The overtime opportunity: How manufacturers can make the most of DOL’s new rule

Posted in Human Resources | Human Resources Consulting | Manufacturing & Distribution on November 17, 2016

Wage WoesBy Joy Duce, SPHR, senior managing director of human resource consulting services, Sikich LLP

The Department of Labor’s (DOL) new overtime rule will have a major impact on businesses across industries, including manufacturers. And with the rule scheduled to go into effect on December 1, the clock is ticking for companies to comply.

The rule will greatly expand the number of employees eligible for overtime pay. 

  • It increases the salary threshold needed to qualify for overtime exemption from $455 per week ($23,600 per year) to $913 per week ($47,476 per year). Further, it establishes a mechanism for automatically updating these numbers, based on wage growth, every three years.

The rule, no doubt, poses challenges for manufacturers, and the National Association of Manufacturers has criticized the rule as a “costly regulation.” Still, manufacturers have no choice but to take a hard look at their current employee classifications and work quickly to comply.

There are several steps manufacturers can take today to do this and avoid the potentially high costs of non-compliance. Further, instead of viewing the rule simply as an inconvenience, manufacturers should use this mandate as an opportunity to assess and improve their human resources practices, which will help equip them for future growth and success.

1. Determine the impact on your business

A manufacturer should start by determining which of its employees are affected by the new overtime ruling. To do this, the company’s leadership or HR team will have to perform a thorough review of personnel records, job descriptions and worker classifications.

It’s important to keep in mind that while the new regulation deals with employee pay, it is only one of the factors that goes into determining whether an employee should be classified as exempt or non-exempt. To be considered exempt, an employee needs to meet a DOL qualification for exemption. These deal with job role-related factors such as decision-making authority or the number of direct reports, for example.

Therefore, while it may seem like it’s enough to simply raise an employee’s salary above the new threshold, it is also necessary to scrutinize the employee’s role to ensure they are properly classified. Companies can consider using an employee questionnaire to help them better understand job roles.

Alongside this assessment of employee roles, a manufacturer will need to estimate the potential financial impact of the different options for complying with the new rule. For example, how much would it cost to simply increase salaries above the new threshold for those employees whose job roles qualify as exempt? How much would it cost to pay overtime to employees who aren’t currently above the new threshold? Or, how much could be saved by relying on additional part-time workers or contractors?

To do this effectively and develop an accurate estimate, a manufacturer needs a detailed understanding of employee workloads and hours. HR leaders should review timesheets if they are well-maintained. If not, a questionnaire can help shed light on workloads.

By carrying out this thorough review of employee roles, workloads and potential costs of compliance, a manufacturer can then determine the most effective course of action.

2. Make communication a priority

Company and HR leaders should work together to develop an implementation plan for the necessary changes to salaries, employee classifications and job responsibilities. As part of that plan, companies need to ensure they communicate proactively with their employees to mitigate the potential negative impact on workforce morale.

Changes that will result from the DOL’s rule can have ripple effects throughout an organization. For example, when a company shifts an employee from salary-based pay to hourly pay, they may lose flexibility perks such as the ability to work from home. This can damage morale. Further, due to the new threshold, an employee with only a year of experience may suddenly make as much as a more tenured worker. This can hurt the latter’s motivation and productivity. Also, salary changes can sometimes put pressure on other areas of a company’s budget. This can result in cuts to year-end bonuses or company events.

Therefore, the leadership team should communicate with the entire organization and also schedule one-on-one conversations with affected employees to detail the necessary changes and explain the reason for any reclassifications. It is important that company leaders convey that these changes are not due to an employee performance issue or a company financial problem. Instead, they should make clear that the changes are the unavoidable byproduct of a government mandate. Leadership will also have to work with managers to explain their new responsibilities, which may include increased monitoring of employee hours and budgeting for overtime pay.

By focusing on the potential impact of changes on employees and communicating proactively, manufacturers can comply with the rule while also maintaining a strong and motivated workforce.

3. Avoid the consequences of non-compliance

Though compliance on such a tight timeframe can pose major challenges for manufacturers, the cost of non-compliance can be severe. The DOL can reach back three years to collect penalties for willful violations and two years for non-willful violations.

Manufacturers must take the new overtime rule seriously. And in the process, they can improve human resources operations across the organization. For example, by updating job descriptions and improving monitoring of hours, manufacturers can not only work toward meeting the new government requirement but also improve company practices.

The overtime rule, therefore, presents a valuable opportunity for the manufacturers who take a thorough, well-planned approach to compliance.

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About the author
Joy Duce is the senior managing director of human resource consulting services at Sikich LLP, a professional services firm. She has more than 15 years of strategic HR experience. She can be contacted at Joy.Duce@Sikich.com.


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Disclaimer: This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.