hr perspectives on overtime exemptions - shrm · • in response to revised overtime regulations,...

SHRM Survey Findings: HR Perspectives on Overtime Exemptions

October 29, 2015

• Under the Fair Labor Standards Act (FLSA), employees are to be paid at a rate of at least one and a half times their regular rate for any hours worked over 40 in a week, unless they have been classified as exempt under certain specific statutory categories or meet other requirements in the regulations.

• Currently, an employee may qualify as exempt from the overtime requirements if he or she satisfies a primary duty test and if he or she is paid on a salary basis at a rate equal to or greater than $455 per week ($23,660 annually). Employees whose jobs are governed by the FLSA are either exempt or nonexempt. Nonexempt employees are entitled to overtime pay. Exempt employees are not.

• On June 30, 2015, the Department of Labor (DOL) released proposed changes to the overtime regulations:

» Raising the salary level to the equivalent of the 40th percentile of weekly earnings for full-time salaried workers as tracked by Bureau of Labor Statistics. DOL estimates that the 40th percentile will increase to $970 per week, or $50,440 annually, in 2016, when the rule is expected to go into effect.

» Adding a new provision to automatically update the salary levels every year.

» DOL did not make proposed changes to the duties test in the proposal. Instead, it asked for public input on whether, in light of the proposed salary increase, any changes to the duties test are warranted.

• This survey was designed beforebeforebeforebefore DOL proposed these changes to the overtime regulations and represents the HR profession’s general perspective on FLSA overtime exemptions.

SHRM Findings: HR Perspectives on Overtime Exemptions ©SHRM 2015 2

Introduction

• Exempt employee – An employee who meets one of the FLSA exemption tests and who is paid on a fixed salary basis and not entitled to overtime.

• Nonexempt employee – An employee who does not meet any one of the FLSA exemption tests and is paid on an hourly basis and covered by wage and hour laws regarding hours worked, overtime pay, etc.


Definitions

• If organizations are required to reclassify exempt positions to nonexempt positions, what would be some

potential consequences? If required to reclassify exempt positions to nonexempt positions, 76% of organizations reported that reclassifying may result in previously unbudgeted overtime costs. Additionally, 70% of organizations indicated that an increase in employees’ opportunities to earn overtime pay would have a significant impact on their organization. Increases in employee eligibility for overtime would not necessarily lead to additional pay for employees.

• What type of scenarios will likely occur should the change in overtime regulations lead to an increase in

eligibility for overtime pay? Approximately seven out of 10 organizations believe that restrictive overtime policies would lead to a likely reduction in employees working overtime (70%) and a likely decrease in workplace flexibility and autonomy (67%).

• How often do organizations review employee classifications? Approximately one-half (53%) of organizations review employee classifications as exempt or nonexempt under the FLSA when a position becomes open. Thirty-nine percent of organizations conduct this review annually, and 6% never reassess employee classifications.

• What percentage of employees perform concurrent duties? Two-thirds (66%) of organizations employ salaried employees who must regularly conduct nonexempt (i.e., hourly) tasks.


Key Findings

• In response to revised overtime regulations, HR professionals will need to determine how employees will be affected by the new salary threshold and other rule changes. In particular, HR professionals working in the non-profit sector, in small businesses, and in areas of the country where salaries tend to be lower, should expect a more pronounced impact due to an anticipated 113% increase in the salary threshold.

• Although more employees will be eligible for overtime under the rule changes, HR professionals will need to monitor labor costs closely. An analysis must be conducted to determine whether to raise salaries to maintain the exemption for certain employees, whether to cap or eliminate access to overtime work, and whether to otherwise adjust salaries to make sure that an employee’s total wages will remain the same even if that employee’s overtime hours increase.

• With an increase in the number of non-exempt employees, HR professionals may find it more challenging to offer workplace flexibility arrangements. Increased litigation under the Fair Labor Standards Act (FLSA) means that HR professionals will need to put systems in place to ensure that non-exempt employees are not working overtime hours and monitor employees’ remote work and use of electronic devices. HR professionals will also need to develop a communications strategy to address the consequences of reclassifying employees from exempt to non-exempt status, including the loss of morale.

• If the final rule includes changes to the duties test, which may include limiting the percentage of non-exempt duties that managers are allowed to conduct, HR professionals will need to review the duties performed by exempt employees and develop additional systems to monitor those duties to ensure that employees are properly classified under the new rules.


What do these findings mean for the HR profession?

If overtime rules were changed so that employees who spend more than 50% of their time on nonexempt tasks must be classified as nonexempt, what percentage of your workforce would you need to reclassify?*


Note: n = 340. Respondents who answered “Not applicable” were excluded from this analysis. Percentages may not equal 100% due to rounding.

*Although the DOL did not propose changes to the duties test, HR professionals were asked about the potential impact.

76%

20%

3%

1%

Less than 25%

Between 25% and 50%

Between 51% and 75%

More than 75%

In your opinion, how significant of an impact would each of the following potential consequences have on your organization if it were required to reclassify exempt positions to nonexempt positions?


Note: n = 314-330. Respondents who answered “Not sure” were excluded from this analysis. Percentages may not equal 100% due to rounding. Data are sorted in descending order by the “Significant” percentages.

76%

70%

61%

42%

15%

20%

24%

33%

9%

10%

14%

25%

Reclassifying may result in previously unbudgeted

overtime costs

Reclassifying may lead to an increase in

employees’ opportunities to earn overtime pay

Reclassifying may result in decreased workplace

flexibility and autonomy (e.g., choosing hours,

setting schedule)

Reclassifying may result in reduced opportunities

for career advancement within the organization

Significant Insignificant N/A – There would be no impact on my organization

In your opinion, how likely are the following scenarios to occur in your organization, should overtime regulation changes lead to an increase in eligibility for overtime pay?


Note: n = 312-318. Respondents who answered “Not sure” were excluded from this analysis. Percentages may not equal 100% due to rounding. Data are sorted in descending order by the “Likely” percentages.

70%

67%

58%

34%

30%

33%

42%

66%

Restrictive overtime policies would be

implemented, leading to potential reduction in

employees working overtime

Decreased workplace flexibility and autonomy

(e.g., choosing hours, setting schedule)

More opportunities for employees to earn overtime

pay

Increased hiring to compensate for reduction in

employees working overtime

Likely Unlikely

In general, how often does your organization review employee classifications as exempt or nonexempt under the FLSA?


Note: n = 337. Percentages may not equal 100% due to multiple response options.

53%

39%

2%

6%

11%

When a position becomes open

Annually

Monthly

Never

Other

In 2004, the white collar overtime regulations were amended and a $455 a week salary test was created. How did these overtime rule changes affect your organization?


Notes: n = 227. Respondents who answered “Not sure” were excluded from this analysis. Percentages may not equal 100% due rounding. Data are sorted in descending order.

82%

13%

4%

No significant change

We reclassified more exempt employees to

nonexempt employees

We reclassified more nonexempt employees to

exempt employees

Does your organization employ exempt (i.e., salaried) employees who must regularly, in the course of their jobs, conduct nonexempt (i.e., hourly) activities?*


Note: n = 369. Respondents who answered “Don’t know” were excluded from this analysis.


Yes, 66%No, 34%

Exempt employees regularly conducting Exempt employees regularly conducting Exempt employees regularly conducting Exempt employees regularly conducting

nonexempt activitiesnonexempt activitiesnonexempt activitiesnonexempt activities

5%

15%

80%

More than 70%

Between 40 % and 70%

40% or less

What percentage of your exempt What percentage of your exempt What percentage of your exempt What percentage of your exempt

employees regularly conduct both employees regularly conduct both employees regularly conduct both employees regularly conduct both

exempt and nonexempt activities? exempt and nonexempt activities? exempt and nonexempt activities? exempt and nonexempt activities?

Note: n = 222. Only respondents whose organization employs exempt employees that regularly conduct nonexempt activities were asked this question. Respondents who answered “Not applicable” and “Prefer not to answer” were excluded from this analysis.


Does your organization employ exempt (i.e., salaried) employees who must regularly, in the course of their jobs, conduct nonexempt (i.e., hourly) activities?


Note: Only statistically significant differences are shown.

Comparisons by organizationComparisons by organizationComparisons by organizationComparisons by organization staff sizestaff sizestaff sizestaff size

500 to 2,499 employees (80%)2,500 to 24,999 employees (78%)

>1 to 99 employees (52%)

100 to 499 employees (62%)

Comparisons by organization staff size

• Organizations with 500 to 24,999 employees are more likely than organizations with 1 to 499 employees to employ exempt employees who must regularly conduct nonexempt activities in the course of their jobs.


DemographicsDemographicsDemographicsDemographics

Demographics: Organization Industry


Note: n = 328. Percentages do not equal 100% due to multiple response options.

PercentagePercentagePercentagePercentage

Manufacturing 19%

Health care and social assistance 18%

Professional, scientific and technical services 17%

Administrative, support, waste management and remediation services 11%

Finances and insurance 10%

Educational services 9%

Government agencies 9%

Retail trade 6%

Accommodation and food services 5%

Transportation and warehousing 5%

Whole trade 5%

Demographics: Organization Industry (continued)


Note: n = 328. Percentages do not equal 100% due to multiple response options.

PercentagePercentagePercentagePercentage

Religious, grantmaking, civic, professional and similar organizations 4%

Arts, entertainment and recreation 3%

Construction 3%

Information 3%

Repair and maintenance 3%

Real estate and rental and leasing 2%

Utilities 2%

Agriculture, forestry, fishing and hunting 1%

Mining, quarrying, and oil and gas extraction 1%

Personal and laundry services 1%

Other 2%

Demographics: Organization Sector


Notes: n = 326. Percentages do not equal 100% due to rounding.

52%

20%

16%

10%

1%

Privately owned for-profit

Nonprofit

Publicly owned for-profit

Government

Other

Demographics: Organization Staff Size


n = 324.

22%

33%

22%

17%

6%

1 to 99 employees

100 to 499 employees

500 to 2,499 employees

2,500 to 24,999 employees

25,000 or more employees

n = 331.

Demographics: Other


U.S.-based operations only 77%

Multinational operations 23%

Single-unit organization: An organization in which the location and the organization are one and the same.

30%

Multi-unit organization: An organization that has more than one location.

70%

Multi-unit headquarters determines HR policies and practices

51%

Each work location determines HR policies and practices

3%

A combination of both the work location and the multi-unit headquarters determines HR policies and practices

46%

Is your organization a single-unit organization or a

multi-unit organization?

For multi-unit organizations, are HR policies and

practices determined by the multi-unit headquarters, by

each work location or by both?

Does your organization have U.S.-based

operations (business units) only, or does

it operate multinationally?

n = 330.

n = 234.

Corporate (companywide) 71%

Business unit/division 17%

Facility/location 12%

n = 234.

What is the HR department/function for

which you responded for throughout this

survey?

19

SHRM Survey Findings: HR Perspectives on Overtime Exemptions

• Response rate = 14%

• 413 HR professionals from a randomly selected sample of SHRM’s membership participated in this survey

• Margin of error +/-5%

• Survey fielded June 18-July 6, 2015

Survey Methodology

SHRM Findings: HR Perspectives on Overtime Exemptions ©SHRM 2015

• For more information about DOL’s proposed FLSA overtime rule: www.advocacy.shrm.org/overtime

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