One of the most poorly appreciated (and understood) laws in the universe is the law of unintended consequences. To that point:
Do you feel the Department of Labor’s (DOL) new overtime rules expanding overtime pay to millions of workers will actually provide more money or more free time for the employees affected? The Obama administration says that it will.
Or do you see the new overtime law as yet another example of governmental meddling that’s more likely to result in just the opposite consequence as that intended by the DOL? (And this apart from the extra administrative expense heaped upon businesses tasked with complying with the new rules.)
“I think the new overtime rule will have a negative effect on landscape service providers,” says Rick Cuddihe, CLP, Lafayette Property Maintenance Co. “I talk to contractors every day that say the rule will increase their labor expense. The most negative comment I’ve heard is ‘we’ll cut employee base pay to oversee overtime payments.’ I truly hope few, if any, companies go this way.”
Only time will tell what company owners will do to comply with the overtime rule and still keep labor expense at the same level as before the new rule, he adds.
I stopped into a Burger King two days after the DOL issued final regulations for the new overtime rules. I asked the manager there if his annual salary was more than the $47,476 annually, the new threshold making him exempt from overtime come this Dec. 1, 2016, when the regulations go into effect. He said it was. Then I asked if the salaried assistant managers at his store made enough to be exempt from overtime. He responded they did not, adding they would be classified as hourly employees.
I was surprised at the manager’s grasp of the new regulations so soon after the May 8 announcement. But, perhaps I shouldn’t have been.
The DOL, at the direction of the present administration, several years ago telegraphed its intent to boost salaried employees’ compensation. Company owners knew what was coming; they just didn’t know the final details.
The only surprise (small as it was, but nonetheless welcome) in the final law was the threshold for exempt salaried employees. The DOL, apparently in response to industry feedback, dropped the exempt threshold from $50,440, which it announced last year, to $47,476 ($913 a week). Even so, the final number is twice the previous exempt threshold of $23,660 ($455 a week). And, the exemption will rise every three years.
“The salary level will be increased automatically every three years, starting in 2020. It is estimated to be at $51,000 in 2020,” says Craig Regelbrugge, senior vice president at AmericanHort.
The landscape industry, replete with low-level salaried employees with managerial or sales responsibilities, finds itself in the same pickle as the restaurant industry and scores of industries and their thousands of small businesses.
“This is going to cause a number of landscape professional businesses to take a look at what they’re paying their employees,” says Paul T. Mendelsohn, vice president of government relations, National Landscape Professionals Association (NALP). “While it doesn’t impact the labor force, there are a lot of people in managerial positions within the industry that will be impacted by this.”
Steve Rak of Southwest Landscape Management agrees, saying, “I think the OT rule is going to hurt our industry because of the seasonality of our business. It is going to hinder our ability to be flexible with our manager’s time.”
Adds Regelbrugge: The new levels will be effective on Dec. 1, 2016. Dec. 1 is a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes Dec. 1.”
Here are three obvious changes resulting from the new overtime rules:
- Low-paid managers making more than $23,660 but less than $47,476 would be reclassified as “non-exempt.” This means if they work more than 40 hours in a week, an employer would have to pay them time and a half.
- An employer may give a small raise to a salaried worker making just under $47,476 to boost their pay over the threshold to avoid having to pay them overtime.
- An employer may decide not to raise the salary of a manager making less than $47,476 annually. Instead the employer could keep the employee’s workweek at or under 40 hours to avoid having to pay them overtime.
“If an employee is being paid salary and that salary is below the $47,476.00 threshold, the employer still has options,” shares Jared M. Nusbaum, an attorney with Zlimen & McGuiness, PLLC, Saint Paul, Minnesota.
“The employer can limit the number of hours that the employee is working to 40. The employer can also raise the salary to the minimum threshold. Finally, the employer can agree to change the employee’s pay to hourly and agree to pay overtime as needed for hours worked over 40.”
Adds NALP’s Mendelsohn: “One of the first steps everybody needs to do is go through their personnel who fall under the classification of white collar and do an audit of what their position is, how it is compensated and what it means as far as the overall salary burden that goes to the business.
“At the outset at least, the regulations promise to be fairly burdensome for businesses,” Mendelsohn continues.
He adds that one of industry’s biggest complaints with the regulations is that they do not take into account regional differences in pay. For example, someone in Iowa is being forced to compensate an individual at the same rate as someone on New York City.
“The one silver lining is that it does include some latitude because this new rule allows up to 10 percent of the salary level to be met with bonuses and commissions,” Mendelsohn says. “But it’s still, in our view, extremely onerous and we’re still going to be working in Congress to pass something that is more common sense.”
Even so, he admits the likelihood of changing the regulations are remote given the approaching presidential election.
“While legislation to block or slow the rule will surely be attempted, the path for legislation is bleak at least until 2017,” adds AmericanHort’s Regelbrugge.
Share your thoughts or concerns about the new overtime rule in the comments below.