How to Meet the New Overtime Regulation Using People Analytics
This article is an update of a post we published when these changes were first proposed.
In 2016, I shared how organizations could use people analytics to prepare for the changes to overtime pay that were set to take effect later that year. However, a federal injunction was issued against the Department of Labor (DOL) regarding the new overtime rules, halting any further action.
In September 2019, the DOL announced new overtime changes are officially coming. The new ruling means that the minimum exempt salary threshold will be raised from $23,660 a year (or $455 per week) to $35,568 annually (or $684 a week). The new rate will take effect on January 1, 2020.
As a result of this announcement, it’s expected that employers will need to reclassify more than a million currently exempt workers to nonexempt status and raise pay for others above the new threshold. HR is now under pressure by their C-suites and boards to find a way to avoid the millions of dollars in overtime costs their organizations are now at risk of incurring.
The unpredictable nature of the overtime regulation highlights that organizations need to be able to react swiftly to change. This isn’t the first time organizations needed to analyze their workforce data for regulatory or legal reasons–and it won’t be the last.
No longer can you expect a 12-month window for any change. No longer can you start a data project just to deal with workforce surprises–you and your team need to be able to analyze and shift on a dime.
Read on to learn how people analytics enables HR to quickly action on the regulatory shocks that have become part of the world of work.
What are the new rules around overtime?
In the final ruling, the DOL has made the following official changes:
- Raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker)
- Raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year
- Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices
- Revising the special salary levels for workers in U.S. territories and the motion picture industry
“The unpredictable nature of the overtime regulation highlights that organizations need to be able to react swiftly to change.”
The pressure is on HR to find the delicate balance between productivity, employee engagement, and the workforce budget, while staying compliant. In order to achieve this, HR must find an effective solution that will help them make the right compensation and workforce changes–while balancing the needs of the workers and the bottom-line.
HR can’t keep being reactive to change
The first thing HR must do is determine which employees fall into the new salary range. It isn’t enough to know the total number of people now eligible for overtime though. This information needs to be broken down into specific buckets that can be used to plan future workforce options.
For example, if the majority of people who have become eligible are paid $32,000 per year, then it may be more cost effective to increase the pay for this group to $36,000 annually and maintain their exempt status. However, if you discover that the majority of employees are paid $27,000 per year, then another approach is required–one that will help you choose the right workforce plan and implement it before the January 1st deadline.
Large-scale changes such as these don’t just affect your employees–they have a direct impact on business results too. New regulations and business changes are introduced all the time, and HR must be able to provide a strategic response based on fact. It’s a daunting task because data is everywhere.
Old data is separate from new data, performance data is separate from compensation data, international data is separate from North American data. The data is disparate and messy, which means there are higher incidences of errors and information doesn’t connect to each other. The different solutions that have been purchased to make business easier code things differently and ironically, makes it even harder to use your data.
Additionally, the formula most businesses use to calculate the cost of wage increases doesn’t present a complete picture of the impact. You must go beyond basic calculations around operational costs and wage change and forecasting out 12 months. You need a holistic view of your workforce and your business–which requires you to first gather information from your different systems and then, manually pull it all together to make the best decision possible.
Make your people data work for you
What if, instead of a sense of panic or dread, you could confidently respond to any and all requests for data as they came because you had all your workforce data in a single source of data truth? Imagine your historical data united with your current data, your data from disparate and regional solutions centralized, and any inconsistencies identified, resolved, and normalized into a cohesive data model.
With the right people analytics solution, one pre-built for the nuances of overtime and the hourly workforce–it should take HR minutes (not weeks) to answer business critical workforce questions like:
- How does the new rule impact us?
- How many employees?
- What are our overtime usage trends?
- What are our changing costs?
- What are our areas of greatest cost risk?
- How can we optimize workforce costs?
- Should we raise salaries to retain exempt statuses for those on the cusp of the new salary level?
- Should we reclassify those who fall under the new threshold and/or change their pay structure?
- Since bonuses and commissions are included in the calculation of salary threshold, should we make changes to pay to move workers over the threshold?
- How can we better track, report, and manage overtime?
While investing in people analytics will absolutely save you time, money, and headaches as you meet your legal and regulatory requirements, it would be short-sighted to stop there.
“With the right people analytics solution, one pre-built for the nuances of overtime and the hourly workforce–it should take HR minutes (not weeks) to answer business critical workforce questions.”
More than pulling the data and crunching the big numbers, people analytics will give you the answers and meaningful information that your HR organization needs to pivot from reactive to proactive, from tactical to strategic. Your talent drives your business’ competitive advantage and understanding the drivers to success–so you can remove obstacles and plan new initiatives–will you continuously give you a fresh advantage.
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