Workers at some Triangle businesses have already seen the effects of the country’s new overtime rule in their pay or work hours even though a federal judge last week temporarily blocked the rule, which was to go into effect on Thursday.
Other companies delayed implementing changes and are waiting to see what happens after President-elect Donald Trump assumes office, said Bob Sar, who runs the Raleigh office of the Ogletree Deakins law firm.
If not for a Texas judge’s last-minute injunction, the rule would doubled the salary cap at which salaried employees are exempt from overtime – from the current threshold of $23,660 to $47,476. More than 4 million workers nationwide would be affected.
For some larger companies, the overtime expansion could mean paying hundreds of thousands of dollars a year in overtime, which labor advocates have pointed to as evidence that workers have been deprived of wages. Employers who have sought to comply with the rule have done so in various ways, mostly designed to limit or avoid paying overtime.
Adopting the rule does not always result in fatter paychecks for workers, however. Local labor lawyers and consultants said that in a bid to manage their budgets, businesses have reclassified workers from salaried to hourly and cut work hours to limit paying overtime. Some have awarded pay raises for salaried employees, but did so to put managers out of range for overtime pay that would have been more generous than the pay raises.
“A lot of them, just for simplicity, converted everyone to an hourly rate, and required that everyone punch in and punch out,” said Raleigh lawyer Mimi Soule, who advises clients with 100 employees and fewer.
Under the 1938 Fair Labor Standards Act, most hourly workers who log more than 40 hours in a week must be paid time-and-a-half for their overtime work. Salaried workers are typically exempt from overtime pay, unless they don’t have supervisory and other professional responsibilities.
Wilkinson Supply, a plumbing equipment wholesaler that also operates a remodeling showroom, implemented its changes Nov. 1 in a move to get ahead of the federal rule change.
“It’s kind of a bummer because we were ahead of the game,” said Audrey Loder, the company’s director of showrooms. “Anybody that was trying to be in compliance had to make all these internal changes.”
The 65-employee company had 17 employees who would have been affected by the overtime rule. Because five sales managers were close to the new cap, they were given pay raises of between 6 percent and 7 percent to make them ineligible for overtime pay. A dozen people in sales were converted to hourly pay, a change that has already resulted in about $2,500 overtime wages in November, Loder said.
The company faced about $60,000 a year in extra overtime costs if it had done nothing and the rule had been adopted. By making the changes, Loder said the company will pay about $10,000 more in salaries annually through pay raises, and about $30,000 more a year in overtime pay.
Switching salaried professionals to hourly schedules helps track the number of hours worked to calculate overtime pay. But this can cause tension because salaried professionals who tend to see their switch to hourly pay as a demotion and a loss of status, said George Ports, a senior executive at CAI, the Raleigh benefits consulting firm.
A non-profit in Orange County with a small staff of about a half-dozen workers took another tack. The organization decided to lower salaries for several workers who typically work 45 hours a week and will now qualify for overtime, said David Heinen, vice president for public policy and advocacy at the N.C. Center for Nonprofits in Raleigh. Heinen, who said he was not at liberty to name the organization, said the lower salaries are calculated to be offset by overtime pay and total pay should be a wash in the end.
Heinen said that the federal overtime rule forced many employers to take a closer look at employee work habits. For example, bombarding workers with email in the evenings or on the weekends will no longer be an option for businesses with employees who might become eligible for overtime if the overtime rule gets upheld by an appellate court.
“A lot of organizations have become more cognizant of the number of hours that people are actually working,” Heinen said.