The impact of overtime on salaried personnel
June 28, 2016
Since President Obama signed (28 May 2016) legislation raising the minimum bar for salaried people to qualify for overtime, I have been getting two questions: (1) What does this mean and (2) How does it affect my shiftwork operation.
The answer to the first is fairly straight forward. If you have a salaried person at your facility that is being paid less than $47, 476 a year, then you must pay overtime at the rate of time and one-half for all hours worked in excess of 40 in a pay week.
The second is less clear. My hope is that a few observations on my part will help you to see the impact on your operation.
First of all, I will be speaking to the role of direct supervision of hourly employees in a shiftwork operation. This is often an industrial setting but need not be so.
Supervisors are typically salaried. Sometimes they are home-grown in that they come from the existing hourly workforce. Sometimes they are brought in from the outside.
This new overtime rule means that if you are paying your supervisors less than about $26 an hour, then you must pay them overtime when they work over 40 hours in a week.
Let's be clear, someone coming to work for a wage or any other benefit represents an agreement between two parties: (1) the employer and (2) the employee.
The employer says "I will compensate you this way if you work here." The employee says "I will work there for this compensation."
To this extent, the law may be self-correcting. Employers faced with paying overtime may offer a lower starting salary while employees, may accept a lower starting salary knowing that overtime will be added to it.
Now, "compensation" can mean a lot of things. Historically, being promoted to a supervision role means that you get more money per hour. However, this does not always correspond to "more money overall." Frequently, supervisors get a higher hourly rate (paid as salary) but then lose out on what may have been a significant amount of income from overtime; overtime they are no longer eligible for. There is no shortage of people that have turned down salaried roles because they didn't want the pay cut.
Management often argues, correctly, that the compensation for supervision goes beyond wages. Salaried positions often make "decision-makers" out of "decision takers." For many, the draw of a position of responsibility can be huge.
Salaried positions sometimes pay overtime-type wages if you come in on a day off while not paying it if you work a longer than scheduled day.
Salaried positions sometimes offer compensatory time off if you work extra hours.
Managers hire a salaried person and tell them "This amount of salary includes compensation for the expected extra hours you will work." In other words, they are saying that they are building the overtime wages into the offered salary.
Maybe there is a company car or free lunches or a better vacation.
Probably one of the biggest reasons someone will take on a salaried position is that it represents a stepping stone to something even bigger; perhaps a promotion to the level of really big dollars.
In the end, it still comes down to the agreement. Compensation = Filled Position.
If you are paying your supervisor less than $47,476 per year, then I have to say, "You get what you pay for." I know that can be harsh in certain markets that only provide the thinnest of margins. Still, good leaders are hard to come by. There is competition for them and if you don't pay them enough, they will leave for greener pastures.
Of all the companies I have worked with over the last 28 years, probably none of them paid less than the $47K bar set for overtime wages (in today's dollars). Discussion about this law states that it protects 4.2 million salaried employees. In truth, they may be protected but are probably not affected.
In short, the impact of this law is far more political than practical. Chances are great that you will be unaffected in some major way.
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