A shock wave is coming to the Granite State on Dec. 1, when a federal rule change to overtime exemptions takes effect. Business owners, nonprofit leaders and lawyers say it will have far-reaching effects, from increased costs for businesses to the potential for increased wages — but also less flexibility — for employees.
Will this affect me?
There are two things that determine who is exempt from overtime pay: how much money you earn weekly and what your duties are. The U.S. Department of Labor, under the direction of President Obama, is roughly doubling the pay threshold from $455 per week ($23,660 a year) to $913 per week ($47,476 a year).
Plus, if anyone’s job falls under the clear definitions outlined for executives, administrative employees, highly educated professionals in brainy fields (teachers, doctors), skilled computer specialists and outside sales people, they must be paid on a salary basis starting at the new minimum.
This means employers who have employees they pay a salary that is lower than $47,476 are faced with a choice, according to Michelle Radie-Coffin, a specialist in employment law.
“The employer has to make a decision as to whether or not they want to increase their salary… or now make them hourly and have to pay them overtime,” Radie-Coffin said.
And if their employee is paid around $30,000 and has the responsibilities of a store manager for example, they must get a raise or lose those responsibilities.
The point is to help out the folks who might be overworked and underpaid. When the Fair Labor Standards Act was first created during the Great Depression, it was meant to give employers an incentive to keep hours in check by forcing them to pay a price for going over the standard workweek and ensuring workers were paid fairly for long hours.
But over the years, the rules underpinning that law have not kept up with modern compensation trends. In 1975 the overtime rules covered 62 percent of Americans. Now they only cover about 7 percent.
While some employees will enjoy a raise by the end of the year, New Hampshire employers are worried about what these changes will mean to their bottom line. Larger companies might be able to absorb the hit more easily, but Radie-Coffin said smaller firms will be more likely to struggle.
That is bad news for New Hampshire as 95.9 percent of all employers in the state are small businesses (defined as fewer than 500 employees), according to the U.S. Small Business Administration.
Many employers will be on the hook to pay salary increases or time and a half for more overtime. Radie-Coffin said employers may determine that they’d be better off restricting overtime and hiring more part-time workers to fill in the gaps, while new systems might need to be put into place to track the hours of people who didn’t have to do that before. That could mean buying software or devices for clocking in, or perhaps even hiring more people to deal with the paperwork.
“We’re looking at our accounting team and we’re thinking, ‘Gosh, do we have to increase [the team by] another body in there just because of this law, just because of the tracking for hourly?’” said Sean Owen, CEO of Manchester marketing firm Wedü.
Hal Jordan, the president of Granite YMCA, said the organization had to review all 110 employees and is planning to make changes that will affect 30 people to stay compliant with the law.
“Due to the new regulations, 11 of them are going to have to move up to the new wage requirements, which is a $60,000 hit for us,” Jordan said. “And 19 staff who were previously exempt are going to have to be reclassified as hourly or nonexempt. Of course, in that circumstance, we’re going to have to pay for overtime.”
Overall, with raises and expected overtime combined, Jordan expects the association will spend an additional $100,000 in wages in the next fiscal year.
Those who will receive the raises are working in more administrative roles, while those likely to switch to hourly are providing direct services. Raises will vary, Jordan said, from just a few thousand dollars to as much as $10,000.
But luckily, Jordan said, Granite YMCA has been providing equal benefits for exempt and nonexempt employees, so they won’t have to spend extra on that.
“That isn’t the same in a lot of associations; there are big differences sometimes and that’s another significant blow that some people would have to deal with,” Jordan said.
He said the nonprofit sector in New Hampshire is very concerned about the new rules as many of them have traditionally employed salaried workers earning less than $47,476 a year.
Owen is less concerned about the minimum salary threshold in the new rules.
“I think the biggest concern is really more the definition [of exempt jobs],” Owen said.
While a small number of employees earning a low salary might need to change to hourly based on their pay, the biggest group of employees to be affected are his account managers.
Those are the folks coordinating the scheduling and logistics of service delivery and keeping the clients happy. Right now, they’re paid salary plus bonuses. But since they’re not the right kind of manager to stay salary earners, they’ll be converted to hourly.
Owen thinks he won’t see much cost increase from overtime as the loss of bonuses will likely balance it out. But tracking employees will be a burden for bosses and employees alike — not just because of the time and money it will take, but because those employees who once did field work and made their own hours on an honor system will be restricted to working in the office from now on.
“You lose that flexibility now, because now you actually do have to do hour-to-hour tracking of what they’re doing and where they’re doing it. So that’s a really lousy component to this whole thing,” Owen said. “It just becomes more of a management nightmare … and frankly a nightmare for the employee now. I mean, none of them want to do that.”
It’s also not clear that his workers will benefit financially as the rule change had intended. Owen said they fall into a classification of worker that’s either already working a normal 40-hour week or getting fair compensation from benefits and bonuses. Some who are used to larger bonuses might even see a decrease in annual income.
Radie-Coffin said that when she ran a title company she had salaried employees who enjoyed their flexibility but would’ve likely lost it under these rules.
“I think that would have stressed them out as far as ‘OK, now great, we get overtime’ but some of them didn’t really work overtime, so they wouldn’t have benefitted and now they’ve got no flexibility,” Radie-Coffin said.
Jordan said YMCA employees who will switch to hourly will have to cut down on trips from branch to branch, volunteering at fundraising events or staying late to help out a member.
“We’re going to have to do more webinars, more conference calls. We’re going to have to reduce the amount of outside responsibility these people have had previously to try to control the amount of overtime we’re going to have to pay,” Jordan said.
And they may have to hire some part-time staff to pick up some of those responsibilities.
“It really changes the culture,” Jordan said. “It’s a very challenging, sensitive situation for everybody impacted.”
Things employees and bosses used to take for granted now must be watched closely.
“Things like emails during non-work hours, phone calls about an issue during non-work hours, all those things that you never thought about before all have to be logged as time worked,” Jordan said.
On the DOL website, there’s a question-and-answer list explaining the new rules that touches on the issue of flexibility. Question 13 reads “Doesn’t having to punch a clock restrict the ability of an employee to work flexibly?” The answer begins “The FLSA does not require workers to punch a clock.” It goes on to explain that making such a decision is in the hands of the employer.
While this is true, Radie-Coffin said it’s not much of a choice. As a former employer herself, she said allowing employees who qualify for overtime to simply report their hours requires an “incredible amount of trust.”
But even if employees are generally trustworthy, they may make mistakes, and inaccurate bookkeeping can be a significant liability for any company.
Radie-Coffin said she thinks the rule change will do some good by helping out some exploited workers either with a raise or overtime pay.
“But I don’t like the fact that the Department of Labor … is saying this is going to be an easy implementation in their Q&A, because it’s not,” Radie-Coffin said.
Other litigators who often deal with employment issues like Andru Volinsky at Bernstein Shur thinks the good done by the change will outweigh any unintended consequences.
“I’m not all that troubled by these changes,” Volinsky said. “If [workers] are needed, they’re going to be fairly paid and you won’t have low-level managers open the dollar store and close it at night working 80 hours a week and getting paid for 40.”
But Jordan said there will be winners and losers at the end of the day. And most agree that employers across the state will need to worry about how some of these changes will affect morale.
“I think that’s our biggest concern,” Owen said.
There’s one wrinkle that may affect the rollout of the rules: Earlier this month, 21 states, including Maine, joined a lawsuit against the DOL hoping to block the changes. The suit is specifically targeting a clause that would enable future incremental increases of the exemption threshold, which they argue is illegal.