Joe, an assistant manager in the retail sector, earns a salary of $36,000 annually and typically works 50 hours a week. But come Dec. 1, his employer will either have to cut his hours to 40, raise his base pay to $47,765, or pay him time and a half for every hour he logs over 40 in a week.
On the surface it sounds simple but the federally-mandated shift in salaried worker pay has been of concern in the business community.
On May 18, the U.S. Department of Labor issued a new overtime law that will make 4.2 million salary workers like Joe eligible for overtime pay at an estimated cost to employers of $2.9 billion over the next decade. The DOL estimates that U.S. employers will spend $592.7 million to comply with the new rule in the first year alone. The law could impact around 52,000 workers in Arkansas, according to the DOL.
The new rule is effective Dec. 1 and has been widely debated because of its arbitrary nature, said Michael Harvey, chief operating officer for the Northwest Arkansas Council.
“For at least a year out businesses surveyed by the local Chambers of Commerce have voiced concern over this added regulation. They are nervous about it and the impact it would have on their operations. Many see it as burdensome and resent that it was imposed by unelected bureaucrats without Congress taking action,” Harvey said. “I know there are some abuses in play but this regulation will force some employers to make decisions that negatively impact jobs and likely produce a ripple effect through the economy.”
Harvey said businesses most likely impacted by the new rules will be in retail, services and manufacturing. He said most businesses can’t raise someone’s salary from the threshold of $455 a week to $913 a week just because someone in Washington tells them to. A more likely scenario for employers facing this new regulation is to require them to work a straight 40 hours and track that time while paying overtime if necessary. In some cases it might make sense to split the 50 hours worked between two employees who might work 25 hours each.
“Businesses will have to figure out what works best for their operations, but in some cases it will mean hours lost and in some cases more pay for the workers impacted by the new rules,” he added. “There will be winners and losers with this action.”
Wal-Mart Stores and Tyson Foods were asked for comment on the new rule but neither company responded.
At the store level, a large portion of Wal-Mart’s management is paid an hourly wage and the retailer uses a time clock to track those hours. But in the corporate offices there are a large number of salaried employees who do typically work more than 40 hours a week. If those workers already earn more than $47,476 annually they would not fall under the new rules. At the high-end of the salary rule the new regulations will also apply to workers earning at least $100,000 but less than $134,004. The same is true for Tyson Foods in its plant operations and home office.
The new regulations also allow companies to apply up to 10% of non-discretionary bonus or commission pay to the base salary and that in some cases will make keep employees from earning overtime pay.
Harvey said assistant managers and shift managers at the manufacturing level are the two areas possibly impacted from the law. In manufacturing, a plant’s ability to run at its optimum pace is key to its overall profitability, and tampering with workforce hours could cause a plant to run less efficiently. Jack Murders, plant manager of Marshalltown Tools in Fayetteville, said the facility does have a limited number of employees who will be affected by the new standards.
“We have a plan to make sure we remain in compliance and it involves a couple of different approaches depending on job responsibility, current pay, etc. I’m not ready to discuss specifics because the employees in question do not yet know what our plans are,” Murders said.
He said overall the plan to deal with the new rule change won’t likely have a major impact on the business or the employee’s pay.
Harvey said companies are working to comply with the rule but another regulation is the last thing they want to deal with.
Fayetteville-based Casestack officers say the new rule won’t create problems, but CEO Dan Sanker said work agreements should be between companies and employees without outside interference.
“Rules like this don’t always work in the favor of employees. I’ve personally had opportunities in my career that I wouldn’t have had because a company had the freedom to hire me for an unpaid internship, or at a lower rate with potential upside. I appreciate that the government thinks it’s helping, but rules about how people get paid can take away stepping-stones that give employees and employers a chance to take a risk with each other. Millions of those small risks launch careers and build businesses,” said Sanker, who is also the founder of Casestack.
Harvey said small businesses could be those most impacted from the rule change, as even the Council has one employee that may fall under the new rules. He said owners will have to keep a much tighter watch on the hours worked by salaried employees or pay out overtime which may not be in the budget.
Steve Clark, CEO of the Fayetteville Chamber of Commerce, said they recently held a seminar in conjunction with the Arkansas State Chamber to educate small businesses on the new rule changes and the response from the nearly one dozen local companies who attended the session was somewhat surprising.
“We thought we would have a few companies scream like their hair was on fire with this new rule change but once the entire law was explained and discussed we saw these businesses change their tune. Many thought they would have to raise the salary to the $47,476 range and that would likely bankrupt them. But when they realized what they really needed to do was better monitor the hours worked among their salaried staffs and adhere to the 40-hour a week maximum that was somewhat a relief,” Clark said.
He said the small companies began to reflect on their operations and quickly decided a good strategy would be to examine the business closely and determine how many hours it takes do a particular job and then realign the staff.
“The old adage, ‘Work ’til you get the job done,’ won’t fly any more under the new rule. Now it will have to be go home at five o’clock, or if you stay late, you will go home early tomorrow or come in later,” Clark said. “There will also be more policing of hours for instance that 90-minute lunch is probably out and the 25-minute conversation around the water cooler about last weekend’s game will have to stop.”
Clark said the rule comes at a time when many businesses have been running skeleton crews and are hesitant to hire more workers because of they don’t know what’s around the bend.
“We used to say to do more with less, but that’s got to change if a business is going to be in compliance with the new rules on Dec. 1,” Clark said. “One business owner admitted that perhaps some owners have worked small crews hard over the past few years to the point of diminishing returns. In other words, running short one or two people makes the staff tired and less productive by the end of the day. That has got to change.”
Clark said the chamber is making some staff changes because of night events that might extend a staff members work 2 hours of more. He said none of the businesses in the workshop were prepared to raise their salary workers pay to $47,476 and few plan to pay much overtime, so workers will likely have more time off at the same pay and that alone could help company morale and performance.
“I was pleasantly surprised to see the group we had see this as an opportunity to reflect on their own operations and perhaps make them better managers with a good understanding of what it takes to do every job they have,” Clark said.