Dave: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices in a traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful, modern solutions to help you enhance your company’s growth. I’m your host, Dave Cain.
Back in May the Department of Labor released the Labor Standards Act Overtime Exemption Rule, and employers nationwide are scurrying to find out how to manage that rule that will come into play the first of the year. That will more than double the overtime exemption. To help us sort through the details of this new rule and help us identify the options available to the business community we will be joined by Renee West, human resources manager at Rea & Associates. Welcome to unsuitable, Renee.
Renee: Thank you very much. I’m very glad to be here.
Dave: Before we get started on the new rules, I’m just dying to ask you and I’m sure listeners are as well, what’s it feel like to be the HR director of 220 accountants across the state of Ohio?
Renee: It feels wonderful. I am very excited and very proud to be a part of the firm.
Dave: Have you taken a look at my personnel file recently?
Renee: It was pretty large. I think it was probably one of the biggest ones I had on my desk, but I’m told it was all good things that were in there.
Dave: Well thank you, keep that going.
Renee: Yes, I will definitely be sure to review that.
Dave: Anyway, today’s topic is a bit of a controversial one and a hot topic as well. We’ll get into that, but it’s the proposed Department of Labor Overtime Regulation and Compensation Rules. Let’s start out by just giving us a quick overview, and then we can dive into the specifics.
Renee: Sure, I would be happy to. As an HR professional this is a topic that has been on the radar for a while now, and there’s a lot of question around the regulations and the proposed adjustments. Basically, a summary is the Department of Labor has come out with overtime exemption regulations that will now allow millions of Americans who were previously exempt from overtime to be eligible to receive overtime.
What that looks like is, right now there is some pending legislation as far as the timing of the roll out of this. As of now, Dec. 1, 2016, there is a new threshold that will determine whether an employee is eligible to receive overtime pay. The current regulation has that annual salary at $23,660 per year, and that is increasing to a threshold of $47,476, which is more than double what the current threshold is.
Dave: Okay, we’ll get back to this doubling effect. Before we go much further, there’s a little confusion to when this rule goes into play. I’ve heard Dec. 1, Dec. 31, I’ve heard delayed. Let’s emphasize that for a moment.
Renee: Sure. Yes, there is a lot of talk around this at the time. Last month the House of Representatives actually passed a bill to delay the start of this proposed ruling from Dec. 1 to June 1, 2017. Right now this is currently a bill on the Senate floor that is up for voting as to whether they approve this extension. It has been said through the grapevine that even if the Senate does agree with this extension that the president does plan to veto this bill. The thought is that there will still be some type of regulation is going to be going through. A lot also depends on the election results in November as well.
Dave: There’s an election coming up?
Renee: There is, you might have heard it. Yes, there’s a couple people running. Yes.
Dave: Good. Whenever we start talking about compensation, there’s always the state minimum wage and federal minimum wage. Is this kind of like the medical marijuana rules where the state has a rule and then federal comes in and overrides that?
Renee: Very similar, yes.
Dave: Did you notice that the production crew wasn’t really paying attention until we started talking about pot?
Renee: I know, I noticed that all of a sudden. From an HR perspective, that concerns me. I understand that they are the best group that we have, so we …
Dave: We’ll go with it.
Renee: Yes, we’ll go with it.
Dave: Let’s go to this change. My understanding is the last time this rule was changed was in 2004, and now it’s going to pass either in 2016 and in 2017. It seems there’s a significant delay or, I don’t know what the word is, but somebody’s not in tune with that type of delay.
Renee: There’s a lot of, from an employer standpoint this is a very big concern for employers as it will limit their ability to be able to hire, especially for those smaller companies that maybe have 25 or 30 employees. This is something that will have a ripple down effect through the retail business. They’re talking right now of the retail with the busy season and the holidays coming up have really cut back on their hiring projections with the anticipation of this rule going through. There has been a lot of lobbying on the employer’s benefit as well on behalf of the employers to ensure that we don’t put companies out of business as well.
Dave: I just want to stay there for a second. The Department of Labor, the DOL, was behind this rule. Again, going from 2004 to 2017, according to my math that’s 13 years. They’re trying to put this increase all in, in the next year. I think that that’s extremely unfair to various employers.
Renee: It is. The time frame of this is very unfair. Also, keep in mind that this is the first in a series of increases to that threshold. Once this initial increase goes through there will be a mandated increase every three years. We’re looking at that continuing as it moves forward.
Dave: Am I going to get a raise?
Renee: I will put that in with the higher beings to see, but yes, I’m sure everyone will need to have a raise at some point to be compliant. If not, then the employers are opening themselves up for Department of Labor audits and fines associated if they do not have employees classified correctly.
Dave: Let’s talk about the industries that might be most impacted if you will, by this change. Obviously you mentioned retail, I think is probably one area.
Renee: Sure, retail definitely. Also the manufacturing sector will be very much impacted for the fact that, again, it’s going to be seen across the United States in a number of different types of businesses, but the manufacturing and the retail tend to be the top.
Dave: What about teachers? They work a lot of overtime. Would they be impacted by this rule, or are they in that exempt group?
Renee: They very well could be impacted. The key, though is for the employers to be sure that you’re utilizing the skills and the standards test to be sure you have employees classified correctly. That is a resource that employers need to be sure, number one, that they have individuals classified either exempt or non-exempt. It’s a very important piece of this puzzle.
Dave: What is an exempt employee?
Renee: An exempt employee is an individual that is exempt from overtime.
Dave: Such as a schoolteacher?
Renee: Yes.
Dave: Such as a CPA?
Renee: Correct.
Dave: Dog gone, come on, who do I write about that?
Renee: Yes, yes. The labor law states that any hours worked over the hours of 40 in a week for non-exempt employees should be paid at time and a half. That is where that threshold is changing to look at, have employers, do we need to reclassify individuals? Do we need to reduce our staff to comply with being required to pay overtime now for a majority of our staff? A number of employers are looking at a lot of different options of how they need to cover this.
Dave: I read in one article that this may increase jobs, and the more I read about that I thought, “Well okay people are going to work less, be paid more, who else is going to do that work?” They’re going to have to hire additional employees possibly.
Renee: They could, and the rate that they would pay those employees would be very low compared to what the skill level of those employees would be. It’s a matter of, again, you’re back to employers need to be competitive in the marketplace, so they also want to be sure that they’re paying employees based on their skill levels. It will be a challenge to find individuals that have the skill level at lower pay rate. That’s one of the struggles that they’ll start to see moving forward.
Dave: As I think through this, there may be a lot of unintended consequences to this particular rule or law or regulation. One of them would be, could I begin to lease employees or outsource employees? Will that have any impact?
Renee: Definitely. There is that opportunity to utilize contingent staffing for that resource. Those employees are actually not an employee of that particular company, so you are not required to pay their benefits and pay vacations. There is a savings to employers to do that.
Dave: Do you think this could increase employee leasing again? That changes every time an employment law changes.
Renee: It does, it does. This is one of the trends that we are anticipating that will continue to increase as companies utilize that contingent workforce.
Dave: Let’s go back to the side effects, if you will. Obviously here’s a rule we must comply with. It may be very difficult to comply for a lot of the businesses, but did the DOL offer any suggestions on how companies are going to pay for this increase?
Renee: It would be nice to say yes, however …
Dave: I knew the answer to that question.
Renee: The DOL, there’s a lot of very gray areas, even in the proposed regulations now, but no, there is no real support for the employers as to best practices, other than what we can do from an HR perspective. It’s a financial impact on a lot of organizations.
Dave: As an HR professional and in the circles that you run, how does your group feel about this rule?
Renee: A number of my colleagues and discussions that I’ve had with individuals in different capacities and different, either manufacturing and even professional firms and services are really concerned and are looking at, they’ve already placed a hold on any additional hiring until they, number one, know how the election results pan out, and then also how this ruling goes into play, and are also very concerned with adding any additional expansion to their current facilities as well. Definitely it is a concern. It’s also a concern from a financial impact of, if individuals are not classified correctly, and I’ve said this a couple different times, the Department of Labor is also going to be issuing fines to employers for any violation that they find as a result of this misclassification.
Dave: Now, you got any good news on this, by the way?
Renee: I know.
Dave: You want to go back to the pot discussion?
Renee: Trying to stress the importance of what we can do to try to be prepared for it, and I think that’s about the only positive piece of this type of regulation.
Dave: Not only will our compensation costs increase, the hard compensation costs, but you have all the associated payroll taxes, the social security, the Medicare, workers comp, the unemployment. I’m just wondering if that was considered as this thing goes forward.
Renee: The thought is that we really don’t know what was considered, to be honest with you.
Dave: Oh really?
Renee: From an employer’s standpoint, you’re sitting back and questioning … We as a country are trying to improve our jobs, and this in essence takes away positions, and that’s a very big concern.
Dave: You know, you hit it right on the head. Employers only have so much to spend and we’ve got to take care of our shareholders, our bankers, our current employees, our benefit packages. My concern is, is the benefit packages may be reduced to help pay for this. Obviously the bottom line could go down, but to offset some of these increases it could be the benefit package.
Renee: That’s very true. With the majority of the benefit plans most companies are looking at increases to the amount just based on the healthcare cost. That already is another additional expense. I do know some individuals that I have spoken with are looking at, do we need to take away our holiday bonuses that we normally give each year? There’s so much uncertainty around this right now that, if companies do not make appropriations and have plans in place, it could really be a big issue for them.
Dave: Oh boy, here comes Scrooge again, no Christmas bonus.
Renee: I know.
Dave: You know, the Department of Labor does have a question and answer on their website, and there’s a lot of information if the listeners want to go out there and check that out. One other thing that caught my attention was the economics of this. We’ve talked a lot about that. One of the statistics that they drop on us is that they estimate that the average annual employer cost will be approximately $295 million per year for the next 10 years. That’s a lot of large ones.
Renee: It is. That number encompasses the three year increase that we talked about every three years. That’s just a standard right now. Who knows, that could very well even increase more as we go forward.
Dave: As you are talking, obviously internally at Rea & Associates and with your group, what are some planning techniques? They may not all be known, but what’s your group talking about? You guys go out for drinks when you talk about this stuff?
Renee: They see HR coming and they just kind of, “Oh no, what is she going to tell us now?” One of the things that we’ve stressed, and even through our HR communications in our groups with employers is, even though we have the proposed delay, we are still advising companies to have a plan in place. The first piece of that would be taking a look at how you have your employees classified. Look at the job duties test to be sure that if an employee is actually classified as an exempt employee that they fit the requirements to be able to do that; that’s number one.
The next part of that then is to look at the salary ranges that you have in place for those individuals. Be sure that the thresholds are equal to the amounts that we mentioned before with the new threshold level of the annual $47,476. Being sure, too, that you’re communicating with your employees. Another big piece of this, a lot of individuals have questions and right now for them to go to their HR department or their manager to ask questions of, how does this impact me, it’s hard for them to answer because there are so many vague areas yet as to the timeline on this.
Dave: Does it matter what the size of revenue of my company? If I’m just a startup business or half a million dollars of revenue, or five million, does it apply to everybody?
Renee: It applies to everyone, yes. It’s very important that these regulations are, whether you’re a small operation that has 20 employees or one that has 1,000, these are the regulations moving forward.
Dave: Recap to get ready, your group, our group, employers across the country need to get a plan in place.
Renee: That is correct.
Dave: Look at exempt employees, look at how they’re paying their employees whether it’s annual compensation amount, an hourly amount, bonuses. I think the landscape is going to change, and maybe should change.
Renee: Yes, definitely. It’s important, too, for employers to be aware with the new salary thresholds, the competitive market, we need to be sure that you’re able to attract your skilled workers as well. That will increase those salaries that those individuals will be seeking also as part of this. That’s another piece of the puzzle that will really impact the financial piece of this whole regulation.
Dave: Thanks a lot for nothing, I guess.
Renee: I know.
Dave: I thought you were bringing good news today.
Renee: You know, I really wish that sometimes HR could just have some happy news to share in reference to laws and regulations. Right now I think the best thing that we can share is again, being sure employers have a plan in place.
Dave: Here I thought I was going to get a raise, now I know my bottom line is going to shrink, I’ve got a lot of work to do to get everything in order.
Renee: Yes.
Dave: Before we wrap up, we like to ask a fun question to get a little more insight into the minds of our guests.
Renee: Sure.
Dave: I’ve got a question for you. I understand that you like ’80s rock and roll, and specifically the hair band era?
Renee: I do. I am a true fan, yes.
Dave: Do you have a favorite hair band?
Renee: I would have to say that would be Bon Jovi.
Dave: Bon Jovi?
Renee: Yes. Although his hair’s shorter now, at the time it used to be part of the hair band. Yes, that would be one of them.
Dave: Let’s just say it’s the weekend, you got a long holiday weekend coming up, you had a great day at the office, you run out to the car, jump in, turn the stereo on, put a little podcast or your playlist on there, is Bon Jovi coming on?
Renee: Oh, of course. You can even ask my kids. They’re in the car with me all the time, and they know all the songs, all the words.
Dave: What song would you crank up?
Renee: The very first one would be Livin’ on a Prayer.
Dave: If you’re in the car by yourself, do you sing?
Renee: Of course I do.
Dave: Do you mind singing a few verses for us?
Renee: You know, I don’t even know if I could give it justice. I could try.
Dave: Go ahead, you can try. Yeah, let’s go ahead.
Renee: I’m just going to say, living on a prayer, that’s about as good as I can do. If I had Jon Bon Jovi standing next to me, maybe he could help coach me as to how that really should be. Can I put that request in for my next podcast?
Dave: You can, you certainly can.
Renee: That would be great.
Dave: Again, our guest today has been Renee West, HR director of Rea & Associates. Thanks again for joining us on unsuitable, Renee, and thanks to our listeners for this episode of the podcast. Listeners, if you want to learn more about the new DOL rule and how it’ll impact your business, check out www.reacpa.com/podcast for bonus articles and insight. Don’t forget to subscribe to unsuitable on Rea Radio on iTunes or SoundCloud.