The aftershocks from the Department of Labor’s new overtime rules for exempt, salaried workers continue to reverberate across the business community. The Obama Administration estimates approximately 4.2 million workers will see their annual compensation increase under the change, which requires organizations to pay previously exempted employees who work more than 40 hours per week time-and-a-half overtime pay if they make less than $47,476 a year. That’s more than double the previous threshold of $23,660.
Unfortunately, whenever any far reaching regulation is implemented, there are always unintended consequences. On its face, this change is great for lower salaried, white collar workers who have been working more than 40 hours a week without the opportunity to earn overtime pay. But now tens of thousands of organizations large and small may need to quickly develop a strategy to ensure they’re compliant by the December 1 deadline – all without alienating their employees.
In order to be compliant, many of the perks that make being an exempt salaried employee desirable may be at risk. This means organizations that value employee engagement will need to work overtime themselves to help employees understand why they’ll be required to closely track their hours worked.
The FLSA Rule Update vs. the Way We Work Today
Exempt employees are generally afforded a different level of responsibility, autonomy, and flexibility – especially in white collar organizations. All of these allow employees to better balance the demands of work and life.
For this reason, people have historically worked with the goal of becoming a salaried employee. According to a 2015 Ernst and Young global survey, flexibility is the number one benefit employees crave from their job. Conversely, the top reason they’d quit isn’t low pay or a bad boss – it’s lack of flexibility that forces employees out to door.
Organizations should consult with their own legal teams to determine the best strategies to ensure compliance, but one situation that is likely to play out is the return of more rigid work schedules. Many exempt salaried employees have control over how and when their work gets done. Concerns about limiting employees to just 40 hours per week to avoid overtime and mitigate chances of a labor complaint may force some organizations to change policies that will limit this flexibility.
From a psychological and motivational perspective, this – coupled with tracking time – could feel like a demotion, and it could crank up the stress on employees who need the flexibility of starting a little later, stepping out during the day from time to time, or wrapping up a little sooner than colleagues. It will represent an adjustment, especially for those who risk losing the flexibility that is so important to their daily routines.
Evolving Office Dynamics
Organizations will find themselves with two groups of employees performing similar roles: those who are eligible for overtime and those who are not. Think about how this dynamic could play out during a particularly busy time.
When 5:00 p.m. arrives, the lower salaried employees who are eligible for OT – typically younger workers – might be expected to clock out while more senior team members are expected to “pick up the slack.” They may feel like younger workers are not pulling their weight, or “paying the dues.” Conversely, if younger employees work equally and collect overtime, this could be viewed as a special perk only offered to one segment of the team.
For organizations that emphasize an employee-first culture, the manager-employee relationship often sets the tone. Trust, transparency, and mentorship are central. Think about what could happen if a manager is expected to closely track employee hours and delegate overtime, similar to an hourly workplace. Managers will need to have very strong relationships with their employees so they can properly explain the change and why tracking is necessary and track employee time without micromanaging or coming off as Big Brother. Under the new rule, employees may be forced to justify overtime on a project, while managers will need to follow strict company policies to avoid the perception of favoritism.
Big Questions about the Definition of Work
As the lines between work and life continue to blur, the debate over what constitutes work has started to pick up steam in the last few years. Being at a desk completing assignments after hours obviously represents work, but what about texting with a colleague at 6:00 a.m. the morning of a big presentation to ensure you’re both ready?
Even if an organization has a stated policy not to work outside of assigned work hours, how will it stop a young, ambitious go-getter from putting in extra hours to get ahead? Worse, what if the boss has no idea this is happening, then skips over that employee for a promotion? The employee may feel jilted, and decide to file a claim against the organization for undocumented overtime.
These are just some of the situations that organizations will have to work with their own internal legal advisors to ensure preparedness. The FLSA rule updates will accelerate the debate over what is work, and will likely have a direct influence on the working trends for many years to come.
It’s All about Time
Benjamin Franklin once said “lost time is never found again.” Under the FLSA guidelines, lost time is exactly what could get an organization into trouble if an employee feels they are owed for overtime they have not been compensated for.
That is why it is critical to accurately track the time that employees work. According to a survey we conducted in May, 39 percent of salaried employees (full and part time) report not having to formally track and report their time today.1
Even for organizations that do track employee hours worked, many continue to leverage unreliable and outdated methods. A 2014 SHRM study2 on absenteeism commissioned by Kronos showed that about one-third of U.S. organizations still use a homegrown system, manual spreadsheets, or manual timesheets or punch cards. These systems are error prone, can be gamed, and in reality are often estimates rather than reality.
Proper tracking is critical not just to ensure fairness and consistency, but also to provide a bullet-proof audit trail. In white collar organizations in particular, some employees may have never actually tracked their time throughout their professional career. For this reason, great care should be taken to explain why tracking time protects the employee just as much as the employer in the event of a discrepancy.
Organizations of all sizes are entering uncharted territory with the new FLSA requirements. While it represents a financial boost for millions of hardworking Americans, it also raises many questions about the way work is done today, and how work will be done in the future.
Going forward, it will be important not to erode the benefits of flexible work arrangements that employees value and that drive their engagement. It will be even more crucial to listen to employees and involve them in coming up with solutions that work for workers and their leaders.
The organizations that will thrive under the new FLSA rules are probably those that succeed today – by treating their employees with fairness and respect.
- Survey conducted online by Harris Poll on behalf of The Workforce Institute at Kronos in May 2016
- Global survey “The Total Financial Impact of Employee Absences” conducted online by SHRM in Spring 2014