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Early-career management positions will take a hit, employers say
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New regulations governing overtime pay will have a significant impact on recruitment, employers say, from scaling back hiring to rebranding roles that have been downgraded from salaried to hourly.
The changes to the Fair Labor Standards Act (FLSA), scheduled to go into effect Dec. 1, will broaden the pool of employees eligible for overtime pay by more than doubling the salary threshold that determines coverage. Under the new rules, any salaried employee earning less than $47,476 annually would be entitled to time-and-a-half for work that exceeds 40 hours per week. Currently, the salary cutoff for overtime pay is $23,660.
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The White House argues that the value of the current salary threshold, last updated in 2004, has been worn down by inflation and leaves too many workers who work more than 40 hours a week ineligible for overtime pay.
Employers are busy, meanwhile, determining which workers will be affected and what the compliance and additional recruitment costs will be, when the rule takes effect.
“This will have a big impact on retailers, call centers, restaurants and hospitality employers,” said Cathy Shepard, a senior rewards and talent management consultant in the Los Angeles office of Mercer’s human capital business.
Steven Rothberg, the president and founder of recruitment media company College Recruiter, noted that while the vast majority of interns recruited from colleges and universities earn less than the $23,660 threshold and therefore already qualify for overtime, “there could be a substantial impact on new grad hiring and especially entry-level management hires and other workers who have traditionally been paid as exempt, salaried employees with no ability to earn overtime pay, yet who routinely work far more than the standard, 40-hour workweek.”
The average starting salary for this group is about $46,000, he said.
“Entry-level management positions are going to disappear and those employees will fall back into hourly jobs,” said National Federation of Independent Business President and CEO Juanita Duggan in a news release. “Small businesses everywhere will be affected, but most of the damage will occur in places where the cost of living and the wage scale is much lower than it is in Washington, D.C., or Manhattan, or San Francisco.”
Reclassifying currently exempt salaried workers as hourly is just one of the disruptive options available for employers to offset the expected cost of the rule. “The simplest option is to change the job to nonexempt and pay the additional overtime cost,” Shepard said. Other options, according to Shepard, include:
Another alternative for employers is separating a job into two jobs, split between a lower-paid nonexempt worker and a higher-paid exempt worker, or shifting certain lower-level duties to higher-level managers who are exempt from the overtime rule.
Loss of Jobs, Status, Benefits
The new rule will lead to a reduction in external hiring and internal promotions, according to employers.
“It will kill recruitment. I will be cutting jobs, not hiring people,” said Eric Oppenheim, chief operating officer and franchisee of Republic Foods, where he manages the operations for nineteen Burger King restaurants in the Washington, D.C., area.
Oppenheim’s franchises employ about 70 restaurant managers and assistant managers who fall under the new threshold.
Audibly frustrated, he said that the expected management labor costs will force cuts in recruiting and entry-level hiring, resulting in less people having the opportunity to be promoted to management-level employees.
Reclassified workers will also lose exempt-level benefits like paid vacation, he said.
Similarly, Nicholas Zuk, senior vice president and general counsel for hamburger chain White Castle, said that many of their 400 general managers will revert to an hourly rate and lose the additional benefits that come from being a general manager, due to the raised threshold.
The hit to recruiting “will be huge” at tax services provider H&R Block, said Kristi Jones, the company’s manager of talent acquisition, based in Kansas City, Mo. “The impact for us will be for that early-mid management salaried professional,” she said. “And we have a lot of those positions. A lot of our entry-level IT positions and associate managers are going to have to convert to hourly, which will still be a challenge, because we’ll be paying a lot more overtime for those levels. It could also affect Block’s many seasonal employees, including trainers and quality assurance professionals.”
Jones, who leads the company’s university hiring program, said that these employees mostly will not be affected, as the bulk of recruits are either nonexempt interns or candidates in the company’s MBA program with starting salaries much higher than the new threshold.
Recruiting challenges will include “selling” previously salaried roles with exempt-level benefits and perks as hourly jobs, minus those extra goodies.
“It will be an especially hard selling point to recruit for managers—to tell people they are expected to manage a team as an hourly worker,” she said. “A lot of people tell me they don’t want to punch a clock. Another selling point we’re losing is with benefits, which are different for hourly associates. Salaried employees receive unlimited vacation, while hourly associates must accumulate vacation. That’s a perk to being salaried.”
Telecommunications giant AT&T estimated that in 2014, it hired over 1,700 recent college graduates.
Robert C. Barber, an attorney for the company, said that AT&T has “received significant negative feedback from employees” about being reclassified from exempt to nonexempt.
“The change to nonexempt adversely affects employee morale not only because of the loss of independence and flexibility in performing their work, but because of the concern that the change reflects a lack of trust in and misperception of their skills and professional trade,” he said.
“Many employees view reclassification of their position to nonexempt as a demotion.”
Barber added that employees who are recent college graduates especially seek flexibility in their workday and in their work environment, so they can be productive from anywhere and at any time.
“The rule potentially restricts the ability of employers to accommodate these demands, as the risk of financial exposure to increased overtime pay and the requirement to accurately record all time worked will likely force companies to more strictly manage employee hours and to reduce or eliminate flexible work arrangements such as teleworking,” he said.
Roy Maurer is an online editor/manager for SHRM.Follow him
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