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Exploring the new FLSA changes and its impact to workplace schedules

October 17, 2016

By Nancy Johnson, Director of Operations, HR Collaborative, LLC

In our series, “To be or not to be exempt”, we’ve explored details of the Fair Labor Standards Act and the impact of newly released changes that go into effect on December 1, 2016. By now, you are aware of the increase in the salary threshold from $23,660 to $47,476 which is the by in large the most significant change to this regulation, although there are a few others. Learn more here.

In today’s article, we will look at how changing a salaried employee to non-exempt could impact an organization’s work flow and scheduling needs. To do this, let’s look at a specific scenario that you may see in your own workplace.

A production scheduler named Kate is exempt and paid on a salaried basis. She works variable hours, sometimes coming in early or leaving late. Kate’s salary is currently $38,000 and is less than the new threshold of $47,476. The company has decided to switch her to non-exempt. Let’s explore what affect making this change can have on Kate as well as the company. 

First, in order to explore any financial impact, we should understand her new pay-rate. If we calculate Kate’s hourly equivalent, her pay-rate would be $18.27 ($38,000 annual salary / 2080 annual work hours). If Kate works over 40 hours in a week, she will need to be paid at the overtime rate of $27.40 ($18.27 * 1.5) for the number of hours in excess of 40. Having looked back over the last three months, we’ve determined that Kate works on average 44 hours a week.

Currently, Kate is not punching in or out and her schedule pivots as the demands and work load of the week changes. At times, she arrives early to work in order to catch a third shift supervisor. Additionally, every Wednesday she attends a cross-functional production planning meeting. It’s not uncommon for Kate to stay late in order to meet a deadline or re-work a production schedule due to inventory challenges.

Whether Kate is exempt or non-exempt won’t necessarily interfere with her ability to meet the specific demands of the job. However, it can impact the organization’s bottom line when it comes to added overtime costs as well as scheduling and work flow matters. Let’s take a look at how this could play out.

Kate becomes non-exempt and continues with her typical schedule.

The good news: Kate continues to modify her work schedule to be where she needs to be at the appropriate time. She comes in early to collaborate with another supervisor and sometimes stays late to finish her work. Kate appreciates the financial consequence of seeing extra money in her pay check due to the four hours of overtime she generally works on a weekly basis.

The bad news: Kate’s overtime is costing her employer an additional $110 a week –  $5,699 annually. Not to mention the additional employer costs realized in 401k matching funds and payroll taxes. 

The bottom line: Kate’s annual wages are still under the new threshold of $47,476 so it was clearly a good decision to make the switch to non- exempt. However, it is costing the company more in overall wages. Especially because Kate is only one of several employees now working and getting paid for overtime.

Kate becomes non-exempt but the company restricts overtime

The good news: Kate rarely comes in early or stays late and when she works through lunch, she is paid for it. She often gets sent home early on Fridays so that she doesn’t exceed 40 hours in the week. Who doesn’t love to cut out of work early on a Friday?

The bad news: Kate used to arrive early to work in order to catch a third shift supervisor. The time spent meeting with third shift supervisor was valuable to her and good for their working relationship. Kate’s manager, now comes in early to make those connections and communication to Kate is often delayed. Kate feels bad because she knows her boss doesn’t prefer to come in early and so the last thing she wants to do is complain about not getting all of the discussion points in a timely fashion.

The bottom line: Financially, there is not much different for payroll costs. That’s a good thing. But there may be a cost to the less effective workflow. Down the road, poor communication could lead to costly consequences in the production scheduling arena. Job satisfaction could also suffer. 

Kate becomes non-exempt and the company gets creative with schedules

The good news: Kate is non–exempt now, and gets paid overtime if she really needs to work over 40 hours in a work week. She’s changed her normal schedule to be 6:00-3:00 on Tuesdays and Thursdays, and keeps the typical 8:00-5:00 on Monday, Wednesday and Friday. She is enjoying improved communication and discovering new efficiencies along the way. Her boss isn’t taxed with covering off production scheduling topics with third shift, as Kate still handles it. 

The bad news: It can be challenging when Kate isn’t in the office until the close of business day. But, her manager would much prefer to run interference on Tuesday and Thursday afternoons than come in at 6:00. 

The bottom line: Payroll hasn’t been impacted much. The manager may be working more hours than before. Communication and efficiencies have improved. 

In the above examples, you can see how the different scenarios have contrasting outcomes. Let’s suppose your organization has numerous Kates. Now what? You can see that this may require dedicated time to analyze each case on an individual basis, while also keeping in mind the big picture. 

Some tips as you think through your unique situations:

  1. Be sure to capture an accurate account of how many hours your salaried employees (under the threshold) are working per week.
  2. Do some number crunching so you understand the financial impact on paying overtime so that you can weigh your options appropriately.
  3. Be creative and think outside of the box in terms of scheduling. 
  4. Consider the cost of adding a staff member instead of adding overtime. Part time employees can often be a great solution to adding flexibility to your workforce. 
  5. Be careful not to overload your salaried employees with the extra work that your newly non-exempt staff can’t fit into 40 hours. Your salaried workforce’s morale could suffer and end up costing you more in the long-run. 

HR Collaborative is a business consulting firm specializing in strategic human resource management. We operate in partnership with our clients and as an extension of their HR department. We help organizations build their HR systems, offering assistance within the broad spectrum of Human Capital Management. Contact: 616.965.7860 or www.hrcollaborative.net

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