Businesses prepare for overtime rule change

Payroll strategies adjusted to remain cost-neutral

Lawsuits almost never move quickly and it’s nearly impossible to predict election-year politics.

That’s why, in mid-September, Christine DeMuth got proactive about the impending Dec. 1 overtime rule change.

Med-Stat USA, which delivers medical equipment and specimens, has had to change its policies to meet the new overtime regulation.
Med-Stat USA, which delivers medical equipment and specimens, has had to change its policies to meet the new overtime regulation.

The U.S. Department of Labor’s new rule will significantly increase the minimum salary threshold at which non-exempt employees are required to receive overtime pay under the Fair Labor Standards Act, to $47,476. Employers have several options to comply with the rule: 1) Pay time-and-a-half for overtime work; 2) Raise workers’ salaries above the new threshold; 3) Limit workers’ hours to 40 per week; or 4) Some combination of the options.

While there are two pending lawsuits related to the rule, they are unlikely to be concluded before Dec. 1 and a judge is unlikely to issue an injunction at this stage in the process.

Starting Oct. 1, Brookfield-based Med-Stat USA LLC, where DeMuth is director of administration, began requiring all employees to keep track of their hours each week and then analyzed the data.

“We’ve had to make some adjustments, and one of the ways to do it is to force everybody to punch in,” DeMuth said. “This is our way to track and make everybody equal.”

Med-Stat transports medical equipment, labs, specimens and pharmaceuticals. It has skilled technicians delivering everything from organs to medical equipment.

Like many employers, Med-Stat has several types of employees. Its workforce is spread among two shifts and some are on-call after hours. Many of its salaried employees work 50 or more hours each week. Its office employees and drivers are paid an hourly rate of more than $11 an hour.

But based on its analysis, Med-Stat will have to reduce some flexibility for about 12 of its salaried non-exempt employees to keep overtime costs down. The company has a total of 53 employees.

“More importantly, (punching in) got people thinking about it and it also forced them to get into the habit,” DeMuth said. “We’ve been sending out weekly announcements, anywhere from ‘We’ve got too many missed punches,’ to ‘Did you approve your time card?’”

Thirty days in, Med-Stat has achieved 80 percent punch compliance.

DeMuth is working to update the employee manual, from the time tracking to the procedure for off-hours calls and emails. Tracking employees’ time has created more administrative work for Med-Stat.

“We’ve already adjusted schedules so that we’re shifting some of the shift work around, utilizing people at different start times and end times and then telling them that they have to manage that schedule,” she said.

Management level employees will be kept more strictly to a 45-hour workweek, and they’ll need to use PTO to go to events where they previously had some flexibility, like medical appointments or to a child’s school event, DeMuth said. They’ll be paid at a cost-neutral hourly rate.

“I did an analysis and yes, potentially, it will cost us significant more (for payroll),” she said. “If we don’t really manage to the 45-hour workweek, it’s like adding probably another full-time management level (employee).”

Employees initially asked a lot of questions about the changes, and DeMuth encouraged them to research the law online and explained to them how it would impact their hours and pay. Communication has been key to making the change, she said.

Med-Stat worked with Payroll Complete, a division of Waukesha State Bank, to adjust its payroll policies.

Brierton
Brierton

Payroll Complete has about 400 employer clients, most of whom are based in Waukesha County. They range in size from one employee to 500 employees, said Paula Brierton, president of Payroll Complete.

Employers have first been evaluating how many of their employees are impacted by the new regulation, and then changing their policies to come into compliance. Sometimes, that involves shifting employee compensation to hourly pay.

“I think it’s more of a struggle initially because they have to decide how they’re going to stay in budget considering the new rules without demoralizing their employees,” Brierton said. “A lot of times, there’s a stigma moving from a salaried position to an hourly position.”

Many of Payroll Complete’s clients have been busy implementing and communicating about the regulation switch, she said. The majority of companies she has spoken with are concerned about the change.

“The biggest concern is I would say just making sure that their budget stays intact,” Brierton said. “Also, for larger employers, just trying to work their way through the evaluation of each employee to determine where they fall under the new rule.”

Employers first must conduct a compensation analysis to determine how many employees are below the new threshold, and then determine what they will do to come into compliance with the regulation.

“What I’m hearing employers say is that an employee typically works 45 hours a week and they’re salaried, but they’re still under the threshold. If they scale back that employee so that they don’t have to pay overtime, what do they do with those five extra hours? Because they still need coverage.”

Each company has taken a different approach to meeting the regulation change, depending on their individual situations, Brierton said.

Paler
Paler

“I don’t think that there’s a rule of thumb, because I think each of them has made individualized strategic decisions to try to find the best way forward,” said Scott Paler, partner and chair of the Labor and Employment practice group at DeWitt Ross & Stevens S.C.

For example, one of the area’s largest employers, Wauwatosa-based Froedtert Health, has been grappling with the regulation change’s impact on its workforce, which works varying hours.

“The new overtime rule affects less than one percent of Froedtert Health’s approximately 11,000 staff members,” said John Konicek, executive director, compensation and benefits at Froedtert Health, in a statement. “Regardless, it’s an important, complicated issue and we’ve been working to address it for several months. Health care requires flexible staffing options as patient volumes ebb and flow. Accordingly, we have staff who frequently change from full- to part-time status and back. The new rule creates a significant administrative challenge as we put a process in place to monitor all staff every pay period and adjust pay appropriately when changes occur.”

Employers with between 50 and 200 employees tend to have the most difficult time meeting the threshold, since their bottom lines tend to be more sensitive and they can be tied to the traditional way they have paid employees, Paler said.

“I would say a decent chunk have been able to make this cost-neutral, but that’s certainly not true of everyone,” he said. “There is a sizable minority that is increasing the compensation that they’re paying overall to employees.”

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Molly Dill, former BizTimes Milwaukee managing editor.

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