On December 1, the new Department of Labor overtime rules go into effect. So, the question is, will this affect your business and how are other businesses dealing with this new law?
What is it?
The new overtime rule will mean anybody making less than $913 per week ($47,476 per year) will be required to be paid overtime. This doubles the previous threshold of $23,660. According to the Department of Labor, this will affect more than 4.2 million workers in the U.S. and about 12,000 workers in North Dakota and 79,000 workers in Minnesota.
Who is impacted?
Here are industries that will be affected by the new overtime law and the total number of affected workers in the U.S.
Professional and technical services (ie. accountants, architectures, legal services, etc.): 538,000
Health care services, except hospitals: 329,300
Educational services: 230,200
* Stats from the Department of Labor
Thoughts from area Businesses
Megan Surdo, Director of Total Rewards at TMI Hospitality
What does Director of Total Rewards mean?
It’s kind of a new fancy term for oversight of compensation and benefits, as well as employee wellness and recognition. It’s really meant to be that overarching umbrella to what it truly means to be rewarded as an employee, whether it be pay, benefit options and all the other perks and discounts that may come along with that. It’s basically the Jack-of-all-trades for the compensation world.
How much is this affecting you?
It actually is impacting us quite a bit, mostly in our property setting. It impacts about 290 of our employees out in our property. Particularly, it’s hitting our middle management level, which is where it becomes a little more difficult to establish the direction we want to go, whether we want to keep individuals as exempt and move them up to the new salary threshold or if we consider them to be non-exempt and then have to rework through, not only training them on being an hourly employee and clocking in appropriately and managing their overtime, but then also managing that communication and employee morale in terms of, I’ve been a manager of some of the other managers for five-10 years and now all of a sudden, they’re being bumped down in terms of how they would see it in terms of, ‘I’m no longer a salary employee. I’m now an hourly employee.’ They’re seeing it as a demotion in a sense that their position isn’t as highly respected almost. It’s almost no longer that manager term. It can really have implications in terms of career development if somebody doesn’t feel they’re on a career path anymore, it’s more of just a job. It’s really impacting the outlook on the position the employee would hold.
So you’re currently going through the phasing and trying to figure out how this will work?
We are. We’re trying to run different scenarios, whether we move everyone to that new salary threshold–what is the financial implication of that for our organization versus also considering the financial implications of potential overtime that these positions would accrue.
In the hospitality world, there are a lot of positions out there that are working potentially 45-50 hours per week sometime. Considering that they’re salary today, so that overtime doesn’t necessarily come into play but if they were an hourly employee, we’re now looking at time and a half for those five to 10 hours.
How often is it that these salary employees are going overtime currently?
I don’t know that I can specifically answer that question in terms of frequency but I can answer that there are peak seasons, just like in any organization. Summertime and into the fall, there can be one week that they work that 50 weeks to try and get what they need to be done versus the next week, they may only work 30-35 hours and make it up in that regards. The beauty of being a salary employee and having that exempt status is that you have somewhat of that flexible schedule that you can almost make up time, if you will, whereas being an hourly employee, you run into that threshold.
The ultimate question then is, how much will this affect your bottom-line and the quality and quantity of work that you’re able to put out?
Dollar wise, we’re looking at the extreme if we were to move everyone to the new threshold, we’re looking at about $3 million potentially. That’s on the high, high end but it’s really hard to predict the cost of the overtime we would see if we were to go that direction in terms of moving individuals to nonexempt. It’s hard to really estimate the true cost of what it will have on our organization.
The other side of it is, how do we message it and how are employees going to take that? The other piece that we also consider is, if we do make adjustments to employees to move them to that new threshold, we also have our existing employee population that are already at that threshold today or slightly above it and now they’re going to be making the same amount as someone who was just recently hired. We run into, what we call, compression. Employees are closely together, regardless of how long they’ve been with the organization or their performance. It creates that issue and the conversation that we have to relate to their salary.
Stepping outside of your role at TMI, how do you feel about the new law?
From a professional’s perspective, I can understand the reasoning of why they were looking at the salary threshold and why employees are being compensated appropriately. I think the level with which the Department of Labor raised the threshold too was a bit extreme. I think it was definitely a very significant jump for employers. I think it’s also unfortunate the impact it has on, not just the hospitality industry, but more so the nonprofit industry. I think that’s really where we’re going to see a lot of the struggle that’s going to happen and really see the impact on the communities those nonprofits support because it’s going to come down to, can we pay individuals what we’re required to to offer the services we have or we cut back on the services we have so that we can pay those individuals what we’re required to. I think the community will end up suffering from that.
Kati Nelson, Assistant Director of Arc of Cass County
How much will this affect the ARC?
Where we’re seeing it the most, we’ve already been practicing what it’s going to be like for the last month or two. The biggest challenge we’re going to have is in our thrift stores–the ARC Attic Treasures–we have two locations. All of our managers were considered salary before, when they had to come in and work on a weekend, they just took off the next week. Now we’re finding that’s not going to work anymore so we’re going to have to change the days of our pay period to avoid having to pay overtime if something like that happens.
Has it been a drastic shift or have you been able to cope with it fairly easy?
I wouldn’t say it’s drastic. It’s taking quite a bit of time for our management team to get used to it and they had a hard time avoiding going overtime. That’s why we’re just going to change our pay periods.
From a personal standpoint as a director and a worker, how do you feel about the new law?
I understand why it could be valuable because of large companies so employees don’t get taken advantaged of and things like that. But, for a small nonprofit, it’s pretty challenging because we work on as few staff as possible and, obviously, the nonprofit wage isn’t as high as for profit so it’s more challenging to work that way. It’s going to effect how our store is run.
Do you think it will hurt the quality and amount of work you do for the community?
I think that the quality is still going to be there because the staff we have is pretty dedicated to their jobs and our mission so I don’t think that’s going to be an issue. There are times, especially during our busy season, that people would work an extra few hours because that’s what needed to be done and that just won’t be able to happen anymore.
Charley Johnson, President/CEO of Fargo-Moorhead Convention and VisitorsBureau
How much will this affect the CVB?
It’s going to impact a number of employees who we would view as exempt but we don’t have that many people on staff. We have a total of 13 full-time. A few of them are going to have to go on the clock, not all of them. We’re finding ways to make it work. The new threshold, I think, is $47,476. Anybody who is reasonable close to that, we’re going to and meets the other standards for being exempt, we’ll probably head in that direction for them–raise them to that salary. We can’t do that for everybody because there’s just too great of a disparity. Some of our employees are going to have to go on the class and we’ll just have to manage it. When I say on the clock, they’ll obviously be filling out time sheets. We’re not going to put up a time clock for them to punch. For five or six employees, it will have an impact on us. We’ll have to monitor their hours.
Besides people clocking in, do you think it will have any sort of an effect on the bottom line or the output?
It remains to be seen. Nobody really knows the answer to that until we get into that. We’re hoping it will not have a significant impact on us. We’re pretty flexible with people’s hours here because we’re in a business where things happen at different times and everybody has a slightly different job and we do have some travel. I think we’re going to be able to maintain exempt status for the people who do the most traveling. It becomes a little bit problematic when you’re keeping track of time but there’s going to still be some travel for the people who are on the clock. Some people work different hours because we work different events around town so we’ll have to just manage it.
I am fully confident that the people on our staff are going to be able to manage this without any significant impact on our expenses or our output. I think everyone’s very mature and will continue to do their job and pace themselves accordingly. That’s what I’m hoping for and I have no reason to think that won’t happen. I think everybody here understands the stakes and what has to happen. We’re going to work forward from there and see how it goes.
Obviously, I think every company will be learning from it as they go forward. I think a lot of companies will be having people go on the clock that might not have been before. It’ll be a learning curve.
As a manager, how do you personally feel about this new law?
I think it’s a big leap at one time, from a management standpoint. I’m sure I’m not the only one who would say that it’s created some headaches. From a personal standpoint and viewing work force issues as I’ve had for the last couple of years, I don’t have any objection to raising the standard for that. I think it sat at $23,000 or whatever it is for 20 some years. That’s kind of crazy. It would have been nice if it came up gradually over the years. I don’t understand why things like that can’t happen but that’s the way the government works. Philosophically, I don’t have any object to raising the threshold.
Nick Killoran, Owner of Great North Insurance
How much will this affect your business?
To be honest, not a whole heck of a lot and the reason is that we don’t have a lot of salary associates. A majority of our people are by the hour wage earners. That works pretty well for them. They’ve always had the opportunity to work some overtime if the position needs it or calls for it. A majority of the time with our business, we’re trying to do our best to bring in good quality people that it doesn’t require a lot of overtime. I think the companies that would be affected more by it are bigger companies that have some salary associates that are working much longer hours.
Personally, how do you feel about this law?
I could see how that new law is definitely going to help families financially to ensure that they are taken care of for the number of hours they’re putting in. Again, with our agency, we are very much a family first company so the hours that are expected of people are simply the 40-hour workweek. If they want to put in a few extra hours and make a little extra money in overtime if the position calls for it, I’m all for it because it enhances our business and helps our clients out. I guess I don’t mind the law. I know that there are businesses that will be far more affected by it than us. Again, when you have 6,000, 7,000, 8,000 plus associates, it can definitely effect their bottom line then what a small business like us can be effected so they might have a different opinion of the law itself but as a small business, no law is going to be that sweeping of a change for us.