This article was originally published on the WorkForce blog.
On March 13, 2014, President Obama picked up a pen…
When he put it down, the ink was already dry on a memorandum instructing his Secretary of Labor to update the country’s overtime regulations, which had only been amended twice since its introduction 78 years ago in the Fair Labor Standards Act.
The President’s executive action eventually raised the salary threshold for overtime in the U.S. from $23,660 to $47,476—effective December 1, 2016.
This means that all retail employees—from hourly sales associates to salaried store managers—earning less than $47,476 annually must be paid time-and-a-half for each hour they work beyond 40 hours per week.
Currently, only 7% of full-time salaried employees are eligible for 1.5X overtime pay. The Department of Labor estimates that the New Overtime Rule will balloon that eligibility figure to about 35%. At least that’s what the plan looks like on paper…
Here’s a real-world scenario:
She works approximately 50 hours per week, managing Sneaks, a chain shoe store in Portland. She’s salaried at $24,000 per year.
Under the New Overtime Rule, Marla doesn’t qualify for the $47,476 overtime exemption. Therefore, she defaults to $9.25 per hour, Oregon’s minimum wage. At 40 hours per week—plus 10 extra hours at 1.5X—Marla’s compensation gets bumped up to $26,455.
And just like that, thanks to the Department of Labor, Marla gets a raise: a respectable 10% boost!
But here’s the catch:
“These rules are a career killer,” says David French, the SVP for Government Relations at the National Retail Federation (NRF), the largest retail trade association in the world.
“With the stroke of a pen, the Labor Department is demoting millions of workers. In the retail sector alone, hundreds of thousands of career professionals will lose their status as salaried employees and find themselves reclassified as hourly workers, depriving them of the workplace flexibility and other benefits they so highly-value.
The NRF also commissioned a report, which polled retail employees across the country about the new regulations. Here are some of the key findings:
75% OF RESPONDENTS SAID:
“changes would diminish the effectiveness of training and hinder managers’ ability to lead by example.”
66% OF RESPONDENTS PREDICTED:
“employee morale would decrease.”
45% OF RESPONDENTS SAID:
“changes would make them feel as though they are performing a job instead of pursuing a career.”
41% OF MANAGERS BELIEVE:
“they would be paid less since hourly employees are not eligible for bonuses.”
“Most of the people impacted by this change will not see any additional pay. Instead, this sudden and extraordinary increase will mean more red tape and fewer advancement opportunities for salaried professionals.
That said, you should meet Barry, too…
Barry is Marla’s boss.
He’s the Director of Retail Operations at Sneaks: he makes the big decisions and signs the checks. He’s smart, savvy, reasonable—and he knows that come December 1, 2016, his business operations will change.
So, like any good leader, Barry sat down to evaluate his options, which are:
- Capping employee hours at 40 per week. This strategy will eliminate Barry’s overtime costs, but it’ll also hinder his staff’s productivity. He may have to hire additional hourly workers to regain his original output, which could end up costing even more than paying workers time-and-a-half for overtime.
- Increasing salaries. As long as Barry takes his salaried employees over the $47,476 threshold, he doesn’t have to pay them a cent in overtime. In Marla’s case, of course, that would mean doubling her annual pay.
- Taking a strategic approach to scheduling. One of the most effective ways to balance pay and productivity is to introduce an element of automation. According to the Aberdeen Group, automated scheduling reduces overtime costs by 19%, on average, and drives unplanned overtime down by 7%.
That’s what happens when you let an algorithm compute employee skills and availability, labor costs, POS data, and a dozen other criteria to develop a perfectly balanced schedule. Smart Scheduling, as it’s called, also delights employees, keeping them engaged at work thanks to fair, predictable working hours.
December 1, 2016:
A new beginning indeed—and it’ll be here before you know it.
If you’re a labor group or union, you’re counting down the days until the New Rule is in effect.
If you’re an employer, like Barry, you’re probably dreading its arrival because, to afford the new threshold, you may have to switch some salaried workers to hourly positions, which could end up hurting them in the end, disengaging them.
Don’t get caught unprepared.
Maybe you need to expand your company’s time tracking to meet the demands of the New Rule? Or maybe you’d like to take a more calculated, more strategic approach to minimizing your overtime costs using powerful scheduling tools?
In any case, if you want a smooth, seamless transition on December 1, the steps you take now are crucial…