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Posted June 03, 2016 by

How new OT laws affect compensation for recent grads, employers

New OT laws - compensation

Photo by StockUnlimited.com

Note: This is the third article in a series of articles focusing on the new overtime laws. Read the first two articles in this series – how the new overtime laws will affect interns and recent grads and how the new overtime laws will affect employers.

The DOL’s increase to the FLSA’s minimum compensation limits is a game changer for many companies, says Joe Kager, Managing Consultant and founder of the POE Group, a Tampa, Florida-based management consulting firm that advises companies on becoming great places to work by developing reward systems that attract, motivate, and retain employees.

Employers who have assigned an exempt status for jobs with compensation above the current minimum ($23,660), but below the new minimum of $47,475, will need to consider a variety of factors before the December 1, 2016, implementation date.

Effect on food service and hospitality management jobs

This will affect many lower level food service and hospitality management positions classified as exempt under the FLSA, says Kager. If the positions are to remain exempt, employers will need to raise compensation to the new minimum. This alternative may be appropriate for jobs that will be required to work substantial overtime. If a compensation increase to the new minimum is not feasible, employers will reclassify the positions as non-exempt and be required to pay overtime for hours worked over 40 in a week.

Deciding the appropriate action will entail a comparison of the two alternatives based on historic hours worked. This could have an additional effect on employees.

“There may be psychological issues to consider if employees have their positions changed from exempt to non-exempt, requiring good communication about the change,” says Kager. “This could be considered by some employees as a demotion.”

How employers will classify recent college grads

Kager says the Poe Group has advised clients to classify new college graduates as non-exempt, assuming they will not initially exercise discretion and independent judgement required in the administrative exemption test. Most college graduates hired into professional positions under the FLSA exemption, whose compensation is generally above the $47,475 minimum, says Kager.

Dan Walter, President and CEO of Performensation, a management consulting firm that engages with leaders to create human capital strategy, compensation, and reward programs that drive firm performance, says he expects employers are going to be reactive to these new regulations.

Walter discussed the short and long-term impact of how the new overtime laws will affect recent college grads and employers.

Short-term impact of new overtime laws

“It is likely that there will be little, if any, change in the amount of jobs available for college students and recent grads in the near term,” says Walter.

Therefore, the short-term impact on companies, regardless of size, is that they will be required to do one or more of these things:

  • Raise pay: If they can afford to do so, employers will increase wages to people above the threshold in order to maintain exemption status.
  • Manage hours: Many companies won’t be able to effectively manage the time. The past trend is that nonexempt workers feel like they aren’t worth as much from the professional recognition standpoint. They may choose to leave their current position and be reclassified as non-exempt to a different company with the hope of feeling more valued.
  • Hire more: Some savvy companies will hire more nonexempt workers so fewer people will work overtime. This will likely occur in larger companies, who are disciplined and more experienced in forecasting and financial modeling. These companies will spend the time and money to make sure that the changes take place and are administered effectively.

“Companies will find that in some groups it will be more cost effective to hire additional staff instead of paying for the overtime,” says Walter. “College recruiting will likely fill these newly created jobs.”

Long-term impact of new overtime laws

The combined impact of the economy and regulation will cause downward pressure on the creation of new entry level jobs due to companies redesigning roles, technology automation of non-exempt duties, and potential offshoring where possible.

“This will occur despite the demographic shift in the workplace,” says Walter. “The retirement of the Baby Boomer generation will likely lead to a downward shift in consumer goods demand with a moderate uptick in services.

The long-term impact of the new overtime laws will focus around these changes, says Walter:

  • Redesign jobs: There will be a move to redesign jobs to meet the 40 hours per week and reassign certain duties of those jobs onto someone else that is exempt.
  • Automation: Companies will be pushed more to the automation of certain duties to offset overtime costs. There will be an increase in companies using technology to automate lower-waged jobs.
  • Increase in offshoring: The effects will continue to add additional pressure to offshoring where possible. Moving jobs out of the United States will cut company costs.

Walter provided analysis. “Now that the nonexempt employee population has increased significantly, it will be more critical that companies manage overtime expense and therefore the hours worked by these employees will need to be closely monitored. The employees with pay that is not near the threshold will have their hours restricted more. Conversely, those employees that are near the threshold will likely receive a pay increase to meet the new threshold and therefore their work hours will likely remain unchanged.”

Effects on management trainees

Walter uses a manager trainee as a simple example of this: If the manager trainee is near the threshold, he will find that the employer will increase their pay to meet the exemption. Therefore, employees that fall into this type of category will work the same amount of hours as in the past. However, for those manager trainees significantly below the threshold, they will find their hours reduced to manage the amount of overtime work.

New overtime laws and small businesses

The new law on overtime – anyone earning under $47,476 will be eligible for overtime – sounds great on paper, because it translates into a substantial raise for those working long hours, and that’s always a plus for the employee, says Vicky Oliver, a multi-best-selling author of five books, including 301 Smart Answers to Tough Interview Questions (Sourcebooks 2005), named in the top 10 list of “Best Books for HR Interview Prep,” and 301 Smart Answers to Tough Business Etiquette Questions.

But if the new law becomes cost-prohibitive for small businesses, look for some unanticipated side effects, such as businesses possibly “demoting” full-time staff positions to that of a part-time or freelance role in an effort to avoid the overtime rule.

“Small businesses are responsible for the majority of new jobs,” says Oliver, a sought-after speaker and seminar presenter. “As always, it will be interesting to see how this particular rule shakes out. Some employers may find that reducing hours to side-step paying overtime will require creating new part-time or full-time positions.”

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Posted May 31, 2016 by

How new overtime laws will affect employers

How the new overtime laws will affect employers

Photo by StockUnlimited.com

The new overtime laws that go in place on December 1, 2016 will impact 4.2 million workers who will either gain new overtime protections or get a raise to the new salary threshold.

This is cause for concern for both employees trying to understand the new overtime laws as well as employers who are doing everything they can to understand how these changes affect their business, hiring plans, and compensation packages.

It could result in big changes for those who aren’t prepared, says Stephania Bruha, Operations Manager at Kavaliro, a national staffing agency that employs IT professionals, management, and administrative staff.

 

“We at Kavaliro expect to see many more of our clients limiting employees to 40 hours per week, or requiring executive approval to work overtime hours,” says Bruha. “Recent graduates and new employees may have an advantage here, as they are starting fresh and don’t have to overcome habits from the past.”

Bruha recommends employers get in front of this change. “We will be reassessing our employees more than a month before the new overtime laws go into effect to ensure that if status changes take place, they are well adjusted prior to the go-live date,” says Bruha.

Communication will be key, as in all HR and hiring matters, to ensure your employees understand how they could be affected.

“The worst thing that could happen is for your employees to misinterpret policies and think you are saying they are not allowed to report more than 40 hours a week,” says Bruha. “This is especially important for people who are new to the workforce, like new college grads, who may not know their rights, or have a little experience with labor laws. Employees need to know that you must report all hours worked, but they also need to understand if their company has set requirements for time entry.  Your employer may have severe penalties for violating the policy related to timekeeping because it is so strictly regulated by the Department of Labor.”

Small and mid-sized employers are going to take a hit

Employers – particularly small and mid-sized employers – are going to take a hit with the new regulations, says Kate Bischoff, a human resources professional and employment/labor law attorney with the Minneapolis office of Zelle LLP, an international litigation and dispute resolution law firm. Bischoff is co-leading a June 2, 2016, webinar titled Preparing for Changes to FLSA Overtime Regulations, discussing this topic and more. They will need to raise salaries over the $913 per week threshold or pay overtime.

“This may mean employers hire more people so the need for overtime is less or they raise the costs of their products and services to cover the additional labor costs,” says Bischoff.

New grads or interns looking for work typically don’t wonder whether their first post-grad job will be paid on an exempt (salaried) or a non-exempt (hourly) basis, points out Arlene Vernon, an HR consultant who works with small business owners and corporate clients providing HR strategy and management training. And it’s probably not a consideration regarding whether or not they take a particular job opportunity. However, since a new grad may find himself choosing between two job opportunities, employers need to realize that competitors may change how they present salary and compensation packages based on the new overtime laws, which in turn cold affect the decision an employee makes when deciding between two companies or job offers.

Exempt versus non-exempt employment offers

Let’s say Company A offers the grad $48,000 per year as an exempt position, and Company B offers the grad $46,000 as a non-exempt position. There is the potential that the resulting annual pay under Company B could be higher than Company A if the employee works overtime.  If the person is choosing a job based solely on compensation, this would be a consideration.  However, the real decision is whether the job is the right fit for the person, not whether the employee is eligible for overtime.

“From an employer perspective, all companies, including those hiring new grads, need to re-evaluate all their positions paying less than $47,476 to determine how to handle any job reclassifications to non-exempt status,” says Vernon. “This could impact all or some incumbents in jobs paying around this new limit.”

In making someone hourly, companies are not required to merely take employees’ salaries and divide them by 2080 to get an equivalent hourly rate.  Many companies will assess what overtime the person might be working and recalculate the hourly rate so that when the employee works overtime the employee’s final pay equals the full salaried amount, says Vernon, admitting that this can get confusing.  But in this scenario, the employee may be making less per hour, but the same or even more on an annual basis when you factor in overtime, depending on the employer’s approach.

Some companies will be giving certain employees raises to bring them to $47,476 and keep them as salaried. “This may ultimately cost the employer less money than paying overtime at the lower wage,” says Vernon.

Employers must educate employees

Employers should educate employees who are moving from exempt to non-exempt on what work can and cannot be performed outside of regular work hours, adds Vernon. Exempt employees are accustomed to answering texts and emails at night and during weekends.  They may work whatever hours are needed to get the job done.  As a non-exempt employee, they must track and get paid for any non-scheduled hours worked which will increase their pay, but may be against company policy. Typically hourly employees don’t get to randomly create their own work schedules, while salaried employees do.

“This practice needs to be unlearned by managers and employees,” says Vernon.

For example, are managers who email the now-hourly employees at night and over the weekend now authorizing the employee to respond to the email and inadvertently approving overtime?  Or do managers need to learn to save employee communication for the work week to control payroll costs?

These are among the many changes, challenges and questions employers are sorting out.

“December 1 will be here before we know it,” says Vernon. “This change will have considerable impact on all employers no matter their size and whether or not they hire one or more grads below, at or above the new FLSA range.”

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Posted April 29, 2014 by

8 Tips for Employers Who Use Unpaid Interns

Amy Conway

Amy Conway

By Amy Conway, Associate, Stinson Leonard Street

With summer finally around the corner, employers who utilize interns should review their internship programs to ensure compliance with applicable wage and hour laws. The vast majority of interns in the private sector qualify as employees under the Fair Labor Standards Act (FLSA) and need to be paid accordingly.

The Department of Labor’s Six-Factor Test

The U.S. Department of Labor (DOL) uses a six-factor test for determining whether an intern is exempt from the FLSA or, conversely, is an employee subject to the FLSA’s protections. While the DOL notes that the intern/employee question “depends upon all of the facts and circumstances” of the program, it also takes the position that all six criteria must be met in order for an intern to fall outside the parameters of the FLSA: (more…)

Posted August 12, 2013 by

38% of Internships With Corporations May Violate Fair Labor Standards Act

Marilyn Mackes of the National Association of Colleges and Employers

Marilyn Mackes of NACE

Nearly two-thirds of graduating seniors from the Class of 2013 took part in an internship or a cooperative education assignment during their years pursuing a bachelor’s degree, according to results of a survey of college students by the National Association of Colleges and Employers (NACE). NACE’s 2013 Student Survey found that 63.2 percent of graduating seniors from the Class of 2013 reported having taken part in an internship, co-op, or both. “This represents the highest overall participation rate since we began tracking this with the Class of 2007,” says Marilyn Mackes, NACE executive director. That’s the good news and, by way of context, only 57 percent of the Class of 2008 reported having  taken part in an internship, co-op, or both.

More than half of internships by Class of 2013 graduating seniors were performed at for-profit, private-sector organizations (56.3 percent). The remaining internships were undertaken at nonprofits (28.1 percent) and state, local, or federal government agencies (15.7 percent). (more…)

Posted June 19, 2013 by

63.2% Graduate With Experience Due To Completion of Internship or Co-op

Marilyn Mackes of the National Association of Colleges and Employers

Marilyn Mackes of NACE

Nearly two-thirds of graduating seniors from the Class of 2013 took part in an internship or a cooperative education assignment during their years pursuing a bachelor’s degree, according to results of a survey of college students by the National Association of Colleges and Employers (NACE).

NACE’s 2013 Student Survey found that 63.2 percent of graduating seniors from the Class of 2013 reported having taken part in an internship, co-op, or both.

“This represents the highest overall participation rate since we began tracking this with the Class of 2007,” says Marilyn Mackes, NACE executive director. (more…)