In a previous post, we reviewed the Department of Labor's new overtime rule and how it could affect inside sales teams. Yesterday, a bill was introduced in Congress (H.R. 6094) to require a delay of the effective date by six months, pushing it to June 1st, 2017. This will give organizations more time to adjust to the new rule, or for Congress to propose new changes to the rule. If your team may be affected and considered non-exempt, here are four considerations as you evaluate how to keep overtime costs down:
- Consider limiting the hours that your inside sales team can work. In an effort to limit overtime expense, companies will begin considering stringent limits on overtime hours without previous approval. This may require new policies, such as not allowing laptops to be taken home, clear policies regarding how to account for business travel while tracking hours worked, or an authorization process for any overtime.
- Consider rebalancing your territories. It’s unlikely that your company’s current inside sales territories are balanced. In an exempt environment, they never had to be because it didn’t matter if sales reps worked more than 40 hours. In an hourly environment where hours worked are being limited, you’ll want to ensure that the relative workload and sales potential are distributed as evenly as possible.
- Consider increasing base salary so that employees meet the minimum salary requirement. If your salespeople are very close to the threshold, it may be easier and more cost-efficient to just increase their pay to the new minimum to avoid converting them to non-exempt. (Remember that just because they are over the minimum salary threshold doesn’t automatically mean that they’re exempt. Based on their roles, they must also satisfy one of the other exemptions, such as the administrative or executive exemption.)
- Consider reassessing your incentives. Non-discretionary incentives, such as commissions and sales bonuses, will now need an additional step in the process to prorate for overtime at the same rate as base pay. If you allow overtime going forward, all of your incentive plans will become more expensive. You could consider the following:
- Adjust or remove bonuses, contests or long-term incentives that have a low ROI. If the ROI is already low, the increased cost from the overtime premium will likely make them unprofitable. Consider removing them (or at least recalculating the ROI).
- Adjust your incentive administration processes. Many compensation administration processes for previously exempt employees were not configured to convert bonuses into hourly rates and prorate the payout for overtime. This proration is required if someone is non-exempt and eligible for non-discretionary bonuses and will now need to be part of your ongoing compensation calculations.
All of the ways to address the overtime change without increasing salary will require strong infrastructure in place. If your legal team determines that your company needs to begin paying overtime, then you’ll need systems in place to track hours, and a process that links this to your sales team’s base pay and variable pay to prorate their compensation appropriately. If you no longer allow employees to work beyond 40 hours to avoid overtime, then you’ll need engaged, empowered managers who support the policy changes to ensure that employees do not work more than 40 hours a week.