Article courtesy of SBAM Approved Partner ASE
Author: Dan Van Slambrook
Come December 1st, recruiting and retention will likely become a bit harder for many organizations—and for some organizations, a lot harder. The new requirements for classifying exempt employees are expected to impact 19% of workers who are salaried but would become eligible for overtime pay under the new classification requirements. The new exempt salary threshold will be increased two fold, from $455 to $913 per week. The impact to employers ranges from minimal to profound, depending on the industry and nature of the existing workforce.
On its face, the new regulation would seem to be an across-the-board win for employees, leading to increased morale and ease in attracting new talent. The business reality is that employers, in an effort to balance compliance with cost containment, must make choices that might not be well received by affected employees or potential job candidates. The new requirements and how employers address them will significantly impact employee recruitment and retention.
Organizations will need to achieve compliance through one of several approaches, each with its own pros and cons. Below are some of the common scenarios employers will be faced with selecting and their possible impacts on recruitment and retention:
Approach 1: Convert salaried employees to hourly per the new requirements, while eliminating or reducing overtime hours, and hiring more workers to absorb those necessary overtime hours.
Impacts:
- This approach will increase pressure on the recruiting function as the need to hire additional employees increases.
- Managers will be saddled with greater employee scheduling complexity to balance operational requirements with overtime restrictions, which could lead to morale problems among leaders.
- Affected employees may see the loss of their salaried status as a demotion and find it more difficult to meet the requirements of the job within a forty-hour work week, leading to decreased job satisfaction.
Approach 2: Convert affected salaried employees to hourly, at the same time reducing their base pay rates while mandating overtime. The employees ultimately work and earn the same amount as before the regulation change, provided they sustain the same amount of overtime hours.
Impact:
- Employees may view this approach as an unfair “bait and switch”, causing turnover and morale issues.
- Recruitment pressure will increase as turnover likely goes up.
- Attracting candidates may prove difficult as base wages are below market value and applicants are wary of the amount of overtime that will be available to compensate for lower base rates.
Approach 3: Convert current base salaries to equivalent hourly rates, continue the volume of working hours as they are, and pay the overtime.
Impact:
- Depending on typical employee overtime, this could be one of the more costly approaches to employers, but may have a positive impact on recruiting and retention as employee earning power stays the same or goes up.
- For employees accustomed to working non-compensated overtime as salaried employees, morale may increase as they feel more fairly compensated for working extra time.
In all three of these scenarios, re-classified employees may face a restructuring of the benefits that came with being a salaried employee, such as the way vacation and sick time is afforded, less flexible schedules, and loss of the ability to work from home. Such changes will likely dampen employee morale.
Approach 4: Increase employee base rates to at least $933 per week to maintain exempt status (provided employees still pass the FLSA “duties test”).
Impact
- While potentially the most expensive option for employers, employees will undoubtedly respond positively to a pay increase and the ability to maintain the prestige, benefits, and flexibility associated with a salaried classification.
- The increased cost associated with raising salaries will underscore the importance of attracting strong talent and making sound employee selection decisions. Recruiters will need to deliver. But if employers can afford it, this approach could make them the most competitive in attracting talent over competitors who opt for less employee-friendly approaches.
What’s the best option? While there is likely no single approach that is a complete win for both employers and their employees, organizations can avoid costly missteps by carefully considering their compliance strategy from multiple angles – including impacts to recruitment and retention – before deciding on one to adopt.
Looking for more info on FLSA Regulations? Visit our FLSA compliance article archive.