Should manufacturers roll back payroll and employee classification changes, now that the rule is uncertain? Experts say for now, that's probably a bad idea.
When a Texas judge imposed an injunction halting the new federal overtime rule on November 22, human resources consultant David Lewis’s phone started ringing off the hook with calls from harried executives, wondering what to do next. The rule, which nearly doubled the salary cap for having to pay overtime to managers to $23,660 to $47,476, was to go into effect December 1, after a six-month comment period and another three for employers to prepare for the change.
But now all bets were off. The rule was an executive order from outgoing President Barack Obama’s administration--and President-elect Donald Trump and the Republic-led Congress could make short work of it after Inauguration Day on January 20.
The timing of the injunction—late in the day on November 22, the Tuesday before Thanksgiving—couldn’t have been worse, says Lewis, the president and CEO of Operations Inc., an HR consulting company that counts manufacturing companies among its clients. To comply with the rule by December 1, the payroll deadline for many companies that pay on a two-week cycle was November 21.
Employees who had their pay bumped up above the new salary cap would see more money in their paychecks for that one cycle. But with the injunction, legally employers could bump them back down their previous salary in the next pay cycle. Others who had been changed to hourly employees from salaried has been anticipating working fewer hours or getting paid for the overtime they worked.
In his 30 years in the business, Lewis says he’s never seen such a whiplash-inducing change in HR regulations. “The analogy that I thought of was, you’re talking about someone who’s hooked up in the death chamber, and the lethal injection IV has been connected to them and the injection has been released,” says Lewis. “And just as it is about to reach the person’s vein, a doctor reaches over and pulls it out and says, ‘Never mind.’ That’s how close to the precipice we got here.”
Lewis advised all of his clients against reverting back to the old classifications and pay structure. “How are you going to tell an employee ‘You’re no longer making more salary and in essence you need to continue to go back to work, working 55 or 60 hours a week for the salary we were paying you before?' You have to think in terms of the morale of your organization.”
Large groups of employees can become disenchanted, disenfranchised and frustrated very quickly, and “demonstrate all of that anger and frustration,” he said.
The “overwhelming number” of customers Lewis works with decided to keep the changes they implemented for the time being, he says. “It’s now so difficult to go back and say, ‘You know what, now that the law’s not in place anymore; we’re not giving you that raise or reducing your schedule. That’s a really lousy message to send.”
Scott Wenner, a partner who advises manufacturers and other companies in the labor and employment practice of Schnader Harrison Segal & Lewis, said that some of his clients have rolled back their planned changes. “It depends on whether or not they’ve announced the changes and it depends on the overall labor cost." Even then, it's a delicate situation, and they run the risk of damaging employee relations, he says.
Ryan Huston, a quality assurance/technical service director at the Alabama packing firm Tekpak, says his company changed about a dozen employees from salaried to hourly to comply with the new rule. Since the injunction, Tekpak has decided to keep the changes in place, “and if it goes back to the old way, we’ll probably transition them back to salary.”
The cost of all the shifting is more on the paperwork side—“keeping up with time and attendance”—than on the payroll side, says Huston. A few employees are being paid a few extra hours in overtime each week or working a few less hours.
Lewis says he could see some companies going back to an employee and saying, “’Listen, just so you know, you’re not going to be getting any other increases this year because you’ve gotten an increase because of the expected change in the law.’ Or, ‘You might not get a bonus where we otherwise planned to give you a bonus.'"
He’s not advocating such moves, though. “Employees don’t care that the law changed back. They care that the company was going to give them an increase and now suddenly you just can’t renege on that. They have no sympathy for the employer being in a difficult position.”