When the U.S. Department of Labor’s new wage standards are enacted on Dec. 1, roughly 22,000 salaried workers in NH will qualify for overtime pay after 40 hours of work, according to estimates from the NH Department of Employment Security. Thousands more may also benefit as employers revisit worker classifications.
In a nutshell, the salary threshold for earning overtime jumps from its current level of $23,660 to $47,476, or $913 per week.
The change captures millions of people who’ve been working on a salary basis—employees who have not necessarily been tracking their hours and who may be working beyond 40 hours when necessary, without any additional compensation.
The change to the Fair Labor Standards Acts results from an order from President Obama, who in March 2014, directed the U.S. Department of Labor to revise overtime standards. In the end, the department opted to change only the wage threshold for those entitled to overtime and not any other rules.
To be exempt from overtime, workers not only have to earn over the threshold, they must also meet other standards centering largely on the type of work they do, typically managing others or having a level of independence in decision-making. In addition, there are classes of employees like doctors, lawyers or teachers who are exempt. This aspect of the law hasn’t changed, but both pieces of the equation must be considered in classifying workers as exempt or non-exempt.
Fearing the Unknown
Whether added labor costs could trigger unintended consequences such as layoffs is unknown as employers are still figuring out how to respond to this new reality. What is known is somewhere between 4 million and 12 million will be affected nationally.
“They’re putting employers in a very difficult position, to assume every business can absorb this new cost,” says Tom Boucher, owner of Great NH Restaurants and two related businesses, and serves on the National Restaurant Association’s board of directors.
And all for-profit, nonprofit, government and academic employers must revisit employee classifications and prepare for potential budget busters of paying overtime to those previously exempt.
Among other things, it will affect informal systems that allow for compensatory time off instead of overtime pay for salaried employees who work extra hours during a busy month or busy season. If compensatory time is given to workers newly entitled to overtime, it has to be in the same week as the extra hours worked so the employee doesn’t go over 40 hours that week.
While many acknowledge there’s an economic upside if workers have more in their pockets to spend, there are a few potential trouble spots. This ruling could hit some sectors harder than others, including startups, university research and nonprofits whose sources of income make it harder to adapt to added costs.
Many NH employers agree the salary threshold needed revision, but they are upset about the scope of the increase and the fact that a Dec. 1 start hits them mid-year, forcing recalculations midstream.
“Why not do it in steps?” Boucher asks, referring to the $47,000 threshold. “Do it in stages” over the next couple of years, he says.
Of Boucher’s roughly 600 employees, about 20 percent are managers. Some, but not all, have salaries that fall beneath the $47,476 threshold. Does he raise all managerial salaries to the $47,476 level so they can work more or less as needed? Or does he watch hours more closely and pay those below the new threshold for overtime?
Boucher is worried that some of his most experienced and highest paid managers could end up being paid less than his less experienced managers who would newly qualify for overtime pay. He is considering his options.
And he is not alone. Any business that schedules workers to meet customer demand instead of the traditional 9-to-5 workday, like retail, hospitality or personal services, faces similar pressures.
Start Preparing
Few businesses were ready to implement the new law when it was announced, but lawyer Jim Reidy, who leads the employment law practice at Sheehan Phinney Bass + Green in Manchester, is recommending employers use these next few months to prepare.
“Don’t change it now,” he says. Wait, start planning and be prepared when the ruling goes into effect, he recommends.
He suggests preparing employees to track their hours if they don’t already. The law leaves it up to employers how they track hours, either electronically or on paper. Some employees may need to be trained not to check or respond to emails in their off hours.
Decide if it makes sense to bump some salaries over the threshold and make a plan for absorbing overtime pay, he says. Employees who work from home regularly may continue as long as hours are recorded so anything over 40 hours is paid overtime.
Challenges Ahead
The change in thresholds will be challenging for some businesses. Take a new and growing company like Binnie Media and NH1 News in Concord where many employees are hoping to make a career in broadcast news and work long hours.
WBIN-TV began news broadcasts in 2014 and is still working to attract viewers and expand relationships with advertisers. A sudden increase in payroll is not easily absorbed, says Lee Kinberg, executive vice president of WBIN-TV and Binnie Media. (Full disclosure, the author previously worked for NH1 News part time).
News is unpredictable and reporters, photographers, producers and editors need to react quickly when news breaks. Kinberg says the new overtime threshold worries him, but the company has not yet decided how it will react.
The company currently allows comp time when there’s a heavy news week that requires additional hours that salaried employees can take during quieter news cycles. This allows the company to avoid additional costs to the news department. Under the new rules, WBIN won’t be able to do this for any employees who fall under the new threshold as informal comp time arrangements won’t be permitted.
“It hinders those who want to distinguish themselves ... It makes it hard for employees who want to do more and the employer has to say ‘no’,” he says. Kinberg estimates about 10 to 15 salaried positions may be affected by the new threshold.
These are the unintended consequences those who wrote the law likely failed to consider, he argues. Especially for a relatively new business, “Flexibility is important when you’re trying to grow and go where the puck is going,” Kinberg says.
Flexibility is also key for startups. To be affected by the law, a business must have at least two employees and annual sales of at least $500,000, Reidy says. Some institutions, though, fall under the law automatically: hospitals, businesses providing medical or nursing care for residents, schools and preschools.
Research and development also stand to be affected because of the specific inclusion of post-doctoral students at universities. Teaching assistants and others involved in tutoring, instruction or lecturing do not get overtime, unlike post-docs who earned their PhDs and work closely with faculty researchers, and are the workhorses of most academic labs.
UNH currently has 50 postdoctoral research associates, paid an average of $47,000 a year. The university will have to decide whether to increase their salaries above the new threshold or pay overtime. Other universities face the same calculations.
“Given the current challenging financial situation, we recognize that increased salaries and paying overtime will impact other financial and staffing operations at UNH. In the coming months we will monitor closely the movement of other higher education institutions,” spokeswoman Erika Mantz says. According to Nature.com, “More than half of postdocs surveyed work at least 50 hours per week and one quarter work at least 60 hours per week.”
Nonprofits Face Tough Choices
Nonprofits may be hardest hit by the changes. Many social service agencies rely on federal and state funding supplemented by foundation grants or other private donations. Nonprofits already run lean and mean, so finding funds to increase salaries or pay overtime is yet another financial hurdle. In health care, for example, federal funds often do not cover the full cost of services provided.
In addition, nonprofit pay scales are typically lower than for-profit businesses. “The new salary threshold will affect a lot of professional jobs in the nonprofit sector,” says Kathleen Reardon, CEO of the NH Center for Nonprofits. And in NH, roughly one in seven employees works in the nonprofit sector.
The Center worked with employment lawyers from Devine Millimet & Branch PA to conduct two presentations in June about the thresholds for nonprofits. As of this summer, most nonprofits were just beginning to decipher the rules, Reardon says.
There are exceptions, but they are limited. For example, small (15 beds or less) residential homes paid via Medicaid to serve the developmentally disabled get to delay implementation until March 17, according to Margaret O’Brien, head of Devine Millimet & Branch’s Labor and Employment Practice Group.
The majority will fall under the new law, and nonprofit leaders are worried. “They can’t just pick up the slack here. They don’t know how their budgets are going to absorb this,” O’Brien says.
She suggests lowering base pay to allow for needed overtime and adding bonuses when that results in less pay than under the old rules. This, she says, allows a net zero impact on budgets and people’s paychecks.
Easter Seals is one of the few to have already looked at the potential effect on their bottom line. Chief Human Resources Officer Tina Sharby estimates the change could cost as much as $400,000. Of the 1,200 people on staff, 280 will be directly impacted and will have to be told they cannot work beyond 40 hours a week.
“Services will be impacted,” she says, noting that government funding has been frozen for years. Because client emergencies are inevitable, she says the agency is looking at setting up a system, putting some employees “on call” at designated times.
Sharby says this could be hard for those who are accustomed to going above and beyond, taking extra time with a struggling client.
New record keeping will be required as more people have to track their hours. And, at the back end, computer software will have to be programmed to reflect the new inputs. That will be an added administrative cost, affecting not just nonprofits but all employers.
Jim Reidy, who serves on nonprofit boards, recognizes the specific challenges for nonprofits. “I think it was reasonable to increase the salary amount,” he says. “I just wish there’d been a carve-out for the not-for-profits.”
Reardon is hopeful. “Nonprofits are remarkably resilient, and many are led by their missions. There’s just the reality of the increased labor costs…. It would really help if this opens up the conversation about how we support nonprofits and their work,” she says.
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