In the past few months, businesses have prepared themselves for the new overtime rule, which increases the salary threshold of those eligible for overtime pay to $47,476 — more than double the current $23,660 threshold.
Advocates believe that the new rule will deliver a long overdue wage boost to the middle class, adding approximately $12 billion in wages over the next decade. However, associations such as the National Association of Home Builders are in staunch opposition, voicing concerns that it could compel many small business owners to scale back on workers’ hours to avoid overtime pay. This could result in construction delays, increased costs and more expensive housing options for consumers.
Whatever the consequences, what’s clear is that businesses in the construction industry will need to spend the time and money to ensure they are in compliance to the new overtime rule. The Department of Labor (DoL) estimates that employers will spend $592.7 million to comply; and while the most obvious cost increase comes from higher payroll costs, there are other additional costs to consider.
1. Employee reclassification
Many construction workers are FLSA-covered and entitled to overtime premium pay no matter how high their wage may be — including non-management construction workers and “blue collar” employees in construction and similar occupations such as electricians, plumbers and laborers.
What’s unique about the construction industry is that it employs a blend of salaried employees, hourly workers and independent contractors. Depending on a worker’s salary threshold and primary duties, someone such as a salaried foreman who supervises a team of full-time employees and is in charge of managerial decisions could be eligible for overtime pay.
Rather than paying the employee overtime hours, it may make sense to reclassify the person to be exempt (ineligible for overtime) by raising his or her salary to be above the threshold. Regardless of which choice you make, this can certainly add extra costs to your payroll.
2. Employee benefits
Any changes to an employee’s classification can also impact his or her total compensation package, including benefits that he or she may be entitled to receive.
For example, reclassifying someone to become a salaried employee could mean that he or she is eligible for benefits such as family and medical leave, which are mandatory under federal and state law. There may be other benefits that your business provides to workers — including disability insurance and other perks — that also need to be included in an individual’s overall compensation.
3. Recruitment and retention
Some people may feel resentful if they are reclassified as hourly workers, as it can be perceived as a demotion, mostly due to a greater lack of flexibility in their work hours (particularly if they also have limited opportunities to earn overtime pay) and a perception that they are no longer considered part of management.
If your workers feel demotivated and demoralized, this can impact employee retention. Additionally, any high turnover perceptions can negatively impact the ability to hire skilled workers — not ideal when the construction industry continues to struggle to find qualified workers.
4. Time tracking systems
Most construction workers who spend their days traveling from shop to jobsite will be accustomed to punching in and out of work. With the new overtime pay rules, employees in managerial positions may also need to track their hours to ensure your business is wage and hour compliant. This new rule may require a shift away from long-established processes such as paper-based systems or end-of-week timesheets to capture hours in real-time each day.
When assessing a time tracking solution, find a system that is easy to use, integrates with your payroll and reminds workers to punch in or out as they are arriving or leaving a jobsite. Technologies that utilize a smartphone’s GPS functionality are ideal for the construction industry as they provide a high degree of accuracy and user efficiency.
Additionally, systems that monitor employee hours in real time and provide email alerts can help you manage hours, schedules and keep you in control of overtime pay.
5. Training and development
If your company reclassifies some employees to hourly workers, they will need to use timeclocks to track their hours, including meal and rest breaks. While most time tracking systems are easy to use and understand, the investment in training staff revolves around educating them on the nuances of tracking according to their job, your corporate policies and compliance requirements.
For example, are employees compensated for time worked before and after shifts, during breaks or interrupted meal periods? Will employee hours be shortened during down time or rain delays? Does all travel from a shop to a jobsite need to be tracked before a timesheet has been approved?
Once all of these details are solidified, it’s important to communicate these amendments to employees, clearly documenting these changes, and cultivate an open environment where workers can approach management with any further questions or concerns.
6. Professional services fees
Worker misclassification has become more rampant in the construction industry, with a plethora of cases leading to fines from the U.S. Department of Labor’s Wage and Hour Division. In many cases, companies have misclassified employees as independent contractors, enabling them to cut costs or avoid labor laws.
The DoL provides guidelines for employers to understand whether to classify a worker as an employee or independent contractor; however, with the advent of the new overtime rule it’s worth revisiting these to ensure that your business is operating within the legal framework.
It makes sense to engage human resources, accounting and legal professionals who can provide the right advice. While this is certainly an additional cost in the short-term, it’s better to invest now than face the possibility of costly, brand damaging misclassification lawsuits, fines, or even criminal charges in the future.
Overseeing the overtime rule
While there most certainly will be additional costs to your company with the introduction of the new overtime rule, it’s also an opportunity to assess employee classification and payroll costs, internal communications processes, compliance measures and other business operations.
As your business grows, so too will the need to keep abreast of federal and state laws and regulations. Being informed of the impact to your business and maintaining the ideal blend of processes and technologies is the right approach for long-term success.
Bob Drainville is the President of Timesheet Mobile, a time tracking solution that utilizes geofencing and GPS location technologies. The system is available as a smartphone application or as an integrated voice response (IVR) system, used by thousands of employees and contractors worldwide in industries including construction, healthcare, janitorial services and others with a significant mobile workforce.