ARTICLES, BLOGS & VIDEOS

The latest news, trends and information to help you with your recruiting efforts.

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.”

For more career tips, check out our blog and follow us on LinkedIn, Twitter, Facebook, and don’t forget to subscribe to our YouTube channel.

Posted May 27, 2016 by

How new overtime laws will affect interns and recent grads

How the new overtime laws will affect recent college graduates

Photo by StockUnlimited.com

How will the new overtime laws affect interns and recent grads? A variety of experts weigh in on this hot topic.

Changes to overtime laws

The Department of Labor expects the new overtime laws to affect 4.2 million workers – many of whom are likely new college grads out on their first “real” job.  As of December 1, 2016, the days of working 50+ hours a week and earning $35,000 should be gone, 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.

Salary versus hourly

There’s one thing college graduates should keep in mind, says Bischoff, and that is that salary has nothing to do with status.

“Being paid a salary doesn’t mean that an employee is more valuable to his or her employer than an hourly employee,” says Bischoff. “It is simply a different way of paying people for their work.”

Those who are nonexempt – those eligible for overtime – may earn time and a half when they work long hours and may even earn more than their salaried brethren, points out Bischoff. Those who are exempt and earn more than $913 a week will not be compensated for their long hours in the office in the form of hourly payments. In fact, when some employees shift from salaried to hourly, many times, they earn more as an hourly employee.

The other thing about being paid on an hourly basis is that employers need to know how much you work, says Bischoff. With apps on smartphones and smart watches, employees can now track their time easier than ever before. “If you track your steps, you can track your hours,” says Bischoff. “The fact that you have to punch in or clock out only means you need to capture your time to get paid the value of your work. That’s all.”

Ask questions to clarify status

So what should college grads do and consider before accepting a job, or if they have questions about their current and future employment status at their existing job? Ask questions such as these, says Bischoff:

  • What will their overtime status be?
  • Will this position be eligible for overtime?
  • Will I be paid a salary?

“For many college grads, work-life balance is important, so ask if you will be able to make it to your volunteer activity every Thursday evening,” says Bischoff. “While asking if you will ‘have to’ work overtime may be a signal to an employer that you might not be a dedicated employee, you can ask about particular events or activities important to you. You may glean from the answer the amount of hours you will put in.”

What do the new overtime laws mean for interns?

Currently, the vast majority of interns earn less than the $23,660 DOL threshold and therefore are classified as non-exempt and qualify for overtime. When the new rules take effect on December 1, 2016, the threshold will almost double to $50,440. The number of interns who earn between $23,660 and $50,440 is miniscule and, therefore, the law will directly impact virtually no interns, says Steven Rothberg, founder of College Recruiter. That said, there could be a substantial impact on new grad hiring as virtually all new grads earn more than $23,660, the average is about $46,000, and a substantial minority earn more than the $50,440.

“At College Recruiter, we believe that the law will have a substantial impact on the number of hours worked by management trainees and other such 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 work week,” says Rothberg. “Employers will likely instruct these employees not to work more than 40-hours per week, which will effectively increase the compensation paid to and reduce the return on investment generated from these employees. Yet with a tightening labor market, more Baby Boomers retiring, and fewer Millennials graduating, it is unlikely that there will be any noticeable change in the number of recent grads finding employment within their chosen career paths.”

Manufacturing director: New OT laws could hurt interns and recent grads

John Johnston is Director of Manufacturing at States Manufacturing, a Minneapolis-based custom electrical and precision fabricated metal company with 49 employees.

He fears the new overtime laws will hurt interns and new hires, namely those graduating from college or technical schools.

“I would expect the starting wage to decrease to compensate for the change in overtime rules,” says Johnston. “Also, I would tend to expect the opportunities to reduce as well as the patience of employers. If we are going to pay more, we are going to raise our expectations and be less patient with someone because of the wage they are earning. When we have had lower wage earners at the start of their career, we are able to be more patient in part because the issues are not as magnified with a lesser wage. Once that increases, we have no choice but to be tougher that much quicker.”

Johnston said his company may avoid hiring interns in the future due to the increased costs and instead balance it with multiple part-time employees. The company currently does not have any interns, partly because they were sorting out the details of the new labor and overtime laws.

“I see this as a trend to save on escalating costs since benefits would not be required with part-time employees,” says Johnston.

A ripple effect for college grads

Elliot D. Lasson, Ph.D., SPHR, SHRM-SCP, is an adjunct professor at the University of Maryland, Baltimore County in Rockville, Maryland and a Human Capital Consultant with Lasson Talent Solutions. Lasson regularly presents to students on behalf of college career centers.

According to Lasson, the new overtime regulations will have ripple affects all around.

“Students who are in college or right out of college want to gain meaningful experience,” he said. “They are not paying all that money to be flipping burgers or driving for Uber after graduation. The conventional wisdom is that internships are valuable. And they objectively are. However, many employers misappropriate that label to justify in order to get free labor from students who feel desperate for that experience. In many cases, internships play out in a way where the students are gaining only minimal exposure to the workplace and field, while at the same time are not getting paid.”

The Department of Labor previously identified six conditions that must be met in order to permit unpaid internship scenarios. “Many employers play fast and loose with these under the pretense that the work environment itself is more important than it objectively is,” says Lasson. And now, this extends to graduate school as well. The grad students are still “students” and therefore unlike their undergraduate peers who are not in graduate school can still “qualify” to be unpaid interns while in graduate school.  So, there is additional abuse of the system here as well, says Lasson.

“With the popularity of unpaid internships, many employers are inundated with requests and may just take advantage of students without having a handle on the DOL guidelines,” says Lasson.

For more career tips, check out our blog and follow us on LinkedIn, Twitter, Facebook, and don’t forget to subscribe to our YouTube channel.