The U.S. Department of Labor just delivered a juicy gift to compensation consultants: its final rule on overtime pay.
At the heart of the new rule lies the definition of who is exempt, and who is not. The rule says anyone paid more than $47,476 will now be considered exempt; those who fall below that number and work 40 hours a week must be paid time and a half overtime for all hours beyond 40 a week.
This instantly reclassifies millions of U.S. workers, notes the Society for Human Resource Management (SHRM) in an article on the new rule, presenting human resources managers with a whole new set of unwanted challenges.
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The rule says that management can create bonus and incentive systems designed to boost borderline workers above the overtime threshold. But, warns SHRM, those bonuses have to fall at least quarterly, and they have to fall, period. If employees are on a performance-based incentive/bonus system, they could fail to earn the bonus — thus making them eligible for overtime. Even missing one quarterly bonus can trigger overtime, SHRM said.
There's a big caveat to this one: Employers can only include up to 10 percent of the threshold ($4,747.60) in the incentive/bonus factor. So employers with lots of folks who earn $40,000 or less are simply stuck paying overtime.
SHRM said some employers are considering an internal reclassification of non-exempts as "salaried non-exempts." But that won't exempt them from overtime if they work more than 40 hours. Thus, this is not a SHRM-approved strategy.
Another available tactic is pay compression, in which a company raises the salaries of those on the fence to just above the threshold. Problem with this, SHRM points out, is that companies that maintain a salary structure would then be faced with the choice of either boosting everyone by the same percentage, or only boosting those on the fence — again, not an ideal strategy.
Given that many employees today, particularly at small businesses, have become accustomed to the 45 to 50 hour work week, many businesses will be facing major shifts in the way the work gets done. One possible solution: Get people to work harder and faster, so they remain affordable.
"We have people who are accustomed to getting their job done working 45 or 50 hours a week. We're going to ask that they become more efficient. There's going to be more time management, which hasn't been part of our culture," Sally Roberts, Morris Communications' human resources director, told SHRM.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
