Get Prepared Now for the New Overtime Requirements!

Get Prepared Now for the New Overtime Requirements!

by Jeanne Knutzen | May 24, 2016

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Businessman on floor surrounded by papersBrace yourself…it is no longer a wait and see!  Last week we got the word that despite hours of testimony and resistance from the employer marketplace, the new overtime requirements are now a done deal.  These changes will go into effect December 1, 2016, just in time to become a part of the Obama legacy.

On December 1, 2016, the standard benchmark for the rate of pay used to determine if an employee is eligible (or not) for overtime compensation moves from $455 to $913/week – more than doubling the current threshold.

Why is this particular change significant?

If the business (typically a small business or a not for profit) is paying an important and exempt member of your team less than $913/week, it will soon have three choices…

  1. Retain the employee in their current salaried role, exempt from the overtime requirement, but increase their weekly wage to $913, resulting in a sizable increase in fixed costs.
  2. Convert them to a non-exempt status and begin tracking their time at work on an hourly basis.  If the employee exceeds 40 working hours in any certain week, they will need to be paid time and a half.
  3. Make changes in how work is done and who is employed. Jobs can be split into one higher paid exempt job and one lower paid non-exempt job. Assign lower level work to higher-level exempt managerial workers. In a worst case scenario, lay off some workers in order to keep others.  These things won’t need to be done right away, but overtime these will become more serious options that many employers will need to consider.

It is no question that employers face both change and the likelihood of increased costs, which will especially impact smaller businesses and non-profits.  These are organizations that rely heavily on starter level talent working in higher-level roles, creating win-win scenarios for both the employer and the employee.

Geographical areas where wages are low and need to be increased will feel the pain more than Seattle and the Eastside, where wage levels are already high.  Employers and employees in the Eastern part of our state are more likely to be impacted than those living in the Puget Sound area.

Employees who prefer working in non-profits or small businesses may have to deal with some of the following difficult decisions…

  1. Stay in their current role but be converted into an hourly employee, which may reduce their access to certain exempt level benefits.
  2. Keep their current pay plan, but have their hours of work tightly managed so that they never exceed 40 hours. This can be a difficult task to undertake for any employees considered imperative to the key success of the business.
  3. Lose their job or have their hours cut because their employer can no longer afford their mandated pay rates.
  4. The best choice of course, is to get an increase in pay. This may not last if the increases would threaten their employer’s business. (Keep in mind their employer is likely still reeling from the increased costs of ACA insurance, an increase in minimum wage, and Seattle Sick and Safe if the business is located in Seattle.)

No, I’m not a big fan of this change in our overtime provisions.  And although it is easy to support the notion that wage increases are good things for people and the economy, when they come in the form of a government mandate, rather than from a free market move based on increased productivity, the impact will be negative long term.

Yes, I’ll be blogging on this issue over the next several months.  I will share what we see companies doing to address this change, particularly anything creative that comes our way.

At this point I think we’re all holding our breath with respect to another set of  “unintended consequences.”

 

Pace Staffing LogoThis article was written by Jeanne Knutzen, founder and CEO of the PACE Staffing Network, a leading Northwest staffing company who has been helping  local employers find and hire high talent employees for over 40 years.  For additional ideas and information on how you can tackle the current marketplace in terms of temporary, contract or permanent employment solutions – contact the PACE team at 425-637-3312 or email us at  infodesk@pacestaffing.com

 


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