New FLSA Overtime Rules – Did the early birds get the worm or a surprise?

For those of us who follow U.S. pay compliance changes and challenges, 2016 was an interesting year to say the least.

In May, we finally heard from the Department of Labor (DOL) with details about the long-anticipated changes to the very mature Fair Labor Standards Act (FLSA) guidelines. The guidelines specifying which jobs are exempt or nonexempt from the overtime rules (including the salary threshold test) under the FLSA have not been updated since 2004 (and only revised 6 other times since its inception in 1938).

Preparing for changes

Many companies spent their summers and falls preparing for the changes announced in May and due to go into effect on December 1st. Companies entrenched in preparation were those expecting to experience a big financial impact.  These companies seemed to be concentrated in a few broad industries:

  • retail
  • fast-food/quick serve restaurants
  • healthcare
  • services

Changing course

Then in November, as many of us were out buying Thanksgiving turkeys, traveling to see family and friends or cleaning up guest rooms for company, a judge in my home state of Texas issued an injunction delaying the implementation of the new guidelines. Yes, this injunction came late the evening of November 22nd (Tuesday before Thanksgiving) and one week before the December 1st implementation.

Companies who were prepared to implement changes were actually left with fewer options

So, to my early bird reference: those companies who were proactive and prepared to implement changes to meet the government deadline were actually left with fewer options to react to this change than those companies who had done little to nothing to prepare.

Given conversations my colleagues and I had with dozens of companies, as well as an October 2016 survey of nearly 1,000 employers by World@Work, a majority of companies expecting a significant impact from the change in guidelines had modeled their options – raise pay to the new salary threshold, reclassify jobs to nonexempt or a combination of the two.

These companies also worked on implementation planning and materials to ensure managers and employees would understand the rationale and mechanics of the changes, as well as how work would be managed going forward for newly nonexempt jobs – not a small undertaking.

Some companies went forward anyway

So, when the news broke on November 22nd, what did most companies do? It varied. Based on an informal poll of companies, it seems the majority moved forward with their planned changes.

  • Some had already communicated and even implemented changes (remember those retailers who were already in holiday shopping season – they had to work it in before their seasonal work began).
  • Some had communicated the changes, but not yet implemented them.
  • And, even some that had not yet communicated, still implemented.

Why? Some believed the messaging and undoing of the changes would be too difficult to change or unwind. Others thought the changes “were the right thing to do” (some of the analysis by companies included looking not only at the pay of those below the new salary threshold, but the duties as well, and decided to make a change based on the duties).  Others operate in states where the threshold is already above the current federal guidelines and would be approaching the new federal guidelines.

What about those who did nothing?

Still, there were a minority that did not make the change. Will those companies have a cost advantage over other employers who either raised their pay or converted jobs to non-exempt and will now pay overtime? And will those that made a change have competitive advantage in attracting and retaining employees who benefited from the change? Will companies that did not implement be scrambling; could they even owe back-pay should the new guidelines ultimately be implemented?

There are some unknowns as we begin our journey into 2017, as well as thoughtful human resources professionals thinking through the unknowns, challenges, opportunities and options. Time will tell, if 2017 is as interesting as 2016…


 

Laura Rickey is a director with Willis Towers Watson and leads the Texas Rewards practice.  Based in Dallas, TX, Laura has 20+ years of experience developing and implementing reward and performance management strategies and programs in support of organizational goals and objectives across a variety of companies/industries including consumer products, energy/utility, entertainment, financial services, healthcare, hospitality/gaming, retail, and technology.

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