“The way you communicate things to your employees is going to significantly change how they accept what you do.”

In episode #100 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance and the War for Talent, VP of HR Compliance and Learning and Development at Asure, Mary Simmons, sits down with host Mike Vannoy to help you prepare for the upcoming change from a recent ruling from the DOL to raise the FLSA overtime salary threshold to $58,656 by 2025. Mary shares ways you can communicate the change with employees, the challenges of transitioning employees to hourly, and the importance of a strong overtime policy.

• The Department Of Labor recently moved to raise the FLSA salary threshold for exempt workers. The previous threshold was $35,568 a year, on July 1st 2024 it will increase to $43,888, and on January 1st 2025 it increases again to $58,656 per year.
• This higher threshold is estimated to result in a total $1.5B increase for salaries for employees, and employers need to be ready. While there are still a few months before the change, employers need to prepare for the transition now.
• This new increase will cause situations where existing employees are now paid the same as new employees. To help the disparity, increase existing employees salaries if possible, or offer them additional benefits like increased vacation time.
• While some employees will be getting a salary increase, some will be made hourly employees instead. While this can help your business, communication is key. Make your employees feel like a part of the decision and don’t make false promises.
• When you transfer employees from exempt to non-exempt, it’s crucial to clearly communicate the new rules. Write down the new rules and overtime guidelines for hourly employees, and ensure employees read and sign the new rules.
• As you transition employees to hourly, it’s important to consider what guidelines you need to follow. While extra hours outside of a regular schedule counts, something as simple as asking an employee to respond to an email after hours also counts.

Explore our Payroll & HR solutions that boost back-office efficiency to enable your business to scale.

 

Read the Transcript:

Mary Simmons:
I think you have to look at your workforce and see is there something else that you can do for that more experienced manager and be frank with them. I think you need to be transparent with the manager and say, this came up. You’re going to get this new raise. I want you to understand everybody needs to come in at that, but we can do X for you. Maybe they get more vacation.

Mike Vannoy:
Welcome to Mission to Grow the Small Business Guide to Cash Compliance and the War for Talent. I’m your host, Mike Vannoy. Each week we’ll bring you experts in accounting, finance, human resources, benefits, employment law and more. You’ll learn ways to access capital through creative financing and tax strategies. Tactical information You need to stay compliant with ever-changing employment laws and people strategies you need to win. The War for Talent Mission to grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant and develop the talent they need to grow. Enjoy the show. The new FLSA overtime salary threshold, episode 100. This is the big milestone for us. Episode 100 for Mission to Grow. I can’t really think of a bigger topic in certainly more than the a hundred episodes. We’ve been doing this show, I think several years. I don’t know if I can remember the last time that there’s been an HR law that is this big, this impactful.
We’ve been talking about this for a while. We knew it was coming and now we finally have the actual rule. We have the dollar amounts. We have the dates, we know exactly what it is. We want to unpack all of it for you. I got the perfect guest for this topic and I’ll say the perfect guest for our 100th episode. My dear friend and favorite guest of all time, Mary Simmons. Mary is a SHRM certified professional. For the last eight years, she’s been an adjunct professor at the New York Institute of Technology. She was the director of HR consulting for a 58-year-old HR consulting firm in New York, and she is our vice president of HR compliance. Welcome back Mary.

Mary Simmons:
Thanks, Mike.

Mike Vannoy:
Okay, right from the top, what is the one thing that business owners need to understand about the FLSA overtime salary threshold change?

Mary Simmons:
Yeah, so thanks Mike. And we have been talking about this for a while, but we’re going to make sure that everybody understands everything completely. So we may repeat some things that we’ve said in other episodes. I’d rather err on that side of over communicating. And so I think first of all, we can’t ignore this. There are some states that have increased their exempt salaries, but even in those states it may be a couple hundred dollars difference, this new regulation, but also you just can’t ignore it. You should be looking at this and in our minds doing a fair Labor Standards Act audit every year, and I think everybody understands there’s minimum wage. Everybody understands that there’s a federal minimum wage set at $7 and 25 cents an hour, and well over half of the states have a higher minimum wage. What we’re talking about today is the exempt minimum. And just to confuse matters a little bit more, Mike is your exempt employees fall into different categories, and today what we’re going to talk about are the white collar exemptions, which is executive, administrative and professional. And then there’s also a change to the highly compensated, but I’d say really focus on that. This is like you said, the biggest change in legislation federally that I have seen in a long time, years and years and years.

Mike Vannoy:
I mean, this is probably the biggest thing I can think of since a CA, the Affordable Care Act. I mean definitely. Yeah. I mean we’re talking a long time, a decade. This is the biggest probably thing happened in a decade

Mary Simmons:
And it affects everybody. That’s the big thing. This is federal and you just don’t see the US Department of Labor. You see the State Department of Labors have a lot of movement. You just don’t see the federal DOL having movement. This is big.

Mike Vannoy:
And so I think I love where you opened because I think if you’ve been running a business for several years, hopefully you’d know this. I’d say many still, but people who are newer to the business world, they’ve started a company in the last few years, they’re just learning about classifications. Everybody. You grew up knowing what the minimum wage was and you knew if your state or your city, your county has unique minimum wage. Everybody understands that for hourly. I think there’s a significant portion of business owners don’t even know that there is a minimum salary for your exempt employees. So you got your hourly in, which is non-exempt. They’re not exempt, excuse me, not exempt from overtime. And your exempt employees, you’re commonly just called hourly in salary. That’s not the legal description, but that’s a lot of how people refer to it, and they’ve never even known that there was such a thing as a minimum for a salary just because most people made more than that. It was never an issue. That’s what we’re talking about here, right?

Mary Simmons:
Right, exactly. And I think it’s important to understand where’s this coming from and what the DOL is trying to do is to stop maybe that, let’s just picture that manager of a fast food restaurant who you and I know everybody knows, works 60 hours a week and they’re exempt. So literally the Fair Labor Standards Act says you’re exempt. There’s no minimum in the hours you work, you get paid a salary for the week that you work, your employer sets that week. It could be Saturday to Saturday, whatever it is, and you get paid salary. You literally can work as many hours as they ask you to work. And when it comes to some retail fast food establishments, we know they are working exorbitant amount of hours. So the DLS trying to say, now wait a minute, they may be an exempt employee based on the duties test that you have to go through, but there should be a minimum and there is a minimum, right? It’s like 35,000 and change, but that needs to go up because minimum wage goes up. Minimum wage went up recently and this legislation was stayed in the courts about four years ago. So we really think it’s going to go through this time.

Mike Vannoy:
So I think one of the reasons, and I don’t want to go too long without actually unpacking the numbers, we will get to it for folks. One of the reasons this is the implementation of this new law will catch people flatfooted is because we know the concept of compression. So let’s say five to 10 years ago, I had employees who are maybe at minimum wage 7 95, but maybe I pay above that and I got a bunch of employees and my entry level workforce is call it 10 bucks an hour. And maybe my managers then were let’s say call it around the $20 an hour range. So double the hourly, but I didn’t pay them hourly, so they’re $40,000 salaried people. So annualized income, it was double. And so that wasn’t a big deal as the minimum wage continues to climb up. And so if you’re in a market where it’s now 15, maybe it’s $17, the difference in pay between your hourly and your entry level salary management jobs, you feel that compression that you got to deal with, right? It’s like, oh man, do I got to keep bumping those? But now this is going to create a new kind of compression within the salary marks.

Mary Simmons:
Oh yeah. And you’re talking about current employees, right? In many states, there’s legislation now where you have pay transparency and you to post the salaries for the positions. So let’s use your example and say you were paying managers $40,000 a year. So if you were looking for a new manager, your current managers, maybe they’ve been there a couple of years, they’re up to 42,000, but now you are hiring a new manager and you want to stay within these ranges that are being proposed, you now have to advertise the job at fifty eight, six hundred and fifty $6 a year. Your current managers are going to go, what? I just saw you post a job for 16,000 more than I’m making. So you’re going to have compression within your organization, and then you’re going to have this other issue because you can raise, you’re going to have to raise your current managers, but they’re not going to want to be paid the same as a brand new manager.

Mike Vannoy:
Right? Alright, so let’s unpack the legal change itself. So first of all, a lot of people don’t realize, hopefully it’s crystal clear. Now, there is a minimum salary that you must pay someone if they are an exempt employee and there are thresholds, there’s legal tests that you must pass. We’ll talk about them. You don’t get to just choose. You’re a salary, you’re an hourly. There are legal requirements according to Fair Libra Stance Act, but there’s a minimum for that salary. That minimum salary is going up. It’s going up in two stages. Take us through it, mayor.

Mary Simmons:
Yeah. So that’s one of the changes. Honestly, the last time you and I talked about it, it was proposed that it was going to come out in April. Well, that didn’t happen. So now they published the final rule. So I just want to be clear to everybody that publishing the final rule makes it proposed. There’s a comment period. So it is not a definitive yet. I mean, I do believe it’s going to go through, but what’s going to happen is when it goes through, you can have lawsuits from particular states, and that might happen. They may get some leverage, they may not, but we do feel strongly it’ll go through. They did bifurcate it, and that’s a change. So what they’re doing in July of this year, July 1st of this year, the minimum salary per week is going to go up to 8 44, which is $43,888 per year.
And then January of 2025, it’s going up again to a weekly $1,128 or $58,656. I think talking, because it’s salary talking about the annual should jar, I think a lot of people, I know for one Mike, we’ve been doing FLSA audits with our clients and they’re like, what? It’s going up to what? And again, think about it, your experienced managers that you may be paying 40,000, I don’t know if you’re going to bring ’em just to the fifty eight, six hundred and fifty $6 because the new people have to come in at that rate. So this is a big deal.

Mike Vannoy:
Let’s talk a little more detail first on the timing of the law. So here we’re early 24, 22, we thought this was going to happen in 23. In 23 we’re getting signals that this was going to come into effect. I think we’re about this time a year ago, we thought we were getting signals end of summer, end of summer, I guess it was early fall. It’s like, okay, here’s the proposed law you and I started talking about on the show, and we were getting the dollar amounts in the 50 ish thousand. We went through a comment period there. It was then signaled it was going to go live in April, and now here we are, April and now we actually, this is the first time we’ve ever had definitive dates. So I don’t want to unduly scare people, but we believe it is our professional opinion that this is the real deal. This time, I think the federal government has acknowledged they’ve kicked the can down the road for a long time on this. As minimum wage went up, they never raised this one creating this issue. And now as rights continue to lean towards the protections of employees, not employers through the holidays, retail workers, restaurant workers manufacturing, there are something, what is it? Is it 10 million, 4 million jobs I think are going to be impacted by this?

Mary Simmons:
Yes. Yes. So

Mike Vannoy:
This big chunk of the workforce that I think you’re right. I think the real mission here isn’t just to go give everybody raises as though this is a raise to minimum wage. The real mission here is to reclassify folks as hourly so that these entry level managers who are being paid, these entry level salaries are going to start getting over time for all the hours that they put in. Right? All that said, we do believe this is real deal. This is going to happen. The first tranche at July 1st. The second January 1st, right?

Mary Simmons:
Exactly. And I like giving these numbers to people so they understand how significant it is. Let me tell you what the dollar amount, they estimate it at 1.5 billion with a B dollars in increase for salaries for employees. That’s a lot of money. And look, there’s a lot of businesses who have to start planning for this. Now, whether you’re big or small, so you’re big employers, yeah, you might say they make millions of dollars a year, but the more employees they have in this bucket, the more people are going to be affected. And then the small employers, you could have one manager that you have to increase, I don’t know, it could be over a $20,000 increase if you were only paying them the current minimum. That might be too much for a small business owner. So it affects, look, every business has to look at this, and I know that we’ve been on our soapbox talking about this for years, but now you really have to take this seriously.
It’s a big deal. And they’re also proposing that this is going to go up every three years and probably based on CPI is what they’re saying. And I believe that that’s what we should have done, probably would’ve been a little bit easier if it went up a little bit every year, like minimum wage does or every couple of years. But unfortunately, because it got stayed in the courts, now it’s going up even more because time has gone on and inflation is here and real, and so we have to deal with it now. But I would take this one employee at a time. You’re going to use your job descriptions, A, your job description, defends whatever exemption you’ve given that employee, and then you have to do some math and you have to say, all right, on average they’re working 50 hours a week, which is why we’ve always told employers, even your exempt employees should be clocking in and out. Mike, this is one of the reasons, and you have to do the math. What am I going to do? Keep them exempt, give them this raise, or is there a possibility to make them non-exempt and give them over time?

Mike Vannoy:
Okay, so let’s just nail this down and then we’re going to talk about some things we have to do and employees are going to have to do. So to be clear today, the minimum salary for an exempt employee is a little over $35,000 a year. July 1st it is $43,888. So 25, 30% increase just a couple months from now. Whether you have this budget or not, doesn’t matter. If you’re not paying $844 a week, $43,888 to an exempt employee that are more, you are literally breaking law. So that’s that, and that’s the ramp to the big one. January one of 25, it jumps to $58,656.
Huge it. It’s not doubling, but it’s a massive increase. Right? Alright, so let’s talk about all of the things, how this is going to impact employers. There’s the obvious one, which we don’t necessarily unpack in today’s call, which is where the hell are you going to get the money from? Because if you’re a business running on thin margins, you don’t have a choice. You have to comply with this, so you’re going to have to pay these people. It’s probably going to mean cuts, whether it means you lay off people or you cut in other places, or you shave margin even thinner or you raise prices, something’s going to have to give here. We won’t unpack that. Let’s talk more though about the compression. So you are going to have to list, if you’re in a state that you have to publicly list your pay, even if you’re not, you probably should be right? Because all your employees are

Mary Simmons:
Going to find that it attracts more people,

Mike Vannoy:
It attracts more people and all your, let’s not be so naive to think your current team doesn’t know what you’re paying the new folks who come in, right? You’re better off just dealing with the transparency and taking these issues

Mary Simmons:
Out. And I have to jump in here. Compliance wise, you can’t tell your employees they can’t talk about salary, right? It’s illegal.

Mike Vannoy:
Yeah. Right?

Mary Simmons:
Yeah.

Mike Vannoy:
You’re paying your current managers, like you say you follow the law, you take your current person, maybe you weren’t close to it, you’re paying 45, but now they got to go 58 and you got to bring a new person in at that same pay. What’s your advice to these folks? What if a business doesn’t have the money to give the existing manager even more of a raise?

Mary Simmons:
Yeah, I mean, I think you have to look at your workforce and see is there something else that you can do for that more experienced manager and be frank with them. I think you need to be transparent with the manager and say, this came up. You’re going to get this new raise. I want you to understand everybody needs to come in at that, but we can do X for you. Maybe they get more vacation, maybe they get, and you have to look at your population because different things are going to motivate different people. Is it a title change? Is it more responsibility? I know that sounds counterintuitive, Mike, but a lot of people want more responsibility. They want to feel like they are needed by the organization. They want to do interesting work. So a lot of times adding responsibility or at least diversifying the work that they’re doing can be motivation enough. And then I wouldn’t make false promises, but I would look at your budget and say, if numbers go up to here, we’ll be able to do something next year at around this percentage point so that they can plan their lives, et cetera. You hope that the current managers by getting this nice increase will be understanding, but I find that the way you communicate things to your employees are going to significantly change how they accept or don’t accept this information. And don’t forget that if you also change them from exempt, they got a salary, I know I was making $40,000 a year, and now you change them to hourly, that needs some careful communication as well. And you’re going to have to do the math for the individual. Look, Mike, you were making 40,000, but you were working this kind of overtime, so you’re going to make about the same amount of money. I don’t advise playing with the exemptions. If somebody’s really an exempt employee based on the executive administrative and professional guidance from the DOL, then that’s what they should be. But there are some instances where they’re sitting on the border there and they could be exempt or non-exempt. And if the math works out and you want to make them non-exempt, go for it. But you have to understand the costs and how to communicate it.

Mike Vannoy:
Yeah, I will say there’s never a bad time for great HR in great relationships. There’s going to be, we talk about 4 million impacted employees, 1.5 million in increased pay

Mary Simmons:
Billion.

Mike Vannoy:
There’s going to be hard decisions and hard conversations. The better your relationship is going into those conversations, the better the potential outcome. It could still go badly, but relationships

Mary Simmons:
Matter. And I know that we mentioned at the beginning, but for those that are listening to us in California, in New York, in Washington state, that exempt salary already went up. It will be in January of 25, a couple hundred dollars more than New York. So in New Yorkers don’t ignore this. California, most of California and Washington state are higher, but you still have to look at this legislation all the time. I had mentioned the highly compensated, so the highly compensated exemption is also increasing in July. It’s around 1 0 8 now, one 10, it’s going up to 132,964 in July, and then in January it’s going to one fifty one, one hundred and sixty four. This is a very unknown exemption, and we could spend a whole day talking about it, but that highly compensated is going up, and that’s big. That’s a big exemption.

Mike Vannoy:
What does that even mean? What is the highly compensated rule?

Mary Simmons:
So if you’re paying, they can be exempt based on one of the guidances for the white collar exemptions, but be off a little, not fully in compliance with those. If you pay them a certain salary, they’re going to make the exemption. They’re going to be exempt. So it’s basically saying, look, if you pay somebody really high, if they’re highly compensated, okay, they’ll still be exempt from overtime because the DOL saying they’re making a good salary, so you can make them exempt, meaning they’re exempt from overtime because that pay is so high.

Mike Vannoy:
Yeah. Tell me if I have the use case correct. It could be a blue collar job, but it’s a highly skilled trade. I am really good and I’m highly trained. I’m really good at fixing a certain type of overhead manufacturing door machinery. I just made that up. But I’m highly trained and up to this point, let’s say I work 50, 60 hours a week, but I make 110 hundred $15,000 a year, so I make really good money. So therefore I am qualified in the highly comped exempt status. Therefore, they can make me work 50, 60 hours a week, but now it’s going to go to 1 32, up to 1 51, all those extra hours I’m working. So I’m highly comped. I’m a skilled trades person, but if I’m not making at least 150, you’re going to have to start paying me overtime. You’re going to have to classify me as non-exempt. Am I saying that right?

Mary Simmons:
Yeah. Perfect.

Mike Vannoy:
Yeah. And that highly account person making overtime for 10, 20 hours a week probably ends up being a lot more than 150.

Mary Simmons:
Right? Exactly. Exactly.

Mike Vannoy:
Okay, I want to come back to communicating with employees. So these employees who, okay, so you follow the law. Let’s pretend we’re January 2nd of 25. Okay? I found a way. I dug into the cushions. I borrowed from a rich uncle. I did whatever I had to do. I am following the law. I’m paying my employees, I’m bringing new managers in at the same pay. I simply don’t have the money. All my profit margin’s gone. I’m trying to keep my people, I’m trying to make this work. Relationship matters. Anything else that you would give for guidance here about keeping these people on? Because the second part of this I want to talk about is best practices around converting these people back to a non-exempt hourly status.

Mary Simmons:
I mean, I think that that communication being transparent and being honest with the employees, look for real. You’re in it with your employees, so you want to talk to them in that manner, right? We’re in this together. I can’t afford to pay you a lot more without it significantly changing. Maybe somebody else has to get laid off, or you don’t want to make them feel guilty in any way, but you want them to feel part of the decision and understand through transparent communication what the truth of the matter is, and don’t make false promises, but say, let’s work together to hit better goals so the organization makes more money or find cost savings or both so that we can make those salaries increase so that there’s a difference between the brand new managers and the more experienced managers. So that communication, honest individual, I wouldn’t do it in a group setting. I would do it individually so that each person feels important in their own way because they should be important in your own way. You’re not making any growth and you’re not making any profits without your employees, each and every one of them.

Mike Vannoy:
Yeah, well said. Alright, so some people, you’re going to have to just simply make the decision, you know what? I need to move reclassify this person to a non-exempt and they’ll become hourly. Real story. Talking to a business owner who was watching our show, this is about three months ago. You and I talked about this topic. They got ahead of it and they reclassified. It was kind of a retail reclassified. A manager who previously had a good relationship, felt pretty close to this person, reclassified to hourly, and that person was not happy about it. And it only took about a month before finding all kinds of falsification of time and attendance records and time theft and punching in where they’re clearly not working. It got real ugly real fast. This person was looking for their pound of flesh. You called me an hourly employee, I’m going to get my time. I What’s your advice for guiding employers through this? How do you reclassify in a way that’s not going to get retaliation from the employees? The employee understands that they can be bought into this process. This isn’t easy,

Mary Simmons:
And I love your example because I’ve heard the same example from our clients and to compound things. What’ll happen a lot of times is now that employee is non-exempt, you’re in a difficult situation because they may have been a little sensitive. They almost see it as a demotion to be paid hourly. Now they have to clock in and out and they start running up the overtime. So let’s talk about the communication in two ways. Number one, how to make it positive. And again, I think transparency is your best bet and you have to show them the math and you have to go, I’m going to make you hourly at this rate, which makes your overtime this time and a half and that based on the overtime you worked last year or last month or whatever it is, you should earn x and I think that that’s going to be a good salary for you.
How does that sound? Right? So make them part of the decision. The second piece of your communication, this is a person who’s never worked overtime, who’s used to, if they want to come in early and just have a cup of coffee with their feet on their desk, it doesn’t matter because they were salaried. Now they’re not. Now they’re hourly. So you need to explain to them that a every hour they work is to be paid for because you don’t want to short them because that could, obviously it’s illegal for them to work and for you to not pay them. And that is going to include when they are home and answering emails and answering texts that have to do with work.

Mike Vannoy:
Work including texts from you, their boss.

Mary Simmons:
That’s right. And that’s going to be a significant change for the owner probably who’s used to being able to throw a quick text or email him, but the employee that’s affected here needs to understand their rights. And you also need to have a very strict overtime policy when we write these in the handbook. And that’s why customized handbooks are so important. You need to write that policy as foolproof as you can. Mike, there’s no such thing really. But what are the parameters? Do they need to get approval and by whom before they work the overtime? Now, we’ve said this before, if they work the overtime, Mike, you have to pay them. But if they continually work overtime without approval and you have a solid policy saying they should have asked for approval, then you can move to a warning notice. But what we’re trying to do with this clear communication is to stop that. You don’t want to go from having this great manager that was working really hard, solid performer, and then you change them to non-exempt and because you didn’t communicate it positively and they see it as a demotion or what a pain in the neck. I have to clock in. I’m going to, like you said, I’m going to get back at the employer and work 30 hours of overtime every week. Now you really are in a situation that’s not positive,

Mike Vannoy:
Right? Mary, what risks? So maybe shift the conversation a little bit to classification. So you and I have done shows on this topic. I’ve done one with our friend Brian Schenker, an attorney on this topic. Misclassification is one of the most common mistakes employers make. One of the most common ways they get themselves in trouble, whether it’s independent contractor 10 99 versus W2, employee, misclassification exempt, non-exempt misclassification. These are where people get themselves in trouble. Do I have it right that you could pay everyone hourly? The term exempt means just that there are certain litmus tests you must pass, and they’re outlined by the Department of Labor that say, okay, you could apply this exemption should you wish, but somebody’s super highly compensated like an attorney who punches the clock because it’s billable hours and it’s different. But you could have highly compensated people being paid hourly. The exemption is to whether you want to make the choice that they are exempt from the overtime. Is there any risk going the other direction that say, oh no, the law says I get this exemption and you’re going to have to give me that raise.

Mary Simmons:
I love that question. And a couple months ago I would’ve said not a ton, but the reason that the DOL makes these rules and raises these salaries is to make sure that everybody is paid correctly, properly, a living wage, et cetera. And so now that this is going up so significantly, $23,000 and change by January of 25 from the current wage, if you made somebody non-exempt, and so if I did the math and you’re now going to make significantly less than this new salary, and you really were an exempt employee, I believe going forward that that is going to be something that the DOL is going to audit. It just wasn’t an issue before because the salary was so low that if you made somebody hourly, it would be rare that if they were working some overtime, there’s a direct correlation between minimum wage and the minimum salary. It’s just out of whack now. Now they’re putting it back where it should be. So because that minimum salary didn’t get raised, but the minimum the hourly rate did, they’re not in the right proportion. So if the DOL says, no, Mike should have been exempt and you are now paying him 40, the equivalent of 40,000 in an hourly rate, which would be roughly 20 bucks an hour and he’s only working a little overtime, no, no, no, he should be making this 58 and change.

Mike Vannoy:
So I just want to say it another way, make sure I’m getting it right, and everyone else understands the impact here. We’ve talked many times as an employer, you don’t get to choose, oh, their hourly versus their salary. I’m going to make them salary just to even their checks out. So their pay isn’t so lumpy. They can plan and budget ahead. It might come from good intentions, but the law is very specific. You have to pass certain tests to be an exempt employee. One of them is the administrative test. You talked about that we can unpack a little more, but you don’t need a test to go the other way. You could say, Hey, you technically passed the administrative test, but I’m going to start paying you hourly for whatever business reason. That’s not illegal. But if you’re using this as a way to us ERP the dollar threshold, that’s where you’re going to get in trouble here, right?

Mary Simmons:
Yeah. And that’s why we have a department of labor to make sure that employees are paid and treated consistently and fairly. So that would be the reasoning there. So I don’t like contracting around the law, Brian, and I’ll say all the time, you can never do it. This might be a case in the past where you maybe could have slid this through. I wouldn’t do it. I wouldn’t do it here unless somebody was on the cusp of being executive, administrative and professional. And let’s face it, your employees can do math, Mike, so they’re going to know that this is going up. So are you going to run the risk of the person leaving because you treated them unfairly? I don’t think you want that.

Mike Vannoy:
Mary, let’s talk about all the policy changes that you should be thinking about as an employer. In my opinion, there’s going to be a lot of businesses. There simply isn’t going to be the money to go around to give everybody the raises. They just physically couldn’t do it. You would be forced into laying people off and then you don’t have enough people to actually do the work. Something’s got to give. So certainly there will be some businesses that just start paying their people a lot more and comply with law. I think the most common solution is going to be reclassification to hourly, and it’s going to force businesses to be run a much tighter ship around planning their work, making sure that they don’t incur over time. That creates a runaway budget issue. What are all the things that employers need to be knowing that most people listening who are impacted are going to probably fall into that bucket of reclassification? Let’s unpack some of the best practices that they should be thinking about.

Mary Simmons:
I think you want to look at the job description and again, be able to defend what you’ve done. So that job description, there’s a lot of, not as much the executive, but the administrative exemption can be very on the cusp for a lot of people. Office manager is my perfect example, but I would look at the job description and make sure that your language is clear and that it does make sense for this person to be non-exempt. And again, I would go over the policies of what does it mean to be non-exempt? Why are you making that person exempt? And it’s not to save money. That would not be the message that I would give. I would explain that there’s been a change and each situation’s going to be different. We write the script for many employers, and I can say that not one has been exactly the same, but you want that communication. You want to look at your job description. You want to make sure that you have a nice policy for overtime and that they understand it in these situations where we’ve coached our employers, we have had them print out their overtime policy with a signature at the bottom, and the people that are moved to non-exempt and now get overtime, they read and sign off on that policy so that it’s clear to everybody that they understand it.

Mike Vannoy:
I want to go back to job descriptions in a second. One of the things, so having a clear overtime policy, when I hear you say that, I just think, okay, you need to make it as clear as possible what the law says. You don’t get to make up your own. I mean, you could have an overtime policy that’s more generous than state and federal law. Most people don’t. One of the things that this employer that I told you about who ran into this issue with a manager, it dramatically impacted the PTO policy because here’s a salaried employee who had been with a company for a few years, had never been an hourly employee. And so all of a sudden this concept of days off versus hours worked. And what blocks of time can I take PTO, and what if I’m not scheduled to work on a day that the business is open and does that count? And all of a sudden the PTO policy got real complex. What can you say about that?

Mary Simmons:
Yeah, no, you’re bringing up an absolutely great point. And we’ve had the same issue with other clients, especially when it comes to a retail setting where you have nontraditional hours. And again, that PTO policy has to be very explicit, which is exactly what we do when we customize that policy. This is one of the things that you have to think about as an employer. You should have been thinking about it before this came up, but this probably just brought light to it. How many hours do they get in a day when they take the day off? You should have explained that anyway, because part-timers take days off also, and that’s usually where you think about and define what hours they get paid for when they take a day off. But this is also another policy that bears some explanation. Absolutely. It’s a great point.

Mike Vannoy:
Alright, so overtime, policy, PTO policy, all these things go in a handbook. And because this is going to be so nuanced based on this rule and the compression you have in the job market in your own internal staff, the gap between exempt and non-exempt, I’m not saying this just to pitch for sure, but you can’t Google your way into a handbook here. You got to be pretty thoughtful as you develop these. Google helps. I love Google, but these are very specific policies that you need to build. Before I go back to job descriptions, there any other components of a handbook or policies that employers need to be thinking about?

Mary Simmons:
I think how and when they clock in. So that sounds really simple and might be eye roll worthy, but my example before happens all the time with employers that I work with. When do you sign in and when do you sign out? Again, you could have the person who’s like, oh, I’m going on a trip. I like the computer at work better than the computer at home. Instead of clocking out at five o’clock, I’m going to make my travel arrangements using my computer at work. And that took an hour. Oh, I have to clock out now. Now I’m clocking out at six. So the policy on when and how to clock in and clock out I think is very important. I think the use of media, your home computer, your phone, because we’re all working from our phones all the time. I think if an employer wants to put their arms around the cost of overtime, a lot of the employers that we support say we’re taking the email and there’s no texts on personal phones after hours to control it because people can’t help themselves. And that’s a good thing. They’re working hard. You don’t want it to be a negative, but it’s something that has to be defined, has to be explained, and everybody has to understand it. So it’s not enough to just put it in the handbook. We do town halls to explain the handbook to everybody. We have it signed off on. But for this, I think you need to go through some of these policies with each person who’s impacted.

Mike Vannoy:
All right, so overtime, policy, PGO policy, clock in out policy, computer, bring your hardware to work policies. So all of those things to be incorporated into an employee handbook. That makes perfect sense. I’m a wannabe HR geek, so I know where you’re going, but I don’t know if it’s self-evident. When you talk about your job descriptions, what is it about the job descriptions that is so important to be updated here?

Mary Simmons:
So you said it well when you said we can’t just make up what the exemption is, it’s driven by the duties. They call it the duties test. And so your responsibilities drive the exemption. And I do think that the Department of Labor has really nice regulations for each of these exemptions, and they do separate them. So there’s a whole sheet on what makes somebody the executive exemption, what makes somebody the administrative, which is super not understood by a lot of people. So if you follow that, maybe I’m oversimplifying it, but you have to fit into that duties test to be exempt, and it tells you what so administrative, you have to make decisions of significant matter. So a lot of people are like, they order the supplies, they’re exempt. I’m like, no. So I think it’s really good guidance, but you do need somebody to bounce this off of, and you’re right when it comes to Google, some things are good, but you can’t Google what you don’t know. See, it is good to bounce it off somebody who’s done hundreds and thousands of these.

Mike Vannoy:
So without being overly legalistic in that saying, we have to do it for you, we’d love to do it for you obviously. But the punchline here is there are specific exemption requirements that must be met for someone to be an exempt employee. For example, there are highly compensated rules. There’s an administrative test in the duties they perform in these jobs determine whether they are or are not eligible to become an exempt employee. And so you got to make sure your job descriptions match those way too much to probably you couldn’t, couldn’t imagine every single use case. So not even almost possible to discuss in certainly one hour conversation like this, but that’s really the punchline, right? Your job descriptions have to match the exemption tests.

Mary Simmons:
Yes. And then the second threshold that has to be met is this salary minimum. So they go hand in hand. They’re exempt if they meet this duties test and you pay them this minimum salary. Both have to be present for the person to be exempt from overtime.

Mike Vannoy:
Yeah. Yeah. Got it. Okay. And then the last thing, maybe we just spend our last few minutes just talking about manager behavior. I think going back to this use case I gave earlier, this entrepreneur, I think this is the hardest thing for her. Partially she had a personal relationship with this. What was a good personal relationship? Not friends outside of work, but professional, personal. They got along and they would have quick phone calls, off hours all the time, texts, emails, Hey, can you check on this thing for me? Hey, I just remembered and just little one-liners back and forth. Now all of a sudden, as an hourly employee, if you’re the boss, you’re asking your employee, Hey, can you check on something real quick? You just put them on the clock, not they put them on themselves in the clock. You put them on the clock, right. What’s your guidance for managers in their own behavior if to get through these changes?

Mary Simmons:
Yeah, I think they have to be a lot more efficient with their time. The manager has to be more efficient with their time and kind of think through what do I need? How do I plan my day? I need to interact with Mike nine to five, let’s say, versus being able to go, oh, wait a minute. I forgot to ask you something. So you really kind of have to change your behaviors, but I also want to say, just again, don’t make these decisions in a vacuum. So if you did the math and said, I do really text them almost every day or have a call, that’s important. It’s significant to the business every day. If I add up all that overtime, it probably makes sense to bring them up to that salary, so you might not be able to change. It’s not only the employee’s behavior that has to change. I love what you’re saying. It’s also the manager that has to change their behavior, their wants, their asks, their needs from that employee that they changed, be it a manager or not

Mike Vannoy:
Trying to bring some humility to this. I just think of myself. It’s not like I think I’m a maniac about work and hours. Some of my people might think differently. My family probably thinks differently, but I’ll pick up the phone call or text and shoot a message and then later realize, oh wait, that person’s on PO today. Did I expect, and this isn’t non-exempt, but it’s like, should I really asked them, they’re going to feel obligated to reply. They’re probably with their family in the car, or was that a fair expectation I just put on them? Or, okay, I know what time zone I’m in. Was that a fair request for someone in that time zone? Hey, just because it popped into my head. I was on a plane on a red eye. Was that really cool to ask that other person at that time? It’s like I know how hard it’s to put yourself in check when you’re a driven entrepreneur kind of a person, but if you’re moving from somebody from an exempt to a non-exempt, you have to create some rules of engagement for yourself here,

Mary Simmons:
And it’s not going to be easy. And look, it might not be you. It might be that employee who works crazy hours like you and I that just can’t help themselves. That’s saying, oh, I thought of something. So it is difficult to do. So yeah, again, don’t make these decisions in a vacuum. I know it’s significant money, and I know it might be tempting to make them non-exempt, but if it affects the employee in such a negative way that they end up resigning or it affects your business and the way you do business in a negative way, then you shouldn’t do it either. Find some cost savings, right? Get rid of a vendor that you were using for extra computer work or whatever it is. There’s always ways that we can cut money, and let’s face it, a lot of employers are going to have to raise their prices to pay for these salary increases. It’s just a fact of life.

Mike Vannoy:
If you had the dollars and the budget to give ’em the raise, then that means you got really good margins in your business, or you might’ve been a little too greedy in the first place. I don’t know. I certainly went cast that upon entrepreneurs. I know how hard it’s to start and build a business. I think for the most part, this is going to be classic. You’re going to have to find ways to do more with less, but the dollar differences are so big in the relationship impact this can have with the impacted employees is so big. It’s maybe the toughest one that I’ve seen maybe in my career. This is a big one. This can be a big hurdle for business owners, entrepreneurs, managers to successfully navigate. I agree. I’d say maybe you got two externalities here, and maybe we will spend a couple minutes and just wrap on this.
Number one, at least everyone else is going through the same thing. So if you’ve got a manager that you’re paying a salary of $45,000 to, and you weren’t doing it because you’re a greedy capitalist pig, you were doing it that was market value and you were just paying a market wage and over the lifetime of the business, the budgets, that’s how has just been built, and you’re not taking advantage of anybody. You’re a good boss, you’re a good entrepreneur, and the money simply doesn’t exist to give ’em that raise. Now you’re in a hard spot. You’re going to have to either lay people off, you’re going to have to raise prices. You’re going to have to do something, something bigger. The good news is every other employer is facing the same challenge that you are because no one is going to be allowed to pay that person 45,000.

Mary Simmons:
Correct.

Mike Vannoy:
The bad news is this could create a lot of churn because that person, that person, it might just be too hard to mitigate the hard feelings that you create between you and that other person, and so do they want, the question that employee’s going to have to face is are they going to stay with you to get that raise or are they going to go somewhere else to get that raise? Correct? And how you make them feel will really probably have a big part in that decision process. Right?

Mary Simmons:
Agreed. A hundred percent.

Mike Vannoy:
And we talk about the war for talent unemployment under 4% for a couple years now. Haven’t had this since the Nixon administration. This is not the result of politics and wars and pandemics and interest rates. This is based on birth rates 30, 40 years ago and how many people there are available in the workforce. This labor shortages here to stay, and so adding more pressure to the entrepreneur, you can’t afford to screw this up. You got to take this on in a bold way, but you can’t afford to lose good people over this. You’re going to have to be thoughtful how you approach, Mary, I’m going to give you the last word. What’s your advice here for business owners as they contemplate how to prepare for July 1st and January 1st?

Mary Simmons:
Yeah, they need to act now because think about it, if it’s basic, the end of April, the beginning of May, July is really right around the corner. You need to do your research. You need to look at your job descriptions, and then you need to decide who you’re going to change and how you’re going to change. And obviously you have to look at your budget numbers as well. This is usually, salaries are one of the biggest lines on the budget anyway. Now, you’ve just increased it exponentially. Especially, look, I know I already said that California, Washington, New York, those salaries already went up, but when you think about some of the states that don’t have a lot of state legislation, so our clients that are in South Carolina, North Carolina, Florida, Alabama, there’s not a lot of state regulation. This is federal. It cannot be ignored. It has to be adhered to and relatively quickly. You need to act now. You need to do a fair Labor Standards Act audit and look at everybody’s pay and exemptions and start making some decisions.

Mike Vannoy:
Yeah, yeah. All right, Mary, big topic. We’re probably going to have to do some follow up here, I suspect. I don’t think there’s going to be another shoe to drop legislatively, but I think 4 million impacted employees wrote down 1.5 billion in raises they’re going to have to be given. That’s not going to come out with, that’s not going to happen without some pain, and I think we’re going to have some best practices to share and help people navigate through that process, but really, really important. Thank you for unpacking the details of something so big that so few people even knew was a thing.

Mary Simmons:
Thank you. I’m happy to be here. Mike

Mike Vannoy:
And everyone else, thank you for joining 100th episode. We had a monster topic, couldn’t have had a better guest, and grateful for everyone for tuning in. If you got value from this conversation. If you like this conversation, by all means, please subscribe on the platform of your choice, whether that’s YouTube, Spotify, apple Podcast, whatever, wherever you consume, like, comment and share it with a friend or our mission is to help companies grow. Thanks again, Mary.

Mary Simmons:
Thanks.

Mike Vannoy:
That’s it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us@missiontogrow.com. If you found this content valuable, I invite you to share it with a friend in subscribe to the show. If you really want to help, I’d love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen. Mission to Grow is sponsored by Asure As Asure helps more than 100,000 businesses get access to capital, stay compliant, and develop the talent they need to grow. To learn more about how Asure can help your business grow, visit Asure software.com. Until next time.