Companies Contemplate Compliance With Overtime Rule

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By Laime Vaitkus
June 6 — Companies have a lot of preparation to do ahead of the Dec. 1 effective date of the Labor Department's overtime regulation, such as identifying affected positions, communicating with employees and re-evaluating pay levels and increases, according to a panel discussion at the WorldatWork conference in San Diego.

The DOL rule will make as many as 4.2 million more workers eligible for time and one-half their normal pay when they work more than 40 hours in a workweek. Currently, workers earning more than $23,660 per year don't qualify for the overtime premium if they perform specified executive or professional duties.

Under the new rule, starting Dec. 1 workers being paid less than $47,476 per year will be eligible for overtime pay regardless of their duties. This salary threshold will be updated every three years (95 DLR AA-1, 5/17/16) (34 HRR 539, 5/23/16) (14 WLR 21, 5/20/16) (62 CLR 311, 5/19/16) (30 LRW 911, 5/18/16).

This will "be a mess for management," Steven Greene, managing member of Matthews & Greene, said during the panel discussion. "The rules are going to have a disproportional impact on some industries and some regions" where more employees tend to be below the $47,476 threshold, Greene said.

Organizations might need to do salary planning earlier than usual, according to Keith Briscoe, compensation leader at Dell. His company intends to examine which employee populations may require pay raises of 1 percent to 4 percent to push them above the new nonexempt threshold, Briscoe said.

While these raises may place the job above the overtime threshold, it can create problems for companies that emphasize pay for performance, according to Briscoe. An employee who was ranked poorly for performance may receive a raise larger than a top performer as organizations attempt to adjust pay levels above the overtime threshold, which can create morale issues, he said.

Communication Is Crucial

Communication will be key, particularly with employees who are reclassified as nonexempt, according to Susan Brown, HR executive from Siemens. "Our biggest concern is about the reaction of the employees who will be shifted; they perceive it as a lessening of their employment stature. They take nonexempt as an insult," Brown said.

Organizations will have to decide whether to increase salary levels for certain job groups to push salaries above the nonexempt threshold or to alter job responsibilities to bring the role more in line with expectations for nonexempt positions, according to Brown.

Few companies will want to split a job role into nonexempt and exempt groups, according to Greene. Legally, it is possible to do so, but from a management perspective, companies risk morale issues and creating more administrative work, Greene said.

Companies also may consider sending some job roles offshore, where they are not subject to overtime laws, according to Briscoe. IT help desks and call centers are relatively easy to send offshore, he said.

In the end, the preparations that are already underway at many organizations may be pointless, because much can change before Dec. 1, according to Cara Woodson Welch, vice president, external affairs and practice leadership at WorldatWork, who moderated the panel. "Its implementation was a political move. A lot can change between now and Dec. 1," she said.

Senate Republicans will introduce a disapproval resolution to block the overtime rule, Sen. Lamar Alexander (R-Tenn.) told reporters in Washington June 7. Also on June 7, the Senate appropriations subcommittee approved a Labor Department spending bill without an expected rider to block the overtime rule. The measure, which the Labor, Health and Human Services, Education, and Related Agencies Subcommittee approved by voice vote, would fund the DOL through fiscal year 2017.


To contact the reporter on this story: Laime Vaitkus in Washington at lvaitkus@bna.com

To contact the editor responsible for this story: Tony Harris in Washington at tharris@bna.com