Overtime changes leave employers scrambling

NEIGH TO NEW RULE: AS220 Managing Director Shauna Duffy, center, said the deadline set by a new rule regarding overtime for salaried employees is unrealistic. Also pictured are Sarah Quenon, general manager, and Guillermo Lopez, IT director, in costume, at the nonprofit. / PBN PHOTO/ MICHAEL SALERNO
NEIGH TO NEW RULE: AS220 Managing Director Shauna Duffy, center, said the deadline set by a new rule regarding overtime for salaried employees is unrealistic. Also pictured are Sarah Quenon, general manager, and Guillermo Lopez, IT director, in costume, at the nonprofit. / PBN PHOTO/ MICHAEL SALERNO

Rhode Island employers who have spent years creating compensation policies are grappling with a new federal regulation that greatly expands the range of salaried employees who can earn overtime.

Under an administrative rule announced recently by the U.S. Department of Labor, salaried workers who earn up to $47,476 annually are eligible for overtime if they work more than 40 hours a week. The previous threshold was $23,660.

The doubling of the salary amount for workers that could qualify for overtime startled many employers, according to business organizations. Although a change had been anticipated, the amount came as a surprise, as did the relatively short implementation period.

The new rule takes effect Dec. 1, which gives employers less than six months to determine how to comply with the rule.

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How many people will newly qualify for overtime? Federal sources estimate as many as 4.2 million nationally, and 12,921 in Rhode Island could benefit.

The Obama administration estimates the new overtime rule will generate $12 billion in additional pay over the next decade for salaried workers who receive overtime under the expanded threshold. Every week, millions of Americans work more than 40 hours a week but do not receive the overtime pay they have earned, according to the administration.

But employers across several industries have said it will carry unintended consequences.

Larger corporations may not feel the impact as keenly, but small businesses with salaried employees will now be expected to track hours and pay overtime, where in the past they may have offered more flexible scheduling to salaried workers, according to John Gregory, president and CEO of the Northern Rhode Island Chamber of Commerce.

Some weeks, the employee works less than 40 hours, for example, made up by longer weeks depending on the project.

Under the new rule, comp time is prohibited.

The new rule will affect his own organization, he said. Many of the salaried employees often attend Business After Hours networking hosted by the Chamber, which could be counted as work-related hours.

Many small businesses in northern Rhode Island are still determining how it might affect them, he said, and how they will accommodate overtime pay. One option could include increasing employee salaries so they are above the overtime threshold, but the choices may be limited for companies with tight budgets.

For nonprofits, the change may have a cultural impact.

AS220, the Providence-based arts organization, has an unusual pay structure in which all of its salaried employees are paid the same amount. The idea is that all contribute equally to the organization’s successful operation. All of its salaried employees will fall under the new overtime rule because they earn about $38,500 annually, about $9,000 below the new threshold, according to Shauna Duffy, managing director.

Part-time employees at AS220 are paid the same hourly rate as the salaried workers, or $18.50 an hour. So this complicates the organization’s response to the new rule. It does not have the financial ability to increase the salaries of its 23 full-time employees by $9,000 each, and with its longstanding policy of a uniform pay structure, any change applied to the salaried employees should also affect the part-timers, Duffy said.

If all were to be paid more to get the salaried workers above the overtime threshold, the organization would be looking at a $350,000 annual impact, she said. That’s about 10 percent of its budget.

“It’s not realistic,” she said. “If this was phased in, over several years, we could put a plan in place. [In a budget], you can’t make a leap like that in one year.”

Duffy read official guidance about how nonprofits could respond to the administrative rule, and she said one of the options would be to lower the hourly rate earned by salaried workers, to compensate for the overtime they earn. The end result is they would earn the same amount. But how would AS220 then apply that lowered per-hour rate to its part-time employees? They would be taking a pay cut, which for AS220 is not an option.

The U.S. Chamber of Commerce, which has criticized the new rule, said it will force many employers to become more restrictive with employees who want flexible hours, because their hours will now have to be documented.

Employers with limited resources and budgets may respond by hiring fewer personnel or by restricting work hours so employees do not qualify for the overtime, according to Marc Freedman, executive director of labor law policy for the U.S. Chamber.

Ultimately, the change may not help the economy at all, he said. “The administration seems to believe that employers are just sitting on this extra pile of money, which they can just devote to paying their employees overtime, or increasing their salaries to keep them exempt,” he said. “That assumption is not valid.”

Peter Mello, the managing director of WaterFire Providence, said the nonprofit has about 25-30 full-time employees, about 10 of whom are below the threshold. One of the issues for WaterFire, he said, is that its workweek varies tremendously by season, and by event week.

It is not uncommon during a WaterFire event week for the salaried staff to work 50-60 hours. The organization has had a comp-time policy that allows salaried employees to take extra paid compensation days after the season ends. But that too may be affected by the labor rule, because paid comp time is not allowed.

The organization may consider shifts, or other options, for complying with the new requirement. “I still feel like we’re trying to digest what this means to us,” Mello said. •

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