- Unpack and internalize the new final rule. Total rewards professionals must contemplate the requirements and determine the appropriate action steps for their organizations.
- The “scramble” has begun. TR pros may very well need to work quickly to complete work that has a near-term compliance window.
- The finish line will continually move. Regular audits and assessments may be a key to complying with the rule’s recurring threshold updates.
When the U.S. Department of Labor issued a new final overtime rule on April 23, many organizations and their HR teams quickly gathered to discuss changes under the rule and what steps they should take to comply. For most organizations, these are weighty challenges to face, especially given the rule’s rapidly approaching deadlines and its significant potential impact on the bottom line.
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Under the rule, the salary threshold for overtime consideration under the Fair Labor Standards Act (FLSA) will increase twice — and by a substantial margin — in the next eight months. On July 1, the threshold rises from $35,568 to the equivalent of an annual salary of $43,888. On January 1, 2025, it will increase again to $58,656.
To help total rewards (TR) and HR professionals better understand how the new rule may affect them and their organizations, we gathered observations from three TR professionals:
- Evren Yildirim, director of compensation and benefits, Amcor
- Paul Reiman, managing partner, Novo Insights
- Alicia Scott-Wears, director of global total rewards content, WorldatWork.
We also started a conversation on our Engage online community, where many TR professionals have asked questions and weighed in with thoughts and observations. (Note: This conversation is available only to WorldatWork members.)
Question: What are the immediate ramifications of the finalized rule — for employers, in general, and for total rewards (TR) professionals, in particular?
Reiman: In the nearest term, this is creating a spreadsheet scramble for compensation professionals looking to identify nonexempt workers falling below the July 1, 2024, and January 1, 2025, thresholds. The first step is to size the problem: What roles are we talking about, and how much below the threshold are we? For some employers, this won’t be a huge gap or hurdle; for others, this could be a sizable problem.
Scott-Wears: The change necessitates a review to ensure compliance; internal audits of job duties and exempt status testing can help to ensure proper classification.
Prior to the final rule coming out, TR professionals likely did a preliminary assessment on the cost implications, but they now will need to review the final rule for current impact and continued forecasting. They’ll need to analyze or reanalyze these cost implications and strategize with finance and leadership on the impact and required actions.
When implementing all this, a strong communications plan is essential to effectively inform the workforce of changes. There is potentially a lot of work to do and not a lot of time to meet the current deadline.
Yildirim: My first reaction was to look at my population status vs. upcoming requirements [to understand those who have exemptions as executive, administrative and professional employees]. … Based on the final rule, a portion of my employee population will need action planning for the coming year.
The rule has a ladder approach to changing the standard salary level in the coming months and years. Therefore, I performed a quick audit based on the dates and salary level vs. my current population. Even if I’m compliant with the first update, I’ll need to take actions for the next [target date] to meet the requirements.
Those who need to plan actions will need to start preparing — by way of budgeting, adjusting compensation structures or reclassifying jobs. Given there is a step change, frequent audits are needed to test [vs. the exemptions]. One way to do that can be reconfiguring the HR systems accordingly or running reports frequently if no HR system is in place.
Question: What industries and jobs are most likely to be affected by the changes?
Scott-Wears: Any industry that has a sizeable number of employees on the cusp of the salary threshold will feel it; however, some industries that specifically come to mind are retail, hospitality and food service.
Yildirim: Job titles vary widely, and job titles are not determinative of applicability. From my perspective, though, the bulk of impacted workers are in supply chain and finance jobs.
Question: How might this affect talent considerations (i.e., development, hiring, reclassification)?
Yildirim: I think this will have a positive effect. I imagine some companies will take advantage of reviewing jobs and finetuning them to advance. This will provide development opportunities for current employees. This can easily be a win-win if planned in line with the company strategy.
Reiman: In the past several years, organizations have tended to [be more conservative in] making sure those duties tests are met when designating a role as exempt or nonexempt. So, I suspect that, for the vast majority of organizations, the July 1 hurdle won’t be that material. Will there be an impact? Yes. But for most, we’re likely talking about relatively few roles.
Question: Starting July 1, 2027, salary thresholds will update every three years. How will those updates affect the work that TR/HR professionals do (i.e., salary and overtime budgeting, staffing, job design)?
Yildirim: From a talent angle, this is a great opportunity to start investing in organizational design activities. Also, TR should get ready for downstream implications of the scheduled increases. This will create a domino effect in the organization and there is a potential for further salary compression issues.
Scott-Wears: I think this provides the opportunity for better planning. Organizations can apply analytical models to forecast and strategize for future impact.
Reiman: The predictable nature of future changes will give us something to talk about in three years, with a little bit of guesswork on where specific [thresholds] will fall at that point. [However,] I don’t see the 2027 changes being a big catalyst for change in the near term.
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