By Pamela Berger-Burrows, Operations/Human Resources Director and Leslie C. Martin Managing Director of Phoenix Marketing International
The Department of Labor’s final rule released on May 18, 2016 revising the Fair Labor Standards Act (FLSA) overtime regulations will greatly increase the number of employees eligible for overtime pay by more than doubling the salary threshold that determines this coverage. The rule itself – and employers’ response to it – will create change, impacting employees and inevitably their engagement levels. At the same time, the satisfaction and engagement of the organization’s customers will also be impacted by the rulings because employees, particularly those in front-line, customer-facing positions, have a key role in influencing the customer experience. While back-of-house employees may not interact with customers directly, they provide service to those who do, further exposing customers to the disengagement. This employee-customer relationship makes it imperative for organizations to plan now for successfully navigating their response to the FLSA regulations not just from a legal and financial perspective, but also in terms of their human capital and customer strategies.
The details of the new FLSA rules, which affect the overwhelming majority of U.S. workers are clear. Any salaried employee earning less than $47,476 annually will be entitled to time-and-a-half for work that exceeds 40 hours per week. This is up from $23,660, the current salary cutoff for overtime pay. For highly compensated employees, who may generally be considered exempt without regard to the duties test, the final rule raises the annual salary threshold from $100,000 to $134,004.The Department of Labor also plans to automatically increase the salary level every three years. It is estimated that 4.2 million workers will gain the new overtime protection or, more unlikely get raises that make them ineligible.
The employees becoming eligible for overtime pay are changing from an exempt to nonexempt status. Their employers must at the same time accurately record all time worked and strictly manage employee hours worked in order to properly compensate for overtime. This requirement is increasingly difficult to meet with work arrangements such as telecommuting, potentially forcing employers to eliminate or reduce what is often an important benefit. Millennials and recent college graduates especially seek flexibility in their workday and in their work environment, knowing full well they can be productive from anywhere and at any time.
All of this makes it entirely possible that affected employees may perceive a loss of independence in performing their work. Their hours will be recorded when they may not have been before and as employees they will be managed more closely than ever. Employees also may perceive a lack of trust in their skills or even profession because they are being classified in a way previously reserved for job duties generally considered ‘higher-level’ for their organization’s operations. There may even be feelings of being demoted or taking a step back in career growth.
How should employers respond to employees’ perceived impact?
The reality is employees will form opinions about the changes brought upon by the new regulations based on their perceptions of how they affect them. To the degree that negative consequences are perceived, morale and engagement are likely to suffer even if only temporarily as so often happens in the ‘individual change curve.’ It is equally likely that employees will pass along some of the resulting negativity and dissatisfaction to customers as they provide service to them. This is how organizations end up with lower customer satisfaction and its consequences which include, declining purchases, share of wallet, referrals and, ultimately revenues.
Between now and December 1, 2016, when the new FLSA rules take effect, companies can take a number of steps to prepare for and prevent such outcomes. They first must communicate the upcoming changes to employees. Senior leaders and Human Resources team members may be aware of these changes, however, other employees most likely are not. Communicating the facts and implications will help build trust and confidence. Employers also need to plan for how they will meet new requirements. This is an opportunity to think creatively about how to offset potentially negative employee reactions with options that both support requirements and are perceived as benefits. For example, employees whose hours will be strictly managed to 40 weekly, may favor that if in the form of a 4-day versus 5-day work week. Exempt staff may embrace additional hours when the work is meaningful and they feel valued. And so on. A balancing act will be required between paying nonexempt workers overtime and creating unreasonable work burdens on others.
Employers will also be in a much better position to manage both the employee and customer impact of the new FLSFA rules if they regularly assess engagement levels. There is no substitute for employee and customer feedback in understanding and managing the experiences of both, not just at single points in time but continuously. December 1, 2016 will be here soon. Get ready.