How Will the Overtime Ruling Affect Your Employees’ Status and Morale?

Because of the new overtime rules that are scheduled to go into effect December 1, 2016, most businesses in the United States that fall under the Fair Labor Standards Act (FLSA) will have to re-evaluate how their employees are paid.

The law is complex (you can read it here) but the bottom line is that as an employer who falls under the FLSA rules, more of your employees may be eligible for overtime pay. The new rule states that salary (or exempt) employees who earn less than $47,476 per year will be able to receive overtime pay if they work over 40 hours a week, as of December 1, 2016. The previous threshold for overtime eligibility was $23,660 per year.

According to the Department of Labor, this new rule will increase the number of employees eligible for overtime pay by more than 4 million. Other organizations have come up with higher numbers, some predicting that the number of employees affected could be closer to 12 million. There are exemptions in some cases, but the rule will affect most salaried workers who earn less than $47,476 per year.

As an employer, you’ll have to study this rule and decide how your business will handle the repercussions in your organization. You basically have two choices:

  1. Reclassify salaried workers to hourly and limit the ability for overtime pay, but make the hourly rate equal to the previous salary they were paid.
  2. Raise the salary for exempt employees to just above the new requirement of $47,476.

Under the first option, if you keep salaries the same, you will need to revamp your record-keeping to require all employees to punch in and out, thereby making it easier to manage the employee’s time and avoid paying overtime at all. This in itself is enough to make salaried employees fearful of reclassification.

The ruling was thought to have the effect of raising the pay for millions of workers, but in reality, employers will need to evaluate each employee and the hours each employee works to come up with a solution that works best for them, their employees and the business. Reclassification may be the best route for your business, but it has negative implications for salaried workers who may be reclassified.

The business community is of course in a quandary about what actions to take between now and when the ruling takes effect—opinions are all over the internet and business publications. What you don’t see a lot of discussion about is how the ruling will affect employees and their feelings about their job or career if they are reclassified from salaried to hourly workers.

As noted above, one of the options businesses have is to reclassify the salaried or exempt employees making less than the new threshold to hourly workers. This may seem like a negative to your employees, however it may actually have benefits that your employees may not realize. It’s a good idea to come up with a plan that you, your CFO, your HR department or other entity in your business who manages payroll and timesheets can agree on. Once you have agreed on a plan, the chosen spokesperson can either meet with each affected employee separately, or with groups of employees who will be reclassified.

The possible benefits to employees who might be reclassified:

  1. They may make the same amount of money they made before but they will only work the maximum of 40 hours
  2. They will not be required to take business calls in the evenings or on weekends
  3. They may have more sick time or other benefits than when they were salaried

The downsides include:

  1. They will lose the flexibility of being a salaried worker. Taking time off for a doctor appointment or to attend a child’s event will be regulated and monitored
  2. They will need to punch a time clock or use time-tracking software so that your business can be aware as they reach the 40-hour threshold

The change from salary to hourly will affect employees in many ways, and some employees may feel that reclassification is a demotion in disguise. It is the responsibility of businesses to help employees see the reclassification as a positive, and to make the transition as seamless and pain-free as possible –  and the process needs to start as soon as possible.

Evaluate every salaried employee who makes less than the threshold amount and determine how your business will handle the new ruling. If you will reclassify many employees, now is the time to plan how employees will be notified and how your HR or payroll staff will explain the new procedures for time keeping. Current employees who fall under the new ruling will be nervous about their jobs and about what the ruling means to them.

Think about the ruling from an employee’s standpoint and keep their feelings at the top of your priority list. Remind them of the many benefits that a reclassification could bring, and explain that it’s a federal ruling that all businesses must comply with, not a reflection on them or their performance.

Jason Leverant is president and COO of AtWork Group, a national staffing franchisor with more than 93 franchise and company-owned locations.

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