Overtime Out of Control? Effective Cost Management Strategies

Following the release of the May 18, 2016 final rule regarding adjustments to the overtime threshold for the Fair Labor Standards Act (FLSA), organizations are working to make changes to meet the new requirements. The ruling adjusts the minimum salary needed to qualify for exemptions to $913 a week, or $47,476 a year. This will affect an estimated 4.2 million American workers.

This means organizations will have to be vigilant in keeping accurate records of hours worked among all non-exempt employees, and of course be judicious with their overtime budgets. Overtime can carry an organization through treacherous times, or speed its descent into the red. The difference is a matter of strategy.

PLANNING YOUR APPROACH
While overtime is often used in the heat of a difficult moment, it also can be successfully incorporated into an organization’s business plan. If your organization frequently relies on employees clocking extra hours, consider an overtime audit.

Analyze how overtime is currently used, both economically and culturally. How many hours of overtime are used per month? Which employees take advantage of it, and how effectively? Has it become an expected part of their income?

Determine key periods when the use of overtime is necessary and plan accordingly. By formally strategizing, you’ll take the surprise and much of the stress out of the process.

SETTING LIMITS
When overtime is offered, a few employees often voluntarily shoulder the entire burden. Consider setting individual limits to prevent resultant health and / or motivational problems among overworked employees.

Another strategy for handling the restriction of overtime hours is a rotation system. In one such system, employees sign up for overtime on a list. After an employee works a certain number of extra hours, his or her name is scratched off, and the next employee on the list will be eligible for overtime. This allows for a pool of potential overtime workers for any shift, and prevents any one employee from shouldering too much of the burden.

Alternatively, you may wish to offer overtime only to key employees or groups of employees who can handle the extra hours without a significant dip in productivity.

Staff redeployment often can be used in place of, or alongside, overtime. Increased cross training will facilitate redeployment, allowing employees to wear several hats during a given period. If your employees are sufficiently cross-trained, you can plan for the absences that result from overwork.

If overtime is used frequently at your organization, find out how your employees think it could be better handled. A custom survey may let you know how the majority feels, and can include open-ended questions that may garner innovative strategies tailor-made to your organization’s culture.

HOW TO KNOW WHEN YOU SHOULD HIRE
As you would determine overtime caps for individuals, you also can set systemic limits to ensure that your organization won’t be overtaxed by overtime.

Consider the reasons you’re using overtime. If the burden is unlikely to abate in the near future, you may be pouring money into extra hours that would better be spent in training or hiring.

Some employers insist that turnover costs are higher than overtime costs when benefits, vacation, payroll, and training are taken into account. If this is a concern, consider calculating the average turnover cost at your organization using one of the numerous free turnover cost calculators available online (search on Google for “turnover cost” for a plethora of tools). You may find that overtime is more costly than hiring. If the cost is the same—i.e., if a new employee’s total compensation plus turnover cost is the same 150% of total wages you’d spend on overtime—remember to factor in the hidden costs that come from overextending employees. In such cases you’d be wise to hire instead of allowing too much overtime.

THE DANGERS OF OVERTIME
Overtime can be a response to absenteeism. However, exhausted employees on the clock are more prone to absence-inducing conditions. In other words, unscheduled overtime often creates absenteeism.

Overtime hazards include the following:

• Stress 
• Lower levels of performance 
• Fatigue-related errors 
• Workplace injuries 
• Sickness 
• Depression 
• Work / life imbalance
• Burnout

As with any change in workplace practices, make sure that any alteration in overtime strategy is accompanied by the appropriate communication, or you may face a backlash in morale. In cases where overtime is offered only to specific employees, the reasons given should be especially clear to avoid feelings of unfairness among co-workers.

These flexible options are suitable only in a non-union work environment, as union contracts govern overtime rules. By employing principled negotiation and integrative bargaining techniques during contract talks, however, unionized employers also may be able to effectively control overtime costs.

Fair Labor Standards Act (FLSA) Regulations Update

On May 18, 2016, the final ruling was released, updating regulations defining which white collar workers are considered protected by the FLSA’s minimum wage and overtime standards.

Key Provisions of the Final Rule

The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be classified as exempt.  Specifically, the final rule

1. Sets the standard salary level at the 40^th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90^th percentile of full-time salaried workers nationally ($134,004); and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Some Great Articles For Your Wednesday

Last week we talked about Investopedia as a great resource for getting definitions for financial terms. Well Investopedia runs Financial Edge which has some great advice that can be applied to HR

The first today talks about 5 jobs with mandatory overtime. If your employees don't want to have to work nights or weekends, they may want to stay away from becoming an EMT, construction worker, IT professional, warehouse employee or investment banker. If they didn't know that they would have to working outside of the 9-5 schedule for these jobs, they probably weren't paying attention when they signed up for the job.

When an employee comes to you asking for a promotion, you can spout off these 5 reasons why they don't want that promotion. As Spiderman says: "with great power comes great responsibility." Always remind your employees that.

Lastly, we have an article about 6 industries hurt by the NFL lockout. Steroids manufacturers did not make that list, but television, video games, and sporting goods are among the industries that may have to worry about their workforce if the NFL workforce is kept locked out.

Have a great Wednesday!

To Allow Telecommuting or Not?

A lot of office places are grappling with the pros and cons of allowing their employees to telecommute. In this age where cost-cutting is a premium, minimizing used office space and allowing employees the flexibility of working from home seems to be growing in popularity. But with it comes pitfalls such as chance of lost productivity, a lack of oversight, and decreased amount of teamwork and camaraderie, among other negatives.

FINS has the 5 worst and best things about telecommuting from an employees side. The last negative is one to warn employees about if the option is given to them: "It could totally backfire. We hope it doesn't, really, but it's hard to know how you'll do working at home until you make a real commitment to it. Spending all day at home could leave you feeling cooped up, it can create tensions in your family life, especially if there's not a well-thought-out system in place, and you could find yourself really overwhelmed, or really bored."

If you allow co-workers to work remotely and issue them a smartphone, beware of the legal implications of overtime having to be issued to those workers as Workforce Management writes. The article cites one case from the Chicago Police Department but warns that it is "one of a handful nationwide in which employees have claimed overtime pay for smart-phone use—and apparently the first involving public employees. But lawyers say such cases are a clear warning to employers to put a smart-phone usage policy in place before they end up in potentially costly litigation."

And lastly, if you plan to have your employees work in the office or out of it, Monster.com has some tips for successful meetings (H/T Wendy). Warding off the "meeting vampires" is the key to making sure that meetings are effective and efficient.

$25 an Hour Jobs

Great post from The New York Times Freakonomics Blog (and a true, but funny ending as well):

Yahoo! recently ran a story entitled “Surprising Jobs that Pay $25 an Hour.” The author writes,

But you don’t necessarily need a post-graduate degree to qualify for a job that pays several hundred dollars a day. While it may be true that helicopter pilots, high-tech administrators, and civil engineers earn $25 an hour or more, so do many other professionals in careers that require only an associate or bachelor’s degree to leap onto the playing field.

The jobs listed are electrical and electronic engineering technician, human resources recruiter, paralegal, respiratory therapist, police officer, advertising sales agent, and interior designer.

One profession that certainly qualifies, but was wrongfully omitted from the list: street prostitute.

One of the jobs on the list as Steven Levitt points out? Human resources recruiter! So there may be money in your job, yet.

Other great Freakonomics posts for HR to read:

• Italian workers who were able to trade overtime
• A look at what has happened to wages in the past 3,000 years.
• Levitt tries to determine the economic value of popularity
• If you give your employees a raise, will they start watching TV in the bathroom?
• Levitt reviews Michael Lewis' NFL book Blind Side and salaries in the NFL
  

Enjoy!

Deepening the Downturn

Updating our post from yesterday is an article from the New York Times which says that workers are getting fewer hours, deepening the downturn: click here

This is a huge problem as not only are workers being laid off, but the ones who are still employed are getting less overtime and taking in smaller paychecks--which the Times cites as a worse problem than the layoffs....

And those layoffs continue, especially in the financial sector. After Merrill Lynch announced 4000 layoffs yesterday, Citigroup went more than double that with a planned 9000 layoffs: click here

This is going to create a big problem for the United States economy. With a weakening dollar, low interest rates and rising inflation, smaller salaried and laid off workers are going to be spending less. Less consumer spending will lead to less money going to companies. And companies taking on losses will be more likely to layoff more workers. Something needs to happen to stop this cycle from worsening soon or there will be quite a situation on our hands.

If you happen to be at a company that is currently trying to grow and expand, you've hit the jackpot. There are a lot of skilled workers increasingly having their wages cut or being laid off and these people will be more than willing to line up to be hired. Not only will this allow you to get the best workers, but probably pay a lot less in the process.

If you look at the graphs to the right, you can see how this has been playing out in the United States and get some idea of where we are going in the future if this continues.

Stay tuned to see how this situation continues to develop...

UPDATE: A really good point from a fellow blogger: click here

What I'm Hearing...Wage and Hour Lawsuits

Over the past few weeks, I’ve been hearing more and more about wage and hour lawsuits. It seems the U.S. Department of Labor is stepping up its investigation of wage and hour complaints. Now, more than ever, it’s essential to make sure your FLSA exempt / non-exempt classifications, and associated job descriptions, are accurate and up to date. White collar positions including store managers, IT positions, and sales reps are the next wave of DOL investigation. In the past, traditional non-exempt positions have been the focus.

According to Fortune Small Business, key areas to examine are “executive assistant” positions, IT employees, pay docking practices, the impact of telecommuting on compensation, provision of comp time, and the use of stock options.

FLSA compliance has always been a thorny issue. While the new 2004 regulations helped in a variety of areas, compliance continues to vex HR professionals and their business line managers. Proactively updating your job descriptions and auditing your exemptions should help to prevent your organization from being targeted for lawsuits by employees and the DOL.