What the OT Regs Mean
Analyzing workforce and cost implications of the new overtime regulations is just the start of HR's work in preparing for the upcoming changes.
By Susan R. Meisinger
By now, every HR executive knows that the U.S. Department of Labor has issued new regulations governing when an employee can be considered exempt from the overtime requirements of the Fair Labor Standards Act.
As I shared two years ago when changes to the overtime regulations were first being considered by the DOL, federal-overtime rules changes are rare. That's because it's politically difficult to do, since any change impacts just about every employer and workplace. Changes require lots of analysis on the economic impact of any amendments to the duty tests or increases to the salary tests, and it requires internal debate and review within the federal government. And, of course, it requires an assessment of the political fallout that any change might cause.
Well, let's see. This is the last year of a sitting president's second term -- and it's an election season that's already been full of debate about the disappearing middle class and growing income inequality in our country. The salary threshold of $23,600 per year -- or $455 per week -- has remained untouched since 2004, and no one can seriously claim that the cost of living has similarly remained unchanged.
Sounds like a perfect time, politically, to increase the salary test for the professional and administrative exemption. So why not almost double it from $23,600 to $47,476 a year, or from $455 to $913 a week?
Which is exactly what the DOL did.
Hopefully, there was enough media coverage on the impending changes that HR executives have already prepared for them by analyzing the duties and compensation of their workforce. Before you can really assess what the new regulations mean for your organization, you have to be sure you know what your workforce is actually doing -- and whether everyone was properly classified under the old rules. If you haven't done so by now, you're going to need to get started in order to meet the Dec. 1, 2016 effective date for the new requirements.
But doing an analysis of your current workforce and the cost implications of the new regulations to develop an appropriate strategy (i.e., Do we raise workers' salaries or reduce salaries and pay overtime?) is really just starting points for HR's work in preparing for the changes.
New salary tests provide a catalyst, albeit perhaps unwelcomed, for an in-depth assessment of what and how work actually gets done within your organization. (Do we really need to do that anymore? Should this work be outsourced? Why do we do it this way?) They're a catalyst for analyzing and understanding where and when work gets done as well. (Do employees really need to spend that much time at home checking emails and answering calls on weekends and evenings?) They're a catalyst for analyzing your compensation structure and understanding where the changes might lead to greater wage compression and compensation inequities arise with the changes.
The new rules serve as an opportunity to revisit your current policies governing where and when work gets done, and to assess the tools you have available or will require to track hours of work. How will the policies effect a previously exempt worker who worked odd hours and often from home? Will they still be allowed to do so once they are classified as hourly? What will your policy be regarding recording and/or verifying the hours worked? Will managers who now supervise hourly workers, not exempt workers, be required to adjust their own hours to monitor when the work gets done?
HR leaders also mustn't forget to revisit their internal-communication systems and plans to ensure that their workforce -- including managers -- are aware of the changes made as a result of the new regulations. How will you explain to workers -- who may view becoming exempt as a sort of promotion -- that they're no longer exempt, and that the loss of exemption isn't a loss of status? How will you explain to a manager why a subordinate, who was given an automatic increase to meet the new exemption threshold, now earns almost as much as the manager? How will you inform a formerly exempt employee that they can no longer work 30 hours in the first week and 50 in the second week of a pay period because the employer wants to avoid paying overtime?
And, of course, how will you explain the many implications of the increased salary test to executives in your organization who think this is all more HR mumbo-jumbo?
If there's a silver lining, it's that you may find and resolve issues you never knew existed and you'll get to know your labor counsel much better. You'll take care of policies in need of updating and fill gaps in communication and training. Think of it as a form of spring cleaning, but one that may take all year.
Best of all, your spring cleaning may uncover potential violations of the Fair Labor Standards Act before the DOL does, or better yet, before a plaintiffs' attorney does.
Susan R. Meisinger, former president and CEO of the Society for Human Resource Management, is an author, speaker and consultant on human resource management. She is on the board of directors of the National Academy of Human Resources.