COMPlicated Comp Conversations with Managers

As of 11/22/16, a Texas federal judge has issued an injunction barring enforcement of the new U.S. Department of Labor overtime regulations that had been scheduled to become effective on December 1. Employers in all states are no longer required to comply with these rule changes.

If you haven’t yet heard, about 30 million employees are about to be affected by a new federal rule which says that in order to classify someone as “exempt” from overtime pay requirements, employers must set their yearly salary at $47,476 or above by December 1, 2016. At the end of this article I am going to post links to several other conditions that need to be met.

For many small businesses, and especially very small ones, this is going to mean that either your manager is going to get a raise, or you’ll have to re-classify them as non-exempt. That reclassification would also mean they have to start tracking their time, and you would likely want to reduce their hours or responsibilities to avoid overtime. It may even mean a pay cut to make up for the anticipated overtime, job sharing, or hiring more folks to do the same job!

Imagine this conversation:

“Jenny, I know you have been making $40K per year and we have both been happy with your work. But, going forward, I need for you to clock in and out like all the other employees, and to get all of your work done in under 40 hours per week. I’m also sorry to say that if you take time off, come in late or leave early, this is going to affect your paycheck. Though we’ve previously been flexible with one another, because of the new rules, I can’t afford to pay you overtime and keep your yearly salary where it is – so I’m going to have to lower your salary, or maybe even change you to hourly. No more reading your emails from bed, or putting out fires after work. If you must work more than 40 hours, I need you to get my written permission.”

If you are a manager on the receiving end of that conversation, it may sound and feel like a real setback, or even a demotion. Not having to clock, knowing how much you are going to make regardless of the hours you work, and working your butt off so you can control your own schedule is, for many, a big accomplishment. And don’t even get me started on being left out of important “after-hours” conversations. The loss of that professional status as a “salaried employee” is more than just a loss of flexibility. It’s a personal thing, and is attached to all sorts of feelings about who we are at work and at home.

There’s no simple way to have this conversation. But as an employer you have to weigh every cost increase, and these new rules are mandatory. So no matter how you choose to get compliant, here are a few things to consider before you sit down and have this talk:

1. Make sure that you are prepared for an emotional response to the conversation. A loss in status can trigger our inherent mammalian survival response mechanisms. You are likely to get a “fight, flight or freeze” reaction. To counter that, make the person feel safe. Tell them you value their work, and are committed to working with them to find a solution for both of you.

2. Really think about how you want your manager to spend his or her time. How much someone works is part of how they identify themselves. Ever met someone who wears their “workaholic” badge with a bit too much pride? Busy managers can be territorial about their work. If you are going to need to drop them to around 40 hours, you are also going to need to help them figure out how to still do a great job for you. That means one of two things: allow for more overtime or get them some help. But you can also set the expectation for the manager to review their own responsibilities, identify areas that can be delegated, and ask for help in prioritizing important tasks if needed.

3. Duties and titles matter. Being “the manager” is pretty awesome. I know it can be a thankless and tiring job, but if you ask most managers how they feel about it, they will tell you that being a manager is what they are meant to do. Take this time to review the manager’s job description, or put one in place if you’ve neglected this task so far. Make sure you are both on the same page with regard to their duties and responsibilities. Many managers believe (and most of them justifiably so!) that the business owner they work for has no idea of the true scope of what they do.

4. Present your plan for these changes positively. Make it clear that this is not intended as a change in status, just a new structure, one that gives them more definition between work and home life, and hopefully, and a more reasonable workweek.

As an alternate solution – you could just do what the federal government wants you to. Give the manager a 10,000 dollar a year raise (or whatever it works out to in your case) to 48k, with a subsequent raise each year adjusted for the cost of living, and be done with it.

I mentioned at the beginning of this piece that exempt employees must also meet a set of other criteria – it’s not just about salary. You can find those criteria here, in CEDR’s Exempt Classification Guide (for California, click here instead). And if you have any questions, practice owners are welcome to call us at 866-414-6056.

Friendly Disclaimer: This information is general in nature, and is not intended to replace good counsel about a specific issue with either your attorney or your favorite HR expert.