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New federal overtime regulations mean payroll changes

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By Kathy Canavan

The Department of Labor’s new overtime rule could result in audits, salary cuts and staff cuts, according to officials with the Society for Human Resource Management.

The rule issued Wednesday raised the weekly salary of those who may be entitled to overtime pay to $47,476 a year from $23,660, making an estimated 4.2 million workers newly eligible.

“Employers need to act immediately,” said Tricia Clendening, state council director for SHRM in Delaware. “They have a short window of opportunity to make all these changes and put them into effect.”

Clendening recommended employers immediately review all compensation: “Do a self-audit of how they’re paying people and who are the people who are going to be affected by this.”

“If you look at your business model and you have several individuals who now fall into this category, you may not be able to meet the margins you are accustomed to, so you might have to make some changes,” she said.

“Once they put together a plan on how they’re going to address it, it’s really critical that they communicate what they’re doing and why they’re doing it and, most important, tell employees how is it going to impact me as an individual.”

That information should be relayed in a one-on-one meeting, not by e-mail, she said.

Clendening said she has heard from companies discussing breaking annual salaries down into hourly pay and then decreasing the hourly pay so they can manage overtime pay and companies that are going to suck it up and pay the same rate plus overtime but possibly cut an entry-level job in order to balance the books.

SHRM Government Affairs Counsel Nancy Hammer also recommended employers determine which employees are affected by the new salary level, make decisions about how to get work done without breaking the bank, and them communicate the changes to affected employees.

Clendening said a few companies may have current exempted employees who do not qualify. She said she has talked with companies who have classified jobs such as receptionist as exempt, but she does not work with them at her Middletown company HR Strategies.

“At some point some of those companies are going to be audited, and they may have to pay overtime back to seven years,” she said. “There are going to be more audits, because, whenever there is a huge shift, they certainly put more focus on audits. Secondly, you’re going to have more employees who are more informed with all this in the papers. They may realize they’ve been misclassified, and they may end up report it. They may think, ‘I may have a windfall coming if I can get back wages for all these hours I’ve been putting in.”

Clendening said putting the new rules into place could affect the morale of employees who might now have to clock in or adhere to strict schedules under new rules. “It’s demeaning to a lot of people who feel their careers have progressed to the point where no one’s checking on them,” she said.

Henry G. Jackson, national president of SHRM, made the same point: “Many employees will lose the professional exempt status that they have worked hard for and the flexibility from rigid schedules that they care deeply about.”

While business groups are backing legislation rolling back the rule, Clendening recommended employers make plans: “I would like to say I’m hopeful, but I’m realistic. The fact that it’s gotten this far is surprising, so I really don’t believe we’ll be able to put a stop to it. The ball is moving forward too quickly.” 

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