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Many see the need for higher pay, but some employers will feel more pain than others
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HR professionals have mixed reactions to the federal government’s new overtime rule. Some view it as a threat to employee morale and their company’s bottom line. Yet some say the regulation provides a long overdue boost for low-income employees who put in long hours.
The rule, which takes effect Dec. 1, 2016, will raise the annual salary threshold for exempt positions from $23,660 to $47,476. That level will be updated every three years. Employees who earn less than the threshold must be paid for time worked over 40 hours in a workweek—at a rate of at least one and a half times their regular hourly pay—even if they’re classified as a manager or professional. (For details, visit SHRM’s
Overtime Rule Resource page.)
HR professionals told
SHRM Online that middle managers and retail, call center and hospitality employees are among those whose compensation could be affected the most. They also noted a couple of silver linings in the rulemaking: The government gave employers more than six months to implement the rule. And the overtime mandate is not as complicated and demanding as the Patient Protection and Affordable Care Act.
“The rule is pretty simple: Pay people more,” summarized Jamie Press, senior vice president, organizational development, for HR services firm PrimePay in West Chester, Pa. That will cause a lot of pain, she noted. “Often, mom-and-pop businesses rely on long hours and low wages to get themselves going and viable. How will it be possible to start a business on a shoestring budget?”
But LaTrice Huff, SPHR, who owns recruiting firm Talent Stays in the Los Angeles area, views the overtime regulation as “good for employees and companies. The new rule will encourage employees to be more efficient with their workload and encourage employers to reexamine staffing and duties. Companies can also use this time to audit and correct any misclassifications.”
‘The Right Direction’
Elizabeth Garcia, SHRM-CP, agrees. Garcia is a senior recruiter at the Institute of Internal Auditors in Orlando, Fla., which pays most of its workers above the new threshold for non-exempt status. The new rule will cause some positions and salaries to be re-evaluated—not hers, she says. But this is the kind of work that HR needs to do periodically anyway, she observed. “Personally, I think it’s a good change. It’s moving in the right direction.”
Garcia said that, for example, a single mother working 50-plus hours a week at a salary of $40,000 a year is treated unfairly under the current pay system. As far as the impact of the new overtime rule on employers: “It really depends on the organization and how they’re structured and their pay scales,” she stated. Most employers will make the changes necessary to get essential work done and will comply with the new rule despite the pain, she said. And everyone can benefit: “Well-paid employees do good work.”
Michelle Liberatore, HR director of Court Street USA in Falmouth, Ky., has a different perspective. About half of the approximately 85 employees at her title search firm stand to be converted from exempt to nonexempt workers under the new overtime rule. “That’s a big change for us.”
When the new rule came out, she discussed it with senior management. Most of the affected employees work from home but travel to courthouses to check records; some use online databases at odd hours. One option was to raise the salaries of these workers so that they would continue to be exempt from overtime eligibility. But that would boost the payroll by about a quarter million dollars—far beyond what the firm can afford. There was quick consensus on leaving salary levels intact and managing overtime closely.
“We’re going to look very seriously at our policies and procedures. We’re going to keep track of everybody’s time,” said Liberatore. She is exploring adding technical capabilities to make it easier for employees to log their hours—particularly when they are away from their home offices. The company can’t bar overtime because title searching is a very time-sensitive matter for clients.
“We’re going to put some parameters around overtime,” said Liberatore. “It’s not going to be pleasant. We’re a family-based, home-grown business.” She said trust between workers and management could be undermined as people focus on recording every hour worked.
Uma B. Hoffman, SHRM-SCP, , HR manager at oil and gas products manufacturing firm Steffes LLC, in Dickinson, N.D., acknowledged the discomfort that many employers will feel. But she advised: “Everybody needs to take a breath and take a step back.” Hoffman observed that “there’s going to be a lot of change management involved, a lot of employee relations,” from HR as organizations deal with the new rule. However, “I think it’s a good thing. It’s how we do it—the implementation—that matters.”
She said her company, like many, has had to adjust its compensation practices in recent years as market conditions have changed. Because the rule will require future adjustments, she sees the need for long-term planning to evaluate positions, pay and how work gets done.
People ‘Want to Be Exempt’
One of the trickiest HR tasks, said Hoffman and others interviewed for this article, will be managing employees who are reclassified from exempt to nonexempt under the new rule. For these workers who do not have their salaries bumped up to maintain their exempt classification, there can be an emotional reaction—a sense that they are being demoted to a clock-puncher.
“People feel very strongly that they want to be exempt, despite the laws,” said Press. “They feel like the elites are exempt and the downtrodden are nonexempt. Explaining it doesn’t change their mindset. It’s not rational.”
“It can feel like disrespect,” said Hoffman. “There’s a stigma” attached to being converted to an hourly worker—that it’s a loss of professional status. HR needs to step in and dispel that notion, she said. “You have to separate the job and how you get paid.”
“This is not just about a change in salary. How is the culture of the company going to be affected?” said Kim Davis, executive vice president and CHRO of New York-based insurance broker and consulting firm NFP. Many exempt employees have become accustomed to schedule flexibility afforded by a job for which getting the work done is more important than how many hours it takes. “A lot of companies are going to have to take a step back and evaluate the employee experience—not just the compensation.”
But Huff said the fear that a change to nonexempt pay status constitutes a demotion “is a very old-school way of thinking. It’s not how people think about it in today’s workforce.” She said many exempt employees will welcome being paid hourly. At a previous job, an exempt manager with many overtime-eligible direct reports came to her and asked: “Why is my staff making more than me?”
Huff said HR professionals should present a positive tone when explaining the changes to staff. “If you react negatively to the rule, don’t be surprised if your staff reacts negatively.”
Ana Maria Lostaunau, MS-HRM, director of HR and health and safety at janitorial services firm Service by Medallion in Mountain View, Calif., predicted that the first year after the overtime rule goes into effect will be the toughest. “It’s going to cause a lot of stress,” she said. “I don’t think a lot of companies have budgeted for the change from exempt to nonexempt.”
Inevitably, job titles and descriptions will be retooled along with pay so that the distribution of work is in line with the dictates of the overtime regulation, she said. And some companies will consider cutting employee benefits in order to pay higher wages. But Lostaunau sees the greater good in the new rule. “The way the nation is going and the cost of living is going, it’s necessary.” She said that rents and house prices are sky high in Silicon Valley. “Companies are paying outrageous salaries [to knowledge economy professionals] and driving the blue-collar worker out.”
Some HR professionals said that these issues will put HR in position to add even more value to their organizations by advising top management how to restructure pay and work.
“An HR professional can dive into the topic of compensation and really be a strategic player,” said Hoffman. “This is going to be very good for our profession.”
Steve Bates is a freelance writer in the Washington, D.C., area and a former writer and editor for SHRM.
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