President Obama Raises the Overtime Salary Threshold

It is interesting that we have a small businessman and an employment lawyer checking in to this discussion. When I first posted the article, I was thinking about a pattern of abuse of the system, such as what was quoted here:



However what I quoted above does not come across as an abuse of the rules. (It comes across as coming from a small businessman's perspective.) What I put in bold shows something given (privileges) in exchange for the general expectation of extra hours.

For all the talk radio I listen to, there was discussion about the Overtime Salary Threshold and that it would ultimately impact the employees it was supposed to benefit - but no mention of small business.

Throwing this one out there: One place I worked at offered a bonus in lieu of overtime for salaried employees. They sign a piece of paper stating that they worked an average of at least 45 hours per week and qualify for a bonus. It was less than what time and a half would have been, but I think it served as documentation to cover for the fact that some of these people may have been salaried, but not exempt.
Federal labor law says that if you qualify for OT, you have to be paid it. I've never heard of a situation where you could substitute anything in its place. The wiggle room that is abused is finding ways to avoid having employees brought under the OT rules.

Using exempt status to avoid OT is a poor, common and money making strategy. In a large company it can add millions to the bottom line. The goals of large public companies are not the same as those of smaller businesses. Fixing their abuse can and will have negative effects on companies like the one I manage. We become collateral damage. My three mangers may lose income, lose responsibility, have a reduced sense of ownership and job satisfaction. Or not. We'll have to see.
 
Federal labor law says that if you qualify for OT, you have to be paid it. I've never heard of a situation where you could substitute anything in its place. The wiggle room that is abused is finding ways to avoid having employees brought under the OT rules.

Using exempt status to avoid OT is a poor, common and money making strategy. In a large company it can add millions to the bottom line. The goals of large public companies are not the same as those of smaller businesses. Fixing their abuse can and will have negative effects on companies like the one I manage. We become collateral damage. My three mangers may lose income, lose responsibility, have a reduced sense of ownership and job satisfaction. Or not. We'll have to see.

Then so be it. If it means eliminating the abuses of large corporations, I'd happily sacrifice the well-being of a few small businesses. The reason being that the abuses of the large corporations have a much bigger impact on society as a whole and should be dealt with whenever possible.
 
A past employer of mine compensated exempt workers who put in more than forty hours in a week with additional paid time off, which seems a nice compromise.

That's standard practice for salaried professionals here.

Those SEO guys charge an arm and a leg

Ugh.

We do. And by adding salaried peopled to it will add some small amount of review and payroll review time to the work of others. In addition, I think time clocks are demeaning and a necessity I wish we could do without. We installed a fingerprint reader device a couple of years ago, but it is not as reliable as we expected. I'd like an RFID system that folks could wave at and then hit an I or O button. Unfortunately those involve cards that can passed around. It is too bad that people will try to game most systems. :(

Why track at all? I've never had to clock in or out in my life, even for hourly jobs in highschool. For non-menial jobs, "being present" is only vaguely correlated to "being productive". Have you considered hiring an automation specialist to replace your untrustworthy employees with robots and/or Excel spreadsheets?
 
Even if he did, it is a compensation for the risk he is taking for going into business and providing 40 jobs instead of going out there and finding a job himself.
I think we have all heard enough excuses like that to rationalize employers paying themselves extremely well while not properly paying their employees.

That is exactly why Obama has finally raised the minimum wage for exempt employees to a realistic level. If they make less than that they should get overtime, instead of being forced to work in excess of 40 hours with no additional pay.
 
Why track at all? I've never had to clock in or out in my life, even for hourly jobs in highschool. For non-menial jobs, "being present" is only vaguely correlated to "being productive". Have you considered hiring an automation specialist to replace your untrustworthy employees with robots and/or Excel spreadsheets?
I run a business development and real estate development company. We own and operate our own companies as well as lease land and buildings to other companies so our overall business is a bit schitzo. We are successful, though, and revenue topped $30 million last year. US law requires payroll records that track hours worked for anyone who is paid on an hourly basis. A variety of methods are acceptable, but some system is required. We automate where we can, but live people are an essential part of what we do. One of our main operations runs 17 hours a day with a variety of staggered shifts. An honor system for hours would be a total fail.
 
I am well paid, but see no reason to add my car expenses to the company just because I could do so.
It is a legitimate business expense, and you can reduce your own salary accordingly.

...revenue topped $30 million last year...
And you still can't rationalize paying your 3 managers the new minimum for exempt employees?
 
I could. If they made $36 a year that's about $18/hr and at 40 hours a week they would work 2080 hours a year. Currently, at 45 hours a week I get about 125 extra hours a year over the standard work week and I get lots of flexibility where they might come in early or stay late or go to a conference out of town or attend an evening meeting from time to time. If i have to pay time and a half, I will be less likely to include them in those types of activities and will put them on a fixed schedule so I know what their hours are expected to be.

I could give them a pay cut, say to $32/hr that adds up to $36k at 2200 hours a year. However the math works out. On paper the costs may be the same, but in reality when work needs to be done, counting hours and projecting the hours needed on days not yet worked is a pain in the ass. They might use up 4 extra hours today and then tomorrow other problems call for another 6. If we have to do it, we will do it, but we will lose a lot in how we manage things. Our business is not static and every day crap happens.

another issue will be wage creep. Our three managers are all making in the mid $30s; their supervisor makes almost $60k. If the managers go to $50k plus 30% benefits, their total package will jump from 36+12 to 50+17 and their supervisor will be asking for a bump from 60 to 75 with a jump in benefits from 20k to 25k. My total payroll cost for four people goes up almost $100k. That is a big hit.

the question really comes down to: what is the goal of the business? Lower profits higher payrolls or higher profits and lower payrolls? Where is the compromise?
 
It is a legitimate business expense, and you can reduce your own salary accordingly.

And you still can't rationalize paying your 3 managers the new minimum for exempt employees?
Why put a car expense on the company? I'm fully capable of buying and maintaining my own vehicle and I get the car I want.

Revenue is not profit. Our GP last year was about $5MM and the net quite a bit less.
 
OMG it midnight! While I could sleep in and show up late tomorrow, I won't and will be on property by 8:00. Good night all.
 
I could. If they made $36 a year that's about $18/hr and at 40 hours a week they would work 2080 hours a year. Currently, at 45 hours a week I get about 125 extra hours a year over the standard work week and I get lots of flexibility where they might come in early or stay late or go to a conference out of town or attend an evening meeting from time to time. If i have to pay time and a half, I will be less likely to include them in those types of activities and will put them on a fixed schedule so I know what their hours are expected to be.

I could give them a pay cut, say to $32/hr that adds up to $36k at 2200 hours a year. However the math works out. On paper the costs may be the same, but in reality when work needs to be done, counting hours and projecting the hours needed on days not yet worked is a pain in the ass. They might use up 4 extra hours today and then tomorrow other problems call for another 6. If we have to do it, we will do it, but we will lose a lot in how we manage things. Our business is not static and every day crap happens.

another issue will be wage creep. Our three managers are all making in the mid $30s; their supervisor makes almost $60k. If the managers go to $50k plus 30% benefits, their total package will jump from 36+12 to 50+17 and their supervisor will be asking for a bump from 60 to 75 with a jump in benefits from 20k to 25k. My total payroll cost for four people goes up almost $100k. That is a big hit.

the question really comes down to: what is the goal of the business? Lower profits higher payrolls or higher profits and lower payrolls? Where is the compromise?

So is my math wrong here: they make $18/hour and work an average of 125 "OT" hours a year, which going forward is total of $3,375 in OT wages if they were actually owed OT? And there are three of them, so you are looking at a projected $10,125 in additional annual labor costs between all three?
 
Our three managers are all making in the mid $30s;
Well, there's the problem. That is far too low to be considered to be exempt. The way you put it in your original post gave the impression they made slightly less than $50K, instead of considerably less.

This is exactly what the new minimum is addressing. People who are only making $17-18/hr clearly deserve OT for every single hour they work over 40 hours per week.
 
Yeah that's about median wage for New Mexico, not really the salary/wage of someone ostensibly doing a high functioning job. I also incorrectly thought these folks were making a little shy of $50k. But I imagine the benefits are what makes it palatable for them.

BJ you may have had issues exempting them even under the old rules from what it sounds like they are doing.
 
In review of BJ’s posts, I see three primary problems here.

The first one appears to be the loss of flexibility. BJ’s current system is set up to be flexible and if he loses the flexibility to have the managers come in at odd hours he will lose significant productivity.

The next is the administrative burden of additional timekeeping. Scheduling and maintaining the time clock is a significant time sink that is not directly productive nor does it require a specialized skill set, but generally is performed by a management-level staff member.

The final problem is actually having to pay the managers time and a half. This seems to be the least of BJ’s concerns based on his posts, but that may or may not actually be the case.

In addition, there is the secondary concern about how the managers would feel about any change. A three thousand dollar a year hit at the compensation and skill levels he is talking about along w/ the removal of flex time may cause his employees to become unsatisfied and look for another job. Other collateral concerns may also develop as a result of any solution.

Before I start discussing possible solutions the time the managers currently work should be discussed. BJ has his managers working 40-50 hours a week on a regular basis. If they need to go down to a strict forty hour week then BJ’s company will need to consider how it will handle the loss of potentially forty hours a week of manhours. Expecting his workers to maintain their present level of total productivity in light of a potential twenty percent decrease in working hours is a pipedream. If BJ wants to maintain his current productivity and not hire additional staff then he will need to accept that overtime will need to paid out to his managers. As such, the expected best solution is problem going to be a partial mitigation of the harm resulting from this rule change rather than a total elimination of the additional cost.

To address flexibility, BJ may wish to examine the possibility of an on-call system. BJ ideally would like his managers to be able to come in at odd time, but presumably he would not need all of his managers available to be flexible all of the time. If BJ’s managers had a rotating on-call system where one manager is expected to be flexible for a period of time, say a week, and then it rotates to another manager that would salve some of the flexibility issues. Such a system may also benefit the managers themselves as they will be aware that they have to be flexible one week with less flexibility the following week in the cycle. While this would still require additional administrative bookkeeping for time keeping, it would reduce the amount of that additional work to a fraction.

Similar to the on-call system, an alternative is to build flexibility into their schedules. Book them for thirty five instead of forty hours a week and then anticipate that they will fill in those additional hours w/ the flexible assignments. Yes, occasionally there will be overruns resulting in overtime, but those will be inevitable if you want to maintain the same level of production.

If the administrative book keeping for the time clock is expected to be a significant burden, he may want to reexamine who performs that task. We are talking about loss of three thousand dollars a year of productivity presumably per manager totaling twelve grand a year. It seems likely to me that one could contract with an outside vendor for time clocking support for less than that. That’s just a gut impression on my part, and may be an inaccurate assessment of that cost. Nonetheless, it may be worth examining.

Along the same lines, it may be valuable to look at who does the time keeping internally and delegating that other tasks to other parties. If upper level managers are performing the time clock duties, it may be more efficient to delegate those responsibilities down to administrative support staff. By tasking that responsibility to a support employee, BJ may be able to rebalance the managerial work load such that an exempt employee is now responsible for being flexible rather than his newly non-exempt managers. Even if this delegation of work is not a total solution, it may still be valuable as a means to mitigate the loss of productivity suffered from the lack of flexibility in his non-exempt managers. Something where he could rebalance the work load to place the flexibility on the exempt employees and implementation of an on-call system could substantially mitigate the expected harm resulting from the managers becoming non-exempt.

Having the managers clock in and out for time keeping purposes doesn’t necessarily require them to have set, non-flexible schedules. Obviously it is easier for administrative purposes if they do, but that’s not a problem that can’t be overcome. I’m uncertain why BJ believes that having his managers clock in and out necessarily removes the flexibility they currently enjoy. It seems possible that he could maintain the current system of flexibility while also requiring them to clock in and out. This would not resolve the additional administrative costs required to maintain the time clock for them, but it sounds to me from BJ’s posts that the additional productivity resulting from the flexibility would have greater value than the resulting administrative cost.

The one course of action I would certainly recommend would be to ask your managers for their feedback. You’ve stated that they are there to solve problems, well this is a managerial problem for them to solve. Bring them and their supervisor in for a meeting, explain your concern and your anticipated course of action, and ask them to bring to you alternative solutions that work better for you. Set up a follow-up meeting in a week’s time where they can present these solutions.
 
Or watch as they find jobs elsewhere now that they can make far more money as truly exempt employees performing managerial tasks.
 
Given that we are talking about $10,000 out of multimillion in profits, BJ's company can afford to pay for the flexibility it wants. Timeclock issues are a fairly small burden given that BJ's company, if operating legally, already has people on the clock.
 
Well, there's the problem. That is far too low to be considered to be exempt. The way you put it in your original post gave the impression they made slightly less than $50K, instead of considerably less.

This is exactly what the new minimum is addressing. People who are only making $17-18/hr clearly deserve OT for every single hour they work over 40 hours per week.
Under US labor law, exempt is defined by duties and responsibilities and not salary. You may want to change that definition, but that is just your opinion. Their supervisory and fiduciary responsibilities qualify them. When compared to the same positions throughout the southwest we pay above average. When benefits are added, we are in the top 10%. These are not "college degreed required" positions. ATM one does have a degree, the other two don't.

When you are next in NM, let me know, and I will treat you to lunch and give you the nickel tour. You will learn a lot and be amazed!

Yeah that's about median wage for New Mexico, not really the salary/wage of someone ostensibly doing a high functioning job. I also incorrectly thought these folks were making a little shy of $50k. But I imagine the benefits are what makes it palatable for them.

BJ you may have had issues exempting them even under the old rules from what it sounds like they are doing.
For non degreed positions in NM, $36K plus paid health care, plus, 401K match, plus 3-4 weeks paid vacation ($12k benefit package) is a pretty good job. The company cost for them is about $48K.

All my managers have supervisory responsibilities and are in positions that require management decision making. There are no qualifying issues.

Can you explain this contradiction?
We do pay well. Being well paid is relative to something. I use one's education and experience; the comparison to others doing the same or similar work; the quality of the work place; and what is included in the package as my standard. Being "well paid" is not an absolute number. You may have a different standard.

You may be well paid for the effort you expend in your practice, but not well paid when compared to the attorneys who work for Apple or Google. I am well paid for what I do, but would be hard pressed to survive in NY or San Francisco.
 
That is only because the minimum used to be so embarrassingly low. It had not been adjusted since 1975.
 
We do pay well. Being well paid is relative to something. I use one's education and experience; the comparison to others doing the same or similar work; the quality of the work place; and what is included in the package as my standard. Being "well paid" is not an absolute number. You may have a different standard.

It just seems to me that if you have responsibility enough to qualify as exempt, then something in the 30s is not well paid. They may be well paid for what they do, but if so, then they should probably already qualify for OT pay since something only 30 to 40k a year isn't all that important to a company with the revenue and profit that yours has. They are basically cogs or they would be paid more.
 
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