On May 18, the White House announced its official revisions to U.S. overtime rules — a change that will expand overtime pay to 4.2 million U.S. workers nationwide who were previously ineligible for overtime pay. Now comes the challenge of successfully navigating these changes.
Much of the attention around these rules is focused on the impact on employees’ wages and the consequential labor cost decisions companies might undertake (such as cutting overtime hours or bonus/incentive pay) to maintain their bottom lines. But, these changes will also have a huge influence on employee benefits policies and plan options as employers decide on their approaches to stay compliant with the new regulations.
Employers’ compliancy strategies (such as reclassifying employees) will greatly impact both the availability and the level of various employee benefits policies and plans. And accurate employee reporting and classification — hourly versus non-exempt salaried, etc. — will be critical to ensuring employees receive adequate benefits compensation related to changes in benefits levels and new eligibility for certain benefits.
For example, some benefits, such as family and medical leave, are mandatory under federal or state law. However, other benefits, such as disability or dental insurance, are optional, so employers might need to review who is entitled to certain bonus benefits — particularly with any reclassified employees.
If employers aren’t compliant or don’t provide the government mandated minimum of employee benefits compensation, they face costly fines, penalties and lawsuits they may not be able to afford. It is estimated that employers could shell out as much as $874 millionto update payroll systems, convert salaried employees to hourly, and track their hours if similar regulations were imposed. Employers need to get educated on the new rules and decide how to best navigate compliancy, while revamping their current employee benefits policies and plans.
Employers may currently have a set of benefit perks that are different for exempt employees. For example, exempt employees may accrue more vacation time than their nonexempt counterparts. An employer will need to determine if they grandfather employees and allow them to continue accruing time off at the current rate or will they move them to a different, lower accrual level? Or, will they use this as an opportunity to look at the policies, and take a new approach to their time off plans to create plans that best fit their company culture?
To ensure compliancy, employers’ first step is to answer one critical question: Can their organization afford to increase labor costs?
Answering that question will determine the labor cost options an employer has, influencing their flexibility in offering optional employee benefits policies and plans. Only then can employers critically evaluate their current employee benefits policies and plans, including three essential preliminary steps:
Get educated. Business owners should review the overtime rules changes and create a smart FAQ resource to keep themselves and stakeholders (HR leaders and/or management teams) educated on the specific changes.
Get organized. Develop a calendar of key deadlines and a checklist of administrative and legal requirementsaround the new rules (i.e., employee classification changes deadlines).
Take action. Plan now, but be thoughtful and thorough. The December 1, 2016 deadline might seem far away, but the sooner employers get moving on adapting their policies, the less at risk they are for unexpected penalties and fines do to avoidable errors.
Once employers analyze the new rules and their current polices, they can identify holes in their employee benefits offerings and develop a strategy on how to fill the gaps around government mandates and adjust their optional benefits policies and plans while managing costs.
For example, some employers might provide certain salaried staff with a life insurance benefit based on a specific salary multiplier, but provide hourly workers with a flat amount or lower multiplier. With the new changes, employers that pay the premiums for these plans could experience added costs depending on the company’s classification changes and adjustments.
But no matter what path to compliancy employers choose, it’s inherent they provide clear communication to employees while they make business decisions around overtime rules, and changes to benefits policy and compliancy.
Everyone needs to understand the new rules and whether it affects them. Specifically, employees need to understand if and why they are being reclassified, how that changes their role and how it affects their pay. The regulatory environment is volatile and it’s crucial to provide effective, clear communication to employees on the issues impacting them most, such as benefits eligibility and wage increases.