You’ve probably heard the old adage that “nothing in life is certain but death and taxes.
Last week, the Department of Labor (DOL) finalized the new overtime pay rules. Effective December 1, employees earning less than $47,476 annually will receive time-and-a-half for time worked over 40 hours in a week. Today, the salary threshold is $23,660.
There are inevitable extra costs that your business will incur in assessing the impact and enforcing the new regulations – and we listed five of these potential areas in last week’s blog post.
As the warmer months quickly approach, you may also be looking to hire summer interns, with the possibility of employing them later for entry-level positions. The average graduate salary is $45,478 – still below the new salary threshold – yet many of these hires work above the standard 40-hour workweek.
Before you hire summer interns, it’s important to know the changes to the overtime pay rules – as by the time you are looking to potentially hire them as full-time employees, the new rules will be close to taking effect. Ahead of finalizing that graduate salary, you should be aware of these options when it comes to compensation:
- Reclassify the job as nonexempt and pay for additional overtime hours worked. This is the simplest of the three choices, however this often feels like the option where costs can easily blow out of proportion. If the costs associated with a salary increase are greater than paying the employee for overtime hours worked, then this is a viable option. However, especially for white collar workers, it’s so easy to be tethered to our mobile devices these days, which means that hours spent checking email, taking calls and working around-the-clock could very quickly add up to overtime hours.
- Reclassify the job as nonexempt but look at managing overtime hours to minimize costs. This option means that you can try and have a tighter grip on costs by defining what constitutes overtime hours and what is not, working closely with team leads and managers to agree to the requirements. A clear communications policy will be important so that the process to working overtime is outlined to all employees. Managers will also need to be more proactive and vigilant in identifying employees who are approaching the standard 40 hour workweek limit.
- Classify the job as exempt but increase employee’s pay up to the new salary threshold. While new positions could appreciate a higher salary compared to the industry average, the challenge would be if you are increasing pay for existing employees. If the salary bump is significant, this could impel an employee to question why they didn’t receive a pay rise earlier, and how it relates to work performance. Any communication regarding salary increases should be handled delicately, with clear reasons as to why this is happening.
- Divide the role into two jobs to attempt to reduce overtime payments. This will require an analysis of the roles and responsibilities of the position, and a solid estimate of how people are spending their time. For example, it may make sense to delegate a task that a more senior employee is proficient in to a more junior employee, who can tackle the activity as an opportunity to learn and grow in their career.
Before you solidify which approach – or combination of options – work best for your business, make sure you do a comprehensive assessment on its implications. For example, while reclassifying entry-level positions so that they are eligible for overtime hours may seem like a potential bump in pay, the reality is that these workers would lose out on salaried worker benefits such as paid vacation. For human resources and recruitment executives, this will also affect how to hire and discuss benefits to potential candidates.
Summer interns and graduates are a great addition to any business (check out our 10 tips to establishing an effective paid internship program). Offering internships provides students with valuable, hands-on experience, while allowing your company to nurture the next generation of top talent. As you invest the time and effort into training and managing these employees, however, it’s also critical to evaluate your long-term recruitment policies.
While there are still a few months until the overtime rules are enforced, it makes sense to prepare for the changes now, to give you ample time to plan, budget, communicate and respond to how the rules will impact your business.
If you’re in the midst of evaluating how the Department of Labor’s new rule could impact you, Replicon can help you and your team navigate the right processes and systems to suit your business. Contact us for more information.