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OVERTIME: HOW THE REGULATIONS WILL IMPACT YOUR … · across Massachusetts. The change will make...
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22 ADVERTISING SUPPLEMENT TO THE BOSTON BUSINESS JOURNAL TABLE OF EXPERTS: WAGE & OVERTIME The federal government unveiled new overtime rules that will have a massive effect on businesses across Massachusetts. The change will make thousands of workers eligible for overtime – posing a number of critical questions for businesses. The Boston Business Journal’s new Table of Experts program provides key insights on the changes, how businesses can respond to them and what the new rules mean for local employers. Here’s a transcription from the program discussion, which included Anthony DaSilva of KPMG; Mike Harrington of Murtha Cullina and Salary.com’s Mark Szypko. BOSTON BUSINESS JOURNAL: Please explain the key components of the overtime rule change. HARRINGTON: The change is one where there’s a threshold dollar amount. That threshold is now being elevated to $913 a week annualized to $47,476 up from about $23,000. So a big jump in one time. And that’s because there’s about 12 years that that salary level hasn’t been touched. There is another exemption for individuals who are highly compensated. That’s going from $100,000 to $134,004. So another big jump for that exemption. And then finally one of the things that this regulation is putting into place so that there isn’t a gap that we sort of saw previously is that every three years those dollar amounts will be increased. Those are the three big significant changes. SZYPKO: The point I wanted to make though is it’s important for organizations to understand that every single solitary job in their organization is non-exempt unless they prove otherwise. The burden of proof is on the employer to secure an exemption for a particular position. It’s not just that they’re making above the threshold but they’re making above the threshold and they’re also satisfying a particular duties test. BBJ: How is it going to affect the average business? DASILVA: Sure, the impact of the rules on an average business depend on the nature of the business and also will depend on the number of exempt employees whose salaries fall below the threshold. So the industries that are most likely to be impacted would be retail, not for profits, state and local governments and certain service industries. So those industries that have salaries that fall below the threshold and that meet the test that otherwise applies for exemption are most impacted because the population of their workforce that’s subject to these rules is going to grow dramatically. So their costs will rise in terms of salary. Their FICA taxes will likely rise as well, and their benefit costs associated with compensation such as 401K, 401K matching and the like will also likely rise. SZYPKO: Hospitality, health care, retail certainly are industries that are going to be hit. There is going to be a cost. That cost could be in paying overtime. That cost could be in hiring additional resources so as not to have to pay individuals overtime. So it really opens up that proverbial Pandora’s Box as far as costs to the organization. It’s not just around the dollars. It introduces an emotional cost. A lot of employees believe that being exempt means that I’m professional. A lot of employers believe that as well. A lot of employers want their employees to be exempt because it makes them feel as though they’re professional. Many are going to lose that as a As the chair of Murtha Cullina’s Labor and Employment Group, Mike Harrington assists public and private employers on all aspects of the employment relationship. In addition to counseling employers on best practices, Harrington regularly appears in state and federal court on behalf of employers, as well as regularly representing clients at Unemployment Compensation and Workers’ Compensation hearings, the Massachusetts Commission Against Discrimination, the Connecticut Commission on Human Rights & Opportunities, state and federal Departments of Labor, the National Labor Relations Board and OSHA. He also represents employers in grievance and interest arbitrations. During his 20 years at the firm, Harrington has successfully argued several cases before the Court of Appeals for the Second Circuit, the Connecticut Appellate Court, and the Connecticut Supreme Court. Mike Harrington Murtha Cullina, LLP Anthony DaSilva is a principal in the Global Mobility Services Compensation & Benefits Practice of KPMG LLP. DaSilva is a human capital practitioner, attorney and business leader who has worked with CEOs, boards and leadership teams of public and private companies on enterprise-critical issues for more than two decades. He has worked across diverse industries on complex rewards and employments contract matters, and advised on executive pay, benefits and equity packages, including tax and accounting implications, exit agreements and incentives. Additionally, he has advised on numerous risk management projects, including Sarbanes Oxley-related compliance and audit committee initiatives, as well as corporate governance involving succession planning, talent management, fiduciary issues, retirement plans and compensation. Anthony DaSilva KPMG Mark. A. Szypko, CCP, GRP, vice president of Compensation Strategy for Salary.com, has the benefit of over 35 years of experience in the field of Human Resources, with a particular emphasis on the areas of compensation, benefits and HRIS. His experience has taken him from the shop floor to the board room and to all corners of the globe. Szypko speaks globally on issues in the compensation and is a recipient of the WorldatWork Lifetime Achievement Award. Mark. A. Szypko Salary.com OVERTIME: HOW THE REGULATIONS WILL IMPACT YOUR BUSINESS
Transcript of OVERTIME: HOW THE REGULATIONS WILL IMPACT YOUR … · across Massachusetts. The change will make...
22 ADVERTISING SUPPLEMENT TO THE BOSTON BUSINESS JOURNAL TABLE OF EXPERTS: WAGE & OVERTIME
The federal government unveiled new overtime rules that will have a massive effect on businesses across Massachusetts. The change will make thousands of workers eligible for overtime – posing a number of critical questions for businesses. The Boston Business Journal’s new Table of Experts program provides key insights on the changes, how businesses can respond to them and what the new rules mean for local employers.
Here’s a transcription from the program discussion, which included Anthony DaSilva of KPMG; Mike Harrington of Murtha Cullina and Salary.com’s Mark Szypko.
BOSTON BUSINESS JOURNAL: Please explain the key components of the overtime rule change.
HARRINGTON: The change is one where there’s a threshold dollar amount. That threshold is now being elevated to $913 a week annualized to $47,476 up from about $23,000. So a big jump in one time. And that’s because there’s about 12 years that that salary level hasn’t been touched. There is another exemption for individuals who are highly compensated. That’s going from $100,000 to $134,004. So another big jump for that exemption. And then finally one of the things that this regulation is putting into place so that there isn’t a gap that we sort of saw previously is that every three years those dollar amounts will be increased. Those are the three big significant changes.
SZYPKO: The point I wanted to make though is it’s important for organizations to understand that
every single solitary job in their organization is non-exempt unless they prove otherwise. The burden of proof is on the employer to secure an exemption for a particular position. It’s not just that they’re making above the threshold but they’re making above the threshold and they’re also satisfying a particular duties test.
BBJ: How is it going to affect the average business?
DASILVA: Sure, the impact of the rules on an average business depend on the nature of the business and also will depend on the number of exempt employees whose salaries fall below the threshold. So the industries that are most likely to be impacted would be retail, not for profits, state and local governments and certain service industries. So those industries that have salaries that fall below the threshold and that meet the test that otherwise applies for exemption are most impacted
because the population of their workforce that’s subject to these rules is going to grow dramatically. So their costs will rise in terms of salary. Their FICA taxes will likely rise as well, and their benefit costs associated with compensation such as 401K, 401K matching and the like will also likely rise.
SZYPKO: Hospitality, health care, retail certainly are industries that are going to be hit. There is going to be a cost. That cost could be in paying overtime. That cost could be in hiring additional resources so as not to have to pay individuals overtime. So it really opens up that proverbial Pandora’s Box as far as costs to the organization. It’s not just around the dollars. It introduces an emotional cost. A lot of employees believe that being exempt means that I’m professional. A lot of employers believe that as well. A lot of employers want their employees to be exempt because it makes them feel as though they’re professional. Many are going to lose that as a
As the chair of Murtha Cullina’s Labor and Employment Group, Mike Harrington assists public and private employers on all aspects of the employment
relationship. In addition to counseling employers on best practices, Harrington regularly appears in state and federal court on behalf of employers, as well as regularly representing clients at Unemployment Compensation and Workers’ Compensation hearings, the Massachusetts Commission Against Discrimination, the Connecticut Commission on Human Rights & Opportunities, state and federal Departments of Labor, the National Labor Relations Board and OSHA. He also represents employers in grievance and interest arbitrations. During his 20 years at the firm, Harrington has successfully argued several cases before the Court of Appeals for the Second Circuit, the Connecticut Appellate Court, and the Connecticut Supreme Court.
Mike HarringtonMurtha Cullina, LLP
Anthony DaSilva is a principal in the Global Mobility Services Compensation & Benefits Practice of KPMG LLP. DaSilva is a human capital practitioner, attorney and business leader who has worked
with CEOs, boards and leadership teams of public and private companies on enterprise-critical issues for more than two decades. He has worked across diverse industries on complex rewards and employments contract matters, and advised on executive pay, benefits and equity packages, including tax and accounting implications, exit agreements and incentives. Additionally, he has advised on numerous risk management projects, including Sarbanes Oxley-related compliance and audit committee initiatives, as well as corporate governance involving succession planning, talent management, fiduciary issues, retirement plans and compensation.
Anthony DaSilva
KPMG
Mark. A. Szypko, CCP, GRP, vice president of Compensation Strategy for Salary.com, has the benefit of over 35 years of experience in the field of Human Resources, with
a particular emphasis on the areas of compensation, benefits and HRIS. His experience has taken him from the shop floor to the board room and to all corners of the globe. Szypko speaks globally on issues in the compensation and is a recipient of the WorldatWork Lifetime Achievement Award.
Mark. A. Szypko
Salary.com
OVERTIME: HOW THE REGULATIONS WILL IMPACT YOUR BUSINESS
OCTOBER 14, 2016 ADVERTISING SUPPLEMENT TO THE BOSTON BUSINESS JOURNAL 23
result of this threshold change. So now it’s not just a financial cost but an emotional cost.
HARRINGTON: What we’re talking about is three exemptions, what are called the white collar exemptions: professional, administration and executive. The Fair Labor Standards Act has lots of other exemptions for different industries: agriculture, outside sales people. So it’s only the people who are presently exempt because they are currently qualifying for one of those three. What’s been stated in the news or by the government is about 4 million people might be affected by this. But you could have someone who is exempt and if they’re not working over 40 hours the issue doesn’t really materialize. It will be interesting to see how that number might change next year or after December 1.
BBJ: What do most businesses need to do to prepare for the December 1 deadline?
SZYPKO: If your fiscal year starts in July or January or whenever it really is a moot point. The fact of the matter is any changes or adjustments that you’re going to be making in pay policies needs to go into effect by December 1.
HARRINGTON: The most immediate thing organizations have to do is identify those individuals that they consider to be exempt who are making less than the $47,476. Are you going to maintain the exemption and increase the salary or are you going to convert them to be non-exempt. What are the expectations in terms of work hours that you might set for that person?
SZYPKO: misclassification ... absolutely runs rampant because right now the tests that we have with all due respect it’s not like it’s a pregnancy test, right? It’s not black or white. There’s a significant amount of gray. The (Department of Labor) does assert that over 11 million are currently misclassified. One of the things that I’ve been sharing with a lot of our clients is seize the moment. Let’s clean up our proverbial dirty laundry.
BBJ: Options for employers that have a large number of workers that are going to be eligible, obviously like the retail?
DASILVA: They can choose to increase individuals’ salaries to the threshold to qualify for the exemption from overtime. They can convert their workers from exempt to non-exempt to pay them hourly and overtime for their hours worked in excess of 40 hours. They can consider restructuring the jobs ... for exemption.
SZYPKO: We could be looking at the first time in a long time where we could have two individuals doing the exact same job where by virtual of their salary one is exempt and the other is non-exempt.
BBJ: Is there some chance that this law is not going to take effect?
HARRINGTON: There is a chance. But there’s been two lawsuits filed. Interestingly the district court in Texas seems to be the desired venue from the challengers.
SZYPKO: Well, it’s legal but it’s political too, political to the extent that the judge that both of these cases was assigned to was an Obama appointee. If they appeal it goes I believe to the 5th Circuit which is primarily on the other side of the ledger. So quite frankly, I don’t know where it could end up. I wouldn’t be surprised if it actually ends up in the U.S. Supreme Court.
DASILVA: I might add, it’s also interesting to note that 21 states have filed a suit and
claimed that this law violates their constitutional right to determine the pay for their workforce.
BBJ: Is this going to result in job losses at all at companies?
DASILVA: I think what employers will do likely across the board is Manage hours to the extent that they can to keep employees working fewer than 40 hours. For those organizations that are financially not quite as strong as the larger ones they may find themselves having to potentially cut hours, possibly reduce staff or potentially eliminate and curtail a service in reaction to this because they just don’t have the budget bandwidth to do more.
BBJ: Are there legal issues and regulations that employers need to be aware of that are in connection with this and what are the risks if
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“It’s not just around the dollars.
It introduces an emotional cost. A lot of employees believe that
being exempt means that I’m professional.”
MARK SZYPKOPresident of
compensation strategy for Salary.com
24 ADVERTISING SUPPLEMENT TO THE BOSTON BUSINESS JOURNAL TABLE OF EXPERTS: WAGE & OVERTIME
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they don’t comply?
HARRINGTON: Well the risk is one, and it’s a risk that’s inherent right now is it’s not just one person who’s misclassified, it’s multiple people. I think you’ll see a lot more audits. I think I’ve certainly been advising clients to do an internal audit, have an outside set of eyes come through and really test whether those exemptions are sound if they’re going to maintain them.
DASILVA: Certainly there are risks associated with non-compliance, back wages as has been said, penalties. Intentional disregard could pose criminal risk. But also employers have to consider the state laws.
BBJ: Are there any laws, especially in Massachusetts, that people need to be aware of?
SZYPKO: On the federal level there is new EEO1 reporting, that’s proposed which is going to require a change in the way that employers present their EEO1 report. Another is the Fair Pay Act that Governor Baker recently signed into law here in Massachusetts; …the employer cannot ask (prospective employees) their current rate of pay.
DASILVA: The most salient piece of legislation out there for employers to keep in focus, beyond FSLA rules, is pay equity. There’s significant risk out there for employers as we’ve seen
throughout the country based on class actions brought by employers for these issues. But also in Massachusetts employers can’t protect themselves or shield themselves from penalties and other risks if they perform diagnostics or have diagnostics performed for themselves to determine if in fact there are any disparities between pay for comparable work for the genders. So employers should take that seriously and do their diligence and determine if in fact there any pay equity issues in the organization.
BBJ: Final salient points?
SZYPKO: If you currently have different benefit plans and
programs for your exempt employees than your non-exempt employees one of the things you have to think about is what you’re going to do when these changes go through.
DASILVA: I couldn’t agree more that this law change represents a significant change in management effort for employers and they’re going to have to consider all aspects of this, not only the financial aspects but the impact on the workforce and their ability to keep that workforce engaged.
HARRINGTON: One new aspect that we haven’t seen under the Fair Labor Standards Act is now non-discretionary bonuses and incentive pay can be used to meet the salary threshold.
SZYPKO: I hear a lot from our clients what about part time employees? And the answer is simple. The threshold for part time employees is $47,476. There is no threshold for part time. It is one threshold across the board.
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