Changes in Fair Labor Standards Act (FLSA) Rules – Big Impacts

Friday, March 21, 2014

 

It should come as no surprise to anyone that a change in the Fair Labor Standards Act (FLSA) guidelines would have a significant impact on many organizations.  Just consider the current minimum earnings standard of $455 per week that is used to classify workers as non-exempt vs. exempt.  If that standard were raised to the proposed level of $970 per week or $24.25 per hour, millions of workers could be impacted by being reclassified from exempt to non-exempt.  This would then expose millions of additional primarily while-collar employees to FLSA’s overtime rules.  Such a change could impact workers in job classifications ranging from Animal Care Workers to Meeting and Event Planners.

 

A second proposed change is to the "primary duties" test.  Workers who are currently classified as exempt due to their job duties could be reclassified as non-exempt not because their duties changed rather due to a change in the rules making it difficult for employers classify them as exempt.  Workers are often classified as exempt based on the primary duties of their roles, this includes classifications such as:  Executive, Administrative, Professional, Computer-Related Occupations, and Outside Sales Employees.  The key to classifying these roles as exempt is found within the primary duties rules.

 Executive Employees

Compensated on a salary basis not less than $455 per week

Primary duty must be managing the enterprise, a department
or subdivision

Must regularly direct the work of at least two or more full-time
employees

Must have authority to hire/fire other employees

 

Administrative Employees

Compensated on a salary basis not less than $455 per week

Primary duty must be the performance of office or non-manual work

Primary duty includes exercise of discretion and independent judgment

 

Professional Employees

Learned professional employee

Compensated on a salary basis not less than $455 per week

Primary duty must be work requiring advanced knowledge

Advanced knowledge must be in a field of science or learning

Knowledge must be acquired by prolonged course of instruction

 

Creative professional employee

Compensated on a salary basis not less than $455 per week

Primary duty must require invention, imagination, originality
or talent in artistic/creative endeavor

 

Employees in Computer-Related Occupations

Compensated on a salary basis not less than $455 per week

Compensated hourly, at a rate not less than $27.63 an hour

Employed as computer systems analyst, computer programmer,
software engineer or other similarly skilled worker in the computer
field

Primary duty must consist of:

Application of systems analysis, consulting, determination of
hardware, software or system specifications;

Design, development, documentation, analysis, creation,
testing or modification of computer systems

Design, documentation, testing, creation or modification of
computer programs

Outside Sales Employees

Primary duty must be making sales

Obtaining orders or contracts for services

Use of facilities for which a consideration will be paid

Must be customarily and regularly engaged away from
the employer’s place or places of business.

Is clear, that any change to the earnings threshold and/or the primary duties test could have far reaching impacts for any organization regulated under the Fair Labor Standards Act (FLSA).

Millennial Employees Are Coming, Is Your Organization Ready?

Friday, March 14, 2014

 

Boomers revolutionized the world.  Art, civil rights, consumerism, family, government, music, recreation, society, and work were radically changed by millions of the post-WWII generation, aka, the Baby Boomers.  They represent approximately 77 million or 25% of the current population.  But wait, there is an even larger generation out there, no not the Gen-X’ers, it is the Millennial generation.

 

Millennials are estimated at some 80 million and projected to make up 46% of the US workforce by 2020 and like their Baby Boomer cohorts; they are already reshaping the world and the workforce.  And the tool they are using to reshape the world is digital, from smart phones to tablets to social media, it is all about mobility, instant access to information, and constant connectivity.  For the Millennial, the mobile device is their life line to reality.  The defining characteristic for Millennials is the extent that digital technology is integrated into their very culture.

 

Millennials are expected to have a profound impact on the workforce.  Born after 1980, over half have already entered the workforce.  From the Millennials’ viewpoint, employer loyalty is not that important, personal development and work-life balance are important, financial rewards only go so far for Millennials, and the expectation of rapid advancement is their normative expectation.  One striking finding is that over half of all Millennials perceive that organizational diversity promises have not been kept by their employers.  Millennials prefer their own digital and mobile devices rather than some standard provided by their employer.

 

As daunting as this may sound, there are opportunities out there for the organization that can incorporate the Millennials’ expectations into the company’s business goals and objectives.

 

Personal Development: Provide greater opportunities to learn and grow personally and professional in both formal and informal modes.  Provide mentor programs, in-house training, paid educational leave, and teaching opportunities.

 

Work-Life Balance:  Permit greater flex schedules, work from home, work from remote or satellite locations; provide opportunities to volunteer in schools and the community.

 

Non-Financial Rewards:  Identify high visibility project assignments and leadership roles, provide travel opportunities, temporary assignments, fast-track advancements, paid sabbaticals to do research, study or volunteer.

 

Personal Digital and Mobile Devices:  Accommodate a wide range of employee owned digital and mobile devices in the workplace.

 

While many hi-tech organizations have integrated a high degree of flexibility into their organizations, more traditional legacy employers may find it difficult to accommodate such elasticity in their daily operations.  From a strictly business perspective, employee development works only if there is a direct line between the employee’s skill development and the needs of the organization.  Not every position or employee is suitable for flex schedules or working remotely.  Organizations still must maintain a competitive compensation package, even in the face of any non-financial rewards.  Any attempt to accommodate the current and future assortment of employee owned devices is likely to raise security and supports issues with an organization’s IT management.

PPACA and Worker Mis-Classification as Independent Contractors

Friday, March 07, 2014

 

The Patient Protection and Affordable Care Act require that employers with 100 in 2015 and 50 or more employees in 2016 must provide certain employees with health care or face potential penalties for failure to do so, i.e., “pay or play”.  The recent release by the Internal Revenue Service (IRS) on February 10, 2014 of the final regulations provided further clarification on a number of critical issues including, definition of full-time employees, safe harbors, transition rules, applicable large employer status, and hours of service.  Along with the final regulations, the IRS also released 46 Frequently Asked Questions or FAQ’s and a Fact Sheet to assist employers.  Both the final regulations, FAQ’s, and Fact Sheet seek to clarify who is and is not a “full-time employee”.  This determination as to who is a full-time employee for the purposes of “Shared Responsibility for Employers” is essential to any number of provisions of the PPAA and thus who is offered health care or not as well as when.

 

FAQ # 15 defines a “full-time employee” as, “… an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of [paid] service per week.”  This definition thus begs the question as to who exactly is an “employee”.  The simple answer is any “W2” wage earner is an employee (common-law employee) of the employer and may be broken down into several classifications including, full-time, part-time, seasonal, and variable hour employees.  To complicate matters, employees may move between classifications throughout a calendar year and an employer’s benefit’s Plan Year may not coincide with the calendar year.

 

Individuals who are classified as “independent contractors” are not common-law employees of an employer for purposes of PPACA and are not used in the determination of an employer’s “applicable large employer” status or the calculation of any penalties.  However, this is where the mis-classification of common-law employees as independent contractors becomes an issue.  As with the Fair Labor Standard’s Act, worker mis-classification as an independent contractor may have significant and negative legal and financial outcomes for an employer.  Therefore, it is strongly recommended that employers seek competent and professional legal and tax advice before classifying any workers as independent contractors.

 

The final regulations by the IRS addresses the concern that employers might inappropriately classify otherwise common-law employees as independent contractors.  So strong was the IRS’ concern that the final regulations included, “The Treasury Department and the IRS are concerned that the relief requested would serve to increase the potential for worker misclassification by significantly increasing the benefit of having an employee treated as an independent contractor. Accordingly, the final regulations do not adopt this suggestion.”  XII. Worker Classification and Section, 4980H, page 8567

Performance Evaluations in a Changing World

Friday, February 28, 2014

We are all familiar with the ubiquitous employee performance evaluation.  Virtually every organization has one or more, sometimes associated with the employee’s job classification.  Every human resource vendor has several for sale.  Some are purchased and some are developed in-house.  Furthermore, no one likes them or thinks they are very good at measuring “true performance”.  Thus many question an attempt to measure employee performance with a tool that is perceived as less than accurate, valid or reliable, especially when organizations are changing at light speed?

Organizations need some method of how well an employee, and by proxy, how well mangers and business units are performing in the human resource sphere.  Otherwise, how else is an employer going to support employee and job actions?  Likewise employees want to know how they are performing and employees also want to be rewarded.  This cycle of behavior-reward has been programmed into us from birth.  We are rewarded with parental praise as a child and with recognition and advancement in school.  And lastly, we expect to be rewarded and advanced in the workplace.  Essentially, this paradigm is the foundation of much of human behavior.

At issue is how do we evaluate performance when job expectations are consistently changing?  How do we, as managers, set expectations when neither we nor our organizations may know the next major direction the organization is going to take?  How do we coach and direct an employee on what skills are needed for the next project in the pipeline?

First, none of us may ever be able to foresee the next big change in our organizations.  We need to learn to accept the fact change is going to occur and occur at an ever increasing rate, aka, Moore’s Law.  Dealing positively with change becomes a skill in our toolbox as well as in our employee’s toolbox.  Coaching employees to see change as a challenge and an opportunity for the employee to shine is one approach.

Second, the mental model with we approach change is going to telegraph to everyone around us.  If we are positive, they are more likely to see the change as positive.  Since our success as leaders is closely correlated to the success of those we lead, it really is in our self interest for them to rise to the occasion. 

Lastly, it is important to communicate with everyone.  This means asking those who lead us to explain the business reason(s) behind the change.  Once we understand the driving force of the change we can better communicate to others, such as those we lead.  Our complete understanding of what change is occurring is going to help us positively communicate with your management, peers, and those we lead.

RoseFass, CEO of the consulting company fassforward was quoted in an 11/05/2013 article by Dorie Clark in Fobes as saying,” The best kind of change comes when you envision, initiate and control it. That type of change creates opportunities, transforms companies and ignites growth.”

Organizations are Dissatisfied with Pay for Performance

Friday, February 21, 2014

 

Pay for Performance, simple, employees are rewarded for their level of job performance.  The better the employee’s job performance the better the employee’s reward.  Those who perform are rewarded, those who do not perform, are not rewarded.  How could any organization be unhappy with such as arrangement?  As reported in Mercer's 2013 Pay for Performance Survey, 45%, of employers reported that Pay for Performance was not performing as expected in their organization and needed to be repaired.

 

According to the survey, there is a disconnection between Pay for Performance as a reward philosophy and measuring the results of that performance and its alignment with organizational needs.  Thus while the majority of employers support and believe in Pay for Performance less than half measure the effectiveness of their programs.  This begs the question, if organizations are not measuring the efficiency of their programs, how do they know they are working?  And the answer is, of course, they do not know if Pay for Performance is driving the desired organizational outcomes.  Bob is a great sales manager and we reward Bob for his performance, we just do not know for a fact that Bob’s efforts are in alignment with the organization’s desired sales goals and objectives.

 

TowersWatson reported in “How to Drive Sustainable Employee Engagement”, on April 3, 2013 that organizations are only limited by those behaviors which they can “observe, measure, and communicate.”  Thus it goes to reason that employers whose objective is to increase sales must observe that behavior which leads to higher sales, measure those sales which are desirable, i.e., profitable, and communicate the desired behaviors to its sales force.  Then, when those behaviors yield the desired results, the organization must reward the employee.

 

In an effort to obtain higher levels of performance, most employers want to engage their employee’s “discretionary effort” level of performance.  Engaging employees to go the extra mile is of no value and may even be counter-productive unless that effort is consistent with the desired direction(s) of the organization.  Increased sales may even be harmful to an organization’s success unless those sales are to the right customers.  Customers, who fail to pay, pay late, have credit issues or return otherwise perfectly good product, may not be the “right” or profitable customers for an organization.  Without some measure or measures of sales, revenue, net income, account balances, account aging, returns, and other measures, employers lack the information to know if their sales force is selling the right products to the right customers at the right price.

 

As organizations continue recover from the Great Recession, greater importance is placed on measuring both organizational and employee performance at all levels.  With employers still reluctant to rehire scores of workers, businesses look for ways to maximum the productivity of existing employees.  Thus measurement of employee performance becomes critical to determine if and when new workers are needed.

Top Ten HR Issues for 2013-2014

Friday, February 14, 2014

 

Bi-annually, the Society for Human Resource Management (SHRM) publishes a “Workplace Forecast” in which a sample of SHRM members voice their concerns and issues for the current and coming year.  The last Workplace Forecast was released as of May 2013.  Prior versions of the “Workplace Forecast” were released in 2011, 2009, 2007, 2005, and 2003.  Since 2005, the # 1 issue and concern for SHRM members has been the cost of employee health care.(Table 1)  And, the # 1 issue and concern for SHRM members looking at 2013 and beyond, is the cost of employee health care.(Table 2)  When questioned about the key factors in recruiting and retaining workers, SHRM members again cited the cost of employee health care as # 1.(Fig. 16 & Fig. 17)

 

Of the myriad issues and concerns facing HR professionals and their businesses what makes the cost of employee health care the # 1 problem for so many organizations?

 

Health care is expensive for both employers and their employees!  As an increasing number of employers move to high deductible plan designs, employees see the cost of health care with every office visit or trip to the pharmacy.

 

The Kaiser Family Foundation reported in its 2013 Employee Health Benefits survey, the cost of a PPO style plan was:
 

                                        Typical PPO Style Plan Costs

                Employee   Percent      Employer   Percent          Total

Single        $1,024         17%         $  5,008        83%         $  6,032

Family       $4,587         28%         $12,084        72%          $16,671

E X H I B I T B

Average Annual Firm and Worker Premium Contributions and Total Premiums for
Covered Workers for Single and Family Coverage, by Plan Type, 2013.

 

Health care is at the center of most employees’ focus!  Unlike benefits such as retirement, health care is something even a healthily person will experience several times a year.  For those employees with chronic illnesses, it could be weekly.

 

It becomes clear that for many candidates, given equal choices, the employer with the less costly and better managed health care plan is likely to win out in the bidding for that talent.  If health care is so important in recruiting and retaining talent, that organization which better manages the cost and delivery of health care will have a comparative advantage in the effort to acquire and retain talent.

 

As noted above, health care is expensive!  Managing that cost is not simple; witness the thousands of pages of laws, rules, and regulations promulgated by the Federal government and its agencies aimed at just that effort.  Educating and informing employees on the costs of health care procedures can go a long way to helping employees understand the value they are getting out of their health care plan.

 

The same approach when used with potential candidates can build an employer’s brand in the eye of job seekers.  Candidates who can appreciate the efforts of an organization to manage health care are more likely to be an engaged employee.  And a talented, skilled, and engaged employee is what most employers seek.

The Return of US Manufacturing

Friday, February 03, 2014

Ask the average citizen on the street about where most manufacturing takes place and you are liable to be told, “not in the US”.  But is that really true?  In the last year, the Washington Post, Bloomberg-Businessweek, Forbes, CNBC, NBC News, CNET, Time, Tampa Bay Times, and others have all reported on the return of manufacturing to the US.  Both domestic and foreign manufacturers are building facilities in the US and employing US workers in them.  This reversal of “off-shoring” or “re-shoring” is occurring as the cost to manufacture in foreign countries is rising while the cost of manufacturing in the US is declining, relative to each other.  In addition to labor cost, transportation and inventory costs are lower for US based manufacturing compared to goods shipped from Europe and China.  However, re-shoring may not bring with it the numbers or types of jobs lost when manufacturing was off-shored years ago.  Increased automation is demanding fewer but higher skilled workers.

One barrier to re-shoring lost manufacturing is the reported lack of skilled workers available to design, build, run, and maintain the highly automated manufacturing equipment used in many of the high tech processes employed in today’s factories.  A. Gary Shilling writing for the Bloomberg View points out that 4% of degrees in the US are in engineering, versus 17% in Asia and 34% in China.  Shilling believes that increased use of robotics and technologies such as 3-D printing and cold spraying will add to the competitive position of US manufacturing by 2020.  But these and other advances in manufacturing technologies require highly trained and talented individuals in engineering, science, math, computer and the biological sciences.

We have heard it before; the US is not producing enough graduates in the Science, Technology, Engineering, and Math fields or the so-called STEM degrees.  Yes, employers are seeking workers with STEM degrees and backgrounds; however, the most talented engineer is of little value if they lack the communication skills to convey their thoughts lucidly via the written or spoken word.  Employers want and need well-rounded workers who know and understand technology and how that technology can be effectively applied to their business to make that business more competitive and produce products and services consumers wants to buy.

While many public and private primary, secondary, and post-secondary schools are developing programs to teach STEM and to train teachers to teach STEM courses, many businesses can not afford to wait for students to move through the educational system.  Many employers, including the US military, are offering apprentice programs in an effort to build a pipeline of current and future STEM candidates.

As with any other talent pool, STEM candidates must be sourced, recruited, and managed.  There has to be a “goodness of fit” match between the organization and the worker to ensure the goals of both are in alignment.  Many of the same motivational factors apply to STEM and non- STEM talent.  Are there opportunities to advance within the organization?  Are there opportunities to learn new technologies?  Are there opportunities for peer recognition within and outside of the organization?