By: Erron Stark, Division Vice President, Channel Strategy at ADP
Beginning Jan. 1, 2020, an estimated 1.3 million workers will be newly eligible for overtime pay under the Department of Labor’s Fair Labor Standards Act (FLSA).
The rule raises the minimum salary threshold exemption of overtime pay from $445 to $684 per week, or $35,568 per year. Any employees who earn less than that must be paid overtime if they work more than 40 hours in a week.
As a result, employers now must evaluate who falls in the gap between the old and the new threshold. They will also need to determine whether it makes more sense to reclassify those employees from exempt to non-exempt and pay them for any overtime worked, or to increase those employees’ salaries. Of both options, the former must be done on a case-by-case basis. For example, employers will need to ask themselves: Does this employee typically work overtime? Does he or she work after hours or remotely? How is that enabled, and should this continue? How is that time tracked?
This is the first update to overtime regulations in more than 15 years. And with the deadline mere weeks away, employers must accelerate their preparations to ensure compliance. Whichever route they choose, they will find that their organizations are impacted in two different ways – financial and cultural – and that it is their responsibility to set the pace and positive tone for how the new ruling will be perceived across their workforce. If employers express their excitement for the change, the hope is that the same sentiment will transfer to employees.
Making Cents of The New Overtime Ruling
Whether employers opt for reclassification or increased salaries, there will be financial implications either way. If employers take the latter route (i.e., increased salaries), they will see immediate impact to their bottom line, to the tune of an increase in almost $12,000 per employee. Alternatively, reclassifying employees as non-exempt will require an evaluation of the hours worked, and an assessment of whether there is any regular overtime that will need to be paid at an overtime premium (1.5 times the regular rate) once the role is reclassified.
Avoiding Employee ‘Culture Shock’
Additionally, in the wake of the new law, workplace culture will likely be affected. This “human aspect” must not be overlooked or downplayed. For instance, a salary increase can inflate an employee’s engagement and job satisfaction. On the other hand, however, reclassifying employees from exempt to non-exempt could be perceived as a negative. Some may view such reclassification as a demotion and will consequently struggle to understand how the change fits into their long-term career development and growth. It’s up to employers to perpetuate a perception shift and positive positioning. The new rule should be touted as an opportunity to be paid for every minute of hard work employees are doing. It also lends itself to heightened flexibility in terms of working hours, and may even open doors to earn overtime hours paid out at a premium. To further minimize discomfort and friction, employers must communicate clearly and frequently throughout the change, and highlight the fact that all employees, non-exempt or otherwise, are invaluable. How employers communicate this message will be important to maintain morale and engagement.
Communication Style is Critical
Employers must be thoughtful and meticulous in how they message these new changes to the organization at-large. Doing so – especially considering such a sensitive topic as pay – is critical. Some best practices include:
- Communicate to the affected employees early, and often. Don’t forget to check state laws, as some dictate specific timeframes for providing such notice.
- Be transparent. Explain why the changes are being made and make resources available – like FAQs and access to HR managers – to ease the transition.
- Avoid legalese. Be as simple and straightforward across all messaging.
At the end of the day, the new overtime ruling is an inherently good thing, as it seeks to enhance employee protections when it comes to their hard-earned paychecks. Employers, simultaneously, must recognize that – with any change – comes growing pains. And therein lies the opportunity for them to step up and double-down on taking care of their workers, limiting any adverse impact financially and culturally.
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