Tag Archives: Philadelphia Business Journal

The New Overtime Rule: What’s It Mean For Your Business

I am pleased to share my latest post to Philadelphia Business Journal.

The U.S. Department of Labor on Wednesday finalized a new rule that doubles the annual salary threshold for receiving overtime pay to $47,476. The White House estimates that will provide overtime pay to an additional 4.2 million workers, leaving business owners wondering how they will foot the bill for the change or keep employees from racking up extra hours.

The new overtime regulations are rather uncomplicated as a matter of law but there are major business and employee relations considerations when it comes to implementation.

Let’s begin with the law. Generally:

▪The minimum salary will be $913 per week. As noted, that is double what the number was under the 2004 regulations, $455 per week.

▪While the increase is substantial, for the first time, an employer may include some compensation other than salary to meet the minimum salary. More specifically, employers can include non-discretionary bonuses, incentive payments and commissions to satisfy up to 10 percent of the minimum weekly salary.

▪The minimum salary will be adjusted every three years. The DOL had proposed every year.

▪There will be no changes to the primary duty test. The DOL had, by the questions it asked in its proposed rule, suggest it might move to a percentage test, as is the case in California. Instead, the test remains the same: primary means main, principal or most important.

▪The regulations go into effect on December 1, 2016. So employers have about six months to prepare.

The big question that employer will need to decide with exempt employees making below the minimum salary is whether to raise their salaries or to convert them to non-exempt. Among a much longer list, here are eight questions that every employer should ask itself in making that business decision.

  1. How will I get the work done? Exempt employees can work anywhere and anytime. And, most do. If you need that kind of flexibility, that may argue in favor of increasing salary rather than converting to non-exempt.
  2. How do I allow an employee I convert from exempt to non-exempt to work remotely without ending up with an off the clock case? Even if you don’t need an employee to perform substantial work remotely or you cannot afford the minimum salary increase, the now non-exempt employee still likely will need to perform some work remotely. We need to deal with it by developing guard rails to limit, capture and pay for all such work. The on-off switch with regard to remote work may need to become a dimmer.
  3. How are similarly situated employees being treated?Converting employees from exempt to non-exempt will produce different reactions. Some may be thrilled—the potential for overtime. Others may be less happy—they see it as a demotion. Make sure you have business reasons for whom you convert to non-exempt and document same to defend potential discrimination claims by those who are upset, one way or the other.
  4. How are you going to communicate with employees whom you are converting from exempt to non-exempt? This is critical. As just noted, some will see this as a demotion. You need to explain that the change is driven by legal considerations and nothing changes the value you place on what the employee does for you.
  5. How are you going to ensure that exempt employees don’t get killed as you move work from the newly converted non-exempt to them to avoid paying overtime? Many exempt employees making well above the minimum salary work day and night. There is a breaking point. Provide them with even more work and, at a minimum, this may produce resentment. If they become sufficiently unengaged on enraged, they may leave. Yes, Virginia, millennial employees are not the only ones who want a life, too.
  6. What do you do with employees who are above the minimum salary when you raise the salaries of others below it so they remain non-exempt? Raising the salaries of higher paid employees may be costly. But not raising their salaries may have a heavy employee relations cost. “So he gets a $4,000 raise and makes only $1.000 less than I do even though I have been here for 5 more years with great reviews.” A lot of tough calls will have to be made. And, remember, it is not “all or nothing.” Be creative.
  7. How do you train your managers on how to deal with those converted from exempt to non-exempt? The question provides the answer. Don’t forget the training. If you ask the now non-exempt employee to do something as she is walking out the door, tell her to log back in and pay her for the extra time. It is a little more complicated legally but you get the drift, I hope.
  8. How do I budget? Plan for more overtime as a result of conversions, unless you want to have unhappy or lose customers or clients. Educate your financial team of the new normal so that they can be partners and not impediments.

And, that’s just for starters. Having fun, yet?

How Philadelphia’s New ‘Ban the Box’ Law May Hurt Employers and Employees

I am please to share below my blog for Philadelphia Business Journal. 

“Ban the Box” initiatives are hot and likely to get even hotter. Indeed, for employers in Philadelphia, the law just did.

By way of background, “Ban the Box” initiatives are state laws or local ordinances that restrict when employers can ask about criminal convictions. The box that is banned is the answer to the question: have you been convicted of a crime…..”

The policy considerations behind these initiatives is quite understandable. African Americans and, to a lesser degree, Latino Americans, are more likely than white Americans to have criminal convictions. It is fair to assume that most employers do not smile with glee when they see an affirmative answer to the application question about criminal convictions.

So asking the question up front may have a disproportionately hard effect on such minority groups. Conversely, if the question is removed from the application, the hope is that more applicants in these communities at least will be interviewed and have an opportunity to show what they can bring to the workplace before the employer learns of any convictions that may exist.

In 2011, Mayor Nutter signed into law an ordinance (that went into effect in 2012) that required employers to wait until after the first interview to ask questions on criminal convictions or conduct background checks with regard to same. It was, in my view, a reasonable balancing of the various interests.

This week, Mayor Nutter signed into law a new ordinance (that will go into effect in 2016, 90 days after signing) that will make the ban-the-box ordinance on the books even tighter. Employers will not be able to ask about criminal convictions (or conduct background checks with regard to same) until after a conditional offer of employment has been extended.

Plus, the new law will apply to all employers, even those with only 1 employee. The current law applies only to employers of 10 or more employees.

How does this play out in the real world? I think almost all reasonable people would agree that some convictions legitimately should result in disqualification of an applicant from employment for a particular job, such as:

1. An applicant who was convicted of embezzlement in the last 7 years applies to be a controller.

2. An applicant who was convicted of rape in the last 7 years applies for a security job in a hotel where he will have unrestricted access to guest rooms.

Under the new law, the employer won’t be permitted to find out about the (what should be) disqualifying conviction until the last moment in the application process, that is, after a conditional offer has been extended.

That means the employer will have wasted scarce time and money to get to the conditional offer stage where the process should have been cut off earlier. Further, by this time, qualified applicants may have found jobs elsewhere and now the employer is back to square one.

In addition to this burden, there is also now greater legal risk. While the current law does not specify the factors that an employer must consider in evaluating a conviction, the new law requires that employers make an individualized assessment considering factors such as:

1. The nature of the offense.

2. The time that has passed since the offense.

3. The nature of the job sought.

4. The applicant’s employment history before and after the offense and any period of incarceration.

5. Any character or employment references provided by the applicant.

6. Any evidence of the applicant’s rehabilitation since the conviction.

These factors are very similar to the factors that the EEOC recommended in 2012 that employers consider in making individualized assessments to minimize their exposure to adverse impact claims. But when it comes to the EEOC, we are talking about guidance; in Philadelphia, we are talking about legal mandate.

Plus, the EEOC recognizes that there may be “targeted exclusions” (narrowly tailored) for certain positions, that is, a per se rule. No comparable employer right appears to exist under the Philadelphia ordinance as amended.

So let’s go back to the rapist applying for a security position. He could argue that his references, job history and other factors were not given sufficient weight by the employer. That may be enough to get to a jury. And that means the employer will have to invest but more time and money.

The public policy issue at hand is very important. But, in my view, the new law goes too far, and I fear may be but another reason (think increased sales taxes, too) why entrepreneurs will look outside of Philadelphia to start their business dreams. And that is not good for racial and ethnic minorities who live in our City.

This may be but another example, as one of my best professors often said, of the unanticipated adverse consequences of virtuous social action. Except that the result can be anticipated.

Note: This article should not be construed as legal advice or as pertaining to specific factual situations.