Updated regulation could mean either more pay or fewer hours for millions of workers
For salaried professionals who will soon find themselves nonexempt under the U.S. Department of Labor’s revised overtime rule, will the news that they’ll now be paid overtime—or work fewer hours—be welcome?
“Some will see it as a demotion, while others will see it as a windfall,” said Nathan Oleson, partner with Akin Gump in Washington, D.C.
The rule increases the salary threshold for employees who are exempt—and therefore not eligible for overtime—from $23,660 to $47,476. Employers can increase an exempt worker’s salary so the worker remains exempt, or reclassify him or her as nonexempt. Many are likely to do the latter.
“For the years since the overtime laws were changed [in 2004], companies have profited from massive productivity gains, with the increased value coming at workers’ expense,” said Paula Brantner, executive director of Workplace Fairness, a workers’ rights group in Silver Spring, Md. “The most vulnerable workers making the least money—and who are accordingly the least able to advocate for themselves—have been exploited to work longer and harder. [The revised] overtime laws will change the workplace dynamic, as exempt employees who gain additional work that they could have previously delegated to subordinates will either have to do it themselves [so as not to cause the subordinates to work overtime] or will have to advocate for more staffing.”
Reclassified workers will—perhaps for the first time in their careers—have to track their start times, end times, break times and meal times. They’ll have to limit their working hours if employers can’t afford to pay them overtime. And that could have negative repercussions for the newly nonexempt, those who remain exempt and managers who must continue to show that their teams are producing even if they’re working under very different circumstances.
A Welcome Change for Some
Edward F. Harold, a partner practicing employment litigation with Fisher & Phillips in New Orleans, said that exempt workers who feel that they work too hard and are being taken advantage of may welcome the change to nonexempt status.
“I would say the difference is often in how many hours a week an exempt employee typically works,” he said. “Exempt employees with lower requirements, from 35 to 45 hours, will not be happy. Exempt employees who work 50 to 60 hours a week probably will.”
Said Rusty Lindquist, vice president of human capital management strategy at Lindon, Utah-based online HR services company BambooHR: “There will be circumstances where this will result in a far more equitable exchange of value, where employees who were overworked and underpaid and who were not receiving adequate mitigating value from the employer will now be brought into market alignment, and this is likely to be healthy.”
Whether workers embrace their change in status will depend in large part on how each employer implements the new rule. Being reclassified may not necessarily translate into extra money for some workers, but it could mean fewer hours working and more time to spend with friends and family.
“Some people are going to say, ‘Great, now I only have to work 40 hours, or if I don’t, I’m going to actually get paid more now,’ ” said John A. Challenger, CEO of Illinois-based Challenger, Gray & Christmas. “But what many companies will do is create very strict guidelines for people who are nonexempt and say, ‘We just can’t have you work more than 40 hours.’ ”
Brantner said the new rules will force employers to become more creative about how work gets done.
“Is it possible for that worker who takes off Friday afternoon to do some work from home on Thursday evening or Saturday morning and still have a 40-hour workweek?” she asked. “Would some salaried exempt employees prefer to adjust their schedule to supervise some of the newly nonexempt workers at a different time of day or night? Instead of focusing on how it won’t work, the employers who focus on how the work gets done—as opposed to having it done the same way it always has been—are the employers who will thrive.”
To keep costs down, employers may adjust a newly nonexempt worker’s hourly rate of pay so that the worker’s weekly compensation—from both regular and overtime hours—adds up to the same amount that he or she was making before being reclassified.
In those cases, then during those weeks when nonexempt workers don’t need to work overtime, they will actually take home less money than they did before losing their exempt status, said Jeffrey W. Brecher, head of the wage and hour practice group with Jackson Lewis in Melville, N.Y., which on Monday hosted a webinar on the implications of the overtime rule.
“Now it’s not so good anymore, is it?” Brecher asked.
Newly nonexempt workers may also lose the flexibility they once had.
“Before, if the worker needed to attend a kid’s graduation, they could work 30 hours one week and make up for it with 50 hours the next,” Brecher said. “But now, the employer may say, ‘Gee, I’d love to help you out, but if you work extra hours that second week, I have to pay you overtime.”
Formerly exempt employees who were accustomed to working as many hours as needed to finish a job may find that they can’t get all their work done in a 40-hour week. The work that’s left undone, then, may fall to those who remain exempt.
“Employers and managers are in an especially precarious situation here,” Lindquist said. “They’ll still be held accountable for maintaining prior work output without a material impact on cost. So it’s likely that work shifts to those who can do it without extra pay. That’s likely to result in animosity, but the victims of that animosity probably won’t be the newly made nonexempt employees, but rather the organization. People tend to criminalize the faceless organization, rather than the person they sit next to.”
Brantner said managers will simply have to start making choices.
“Employers will have to figure out whether it’s better to burn out their exempt staff, pay some current nonexempt workers overtime, or hire new exempt or nonexempt workers,” she said. “The companies that figure out this mix to empower their employees … will thrive. Those that shift unreasonable work burdens to a different set of humans will not.”
Mitchell W. Quick, an attorney with Michael Best & Friedrich LLP in Milwaukee, Wisc., said managers should consider rewarding exempt workers who pick up extra work, perhaps with small raises, productivity bonuses, more time off or recognition.
“If exempt workers are clearly working more hours due to the company not wanting non-exempt workers to work overtime, then the company could offer exempt employees bonuses or other additional compensation on top of their salary,” he said. “As long the company pays the required minimum weekly salary, then paying additional compensation does not cause an exempt employees to lose their exempt status.”
Dana Wilkie is an online editor/manager for SHRM.
As employers prepare their health benefit packages for 2016, they must be up-to-date with current ACA and other developments that impact health plans.
Here are the top 10 compliance-related issues employers should address during their planning, according to Mercer:
1) Employer shared-responsibility (ESR) strategy
Ensure the intended goal of avoiding or paying ESR assessments for 2016 coverage is supported by coverage offers, administrative and recordkeeping processes, and benefit documents.
2) ESR reporting
Arrange data sources, systems and administrative processes to collect all information about enrollees with minimum essential coverage (MEC), full-time employees, and coverage offers needed for reporting on 2016 coverage. Create a process for correcting any erroneous IRS filings and personal statements.
3) Preventative care
Ensure “non-grandfathered” group health plans comply with the final ACA rules and recent guidance on cost-free preventive services.
4 Other ACA reporting and disclosure requirements
Review delivery operations for summaries of benefits and coverage (SBCs) and watch for revised SBC templates. Prepare for round two of online submission and payment of ACA’s reinsurance fee.
5) Mid-year changes to cafeteria plan elections
Decide whether to permit mid-year changes to cafeteria plan elections for either or both of the status-change events in IRS Notice 2014-55.
6) ACA’s out-of-pocket maximum
Verify that self-only and other (e.g., family) coverage tiers in “non-grandfathered” plans meet ACA’s 2016 out-of-pocket (OOP) limits for in-network care. Confirm that family coverage also satisfies ACA’s self-only OOP limit for each enrollee.
7) Same-sex marriages and domestic partnerships
Assess how the U.S. Supreme Court’s Obergefell v. Hodges ruling that legalizes same-sex marriage nationwide affects your benefit programs and employment policies. Also consider the decision’s indirect implications for domestic partner coverage.
8) Mental health parity
Check that plan designs and operations provide parity between medical/surgical and mental health/substance use disorder (MH/SUD) coverage. Federal audits of health plans now evaluate compliance with the final Mental Health Parity and Addiction Equity Act (MHPAEA) rules that took effect in 2015. In addition, state legislative activity and litigation around parity issues continue.
Review employee wellness programs against the proposed Equal Employment Opportunity Commission (EEOC) rules requiring voluntary participation and restricting incentives for completing health risk assessments and/or bio-medical screenings. Be prepared to make changes after EEOC finalizes these rules for nondiscriminatory wellness plans under the Americans with Disabilities Act.
10) Fixed-indemnity and supplemental health insurance
Review fixed-indemnity and supplemental health insurance policies to ensure they qualify as excepted benefits under the ACA and the Health Insurance Portability and Accountability Act (HIPAA).
The preceding article was published on January 11, 2016 on the Employee Benefit Adviser website.