discussion, preparation and planning. Plus, if we take a close look, you'll be facing important policy implications, too.

As the SHRM article reminds us, you may currently offer salaried employees incentives, more time off or levels of benefits not available to your non-exempt employees. OK, now what? Are you going to grandfather those affected, undermine the logic of these policies and open HR up to criticism? Or are the newly classified just going to be out of luck suddenly, and drop out of all those perks? Better yet but far more costly, are you going to extend some of these opportunities to hourly employees today, to get ready for the upcoming DOL regs? Recording time for business travel, phone calls outside of work hours and emails from home are more details that you'll need to work out -- not to mention eligibility for company-paid or sponsored telephones, credit cards and so on that are often provided to salaried employees.

All valuable reminders. I'm not sure the SHRM article will help you get started on a strong communication strategy, though, so let me give you my best advice.

To do your best work on this, tell the truth to employees. In detail. Don't let them be surprised. How do you do this without shooting yourself in the foot? Start now by making up an affected employee's pro and con list. Are there items that you can improve before implementation? Get started soon. Are there items that employees will misunderstand because of a predictable knee-jerk reaction? Odds are you know that they have some misunderstandings or misgivings now about some of the affected policies, so start clearing things up ASAP.

Once you have the final pro and con list from the employee's perspective, face it head on. Come up with a balanced, respectful way of explaining the changes that your managers will support, and be ready with a list of the best, most candid FAQs you can develop. And don't forget to mention the changes to the other hourly and salaried employees, too. The views and opinions of those affected will influence the rest of your company.

Everything you do in compensation is communication, so why not do everything better? Prepare yourself for explaining the DOL overtime changes by getting yourself a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ https://gumroad.com/l/everythingiscommunication. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to topics like the CEO Pay Ratio and performance management discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Willis Towers Watson.

Comments

[Donny]

I believe that many employers will simply refer to the reclassified employees as nonexempt salaried not hourly to provide some cover. Who knows how sensitive people will be if they were called hourly? It's not the company' s idea.

[E. James (Jim) Brennan]

Margaret's warnings are quite timely. Major shifts in overtime eligibility will also disconcert supervisors whose current problems with OT control will only get worse under new rules. Used to send my security guard force through the Rexall HQ building after day shift ended to chase out all the nonexempt salaried computer programmers working after hours without authorization. As Donny noted, the change will affect many whose fixed salaries never flexed before per hours spent. Their bosses must now closely control time as well as output quality. Are they ready?

[Karen Kervick]

I'd like to know, how far off are the salaries in question from the new regulations? It seems mostly the retailers and restaurant managers who might be in the greatest jeopardy. I also read the southern states where compensation is lower are also the greatest impacted area - that must be on where the 40th percentile figure is based.

With 10% of bonus/incentives counting towards the threshold, salary could be $4k lower for example - so will that help or not?

I think companies need to look at how many hours people are actually working - this is the real issue. If a manager is putting in 70 hours with no additional compensation for a long period of time, that is not what a salary based on 40 hours/week is meant to cover. If 60-70 hours is the norm, the salary should be based on that. OR a part time role could be created to work the extra hours which provides more income for someone else.

Either way the money would be spent though so companies need to figure out how to best invest their dollars.

We don't have a lot of benefits and perks given only to salaried exempt workers so that is not an issue here. Traditionally that was done in lieu of extra pay so if there is extra pay now, then benefits could perhaps be standardized. That would help dissuade some satisfaction.

From my experience once people start thinking like a nonexempt hourly or salaried person, they like being paid for every hour worked. I wouldn't mind as long as the hourly rate was commensurate with my current salary level at 2080 hours.

I think it's the loss of other benefits and the flexibility to work as needed that has more of an impact so I would look to reduce those differences.

[Karen Kervick]

From the state by state breakdown posted on the White House website:
"Tomorrow, the Department of Labor will finalize a rule that will extend overtime protections to 4.2 million workers within the first year of its implementation. It does so by raising the salary threshold under which most white college salaried workers are eligible to receive overtime pay
from $455 a week ($23,660 a year) to $913 a week ($47,476 a year). The rule goes into effect on December 1, 2016. This table below provides breakdowns of the 4.2 million workers who will be affected by state and demographic group."

Anyone else see the typo and wonder what's up?

[Margaret O'Hanlon]

Hi everyone and thanks for the comments. The final regs were announced today, May 18 and compliance is due December 1. Here is SHRM's summary: http://bit.ly/1OIxqjf and here is the NYTimes take on the change http://nyti.ms/22g6ObE.

A couple of things to keep in mind:

-The new overtime cutoff is $47,476
-The cutoff will be increased every three years
-Keep the complexity of this change clear. As Karen pointed out above, you could imagine that affected employees would now be glad to earn more money via overtime. But their expectations are going to be dashed if, as Jim pointed out, their department enforces no-overtime rules.
-Other mixed messages may come when you expect the same productivity from them by working fewer hours than they have in the past.
-Be sure to talk with those affected before and after the rule change. They will have high expectations for income improvement that need to be kept realistic.

[Donny]

I really don't see it as a big deal for employees. Will they be working more hours for less pay? Not sure they will. Too much handwringing.

[E. James (Jim) Brennan]

Margaret's update comments are right on target. Employees should NOT be working more hours for less pay but the contrary -- the new rule guarantees more workers time and a half overtime when worked. That's a big WHEN, because control over their hours was never before a critical issue for those newly eligible ees or their bosses until now.

Change brings anxiety at all levels. Justified, because many companies will fumble, blunder and be fined.

Productivity should fall while outsourcing will increase and automation should expand, as labor costs are artificially inflated by government edict. When human work hours become more expensive than the market demands, other operational cost efficiencies will be pursued.

(I went to some black colleges rather than white ones, myself.) ;-)