The New Overtime Rule Has Been Blocked. Now What?

My advice on what to do until a final decision is made.

Overtime, Office Binder on Wooden Desk. On the table colored pencils, pen, notebook paper

A federal judge in Texas gave something employers could be thankful for just a few days before Thanksgiving. On November 22, he issued a preliminary injunction on the Department of Labor’s (DOL) overtime rule change that was to go into affect on December 1. It came about from a lawsuit brought by 21 states challenging the DOL’s authority to raise the salary threshold. This was pretty big news for us HR folks. Huge news actually.

Many small organizations, however, didn’t even know the rule was going into effect. I was at a meeting a few weeks ago with a payroll provider who told me that the majority of their clients didn’t know about the new rule when asked about it. It would be safe to say that most managers and small business owners are too busy operating their organizations and don’t keep up on these types of things.

In order to bring these organizations up to date, the rule was supposed to double the Fair Labor Standards Act (FLSA) salary threshold for determining the exemption from overtime from $23,660 to $47,476. This is where we get the exempt and non-exempt employee classifications which I define in this post from my introduction to my series of the FLSA overtime classifications. In addition, it would also automatically adjust the threshold every three years based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region. The Society of Human Resource Management (SHRM) has publicly opposed the new rule as it will hurt nonprofits and smaller organizations and have a negative impact on workplace flexibility and employee morale.

It’s important to understand that the preliminary injunction is not permanent and that the current overtime rule will still be in effect. The court needs to review the merits of the new rule and issue a decision which could take several more months. The fact that an injunction was issued in the first place, makes me think the new rule is doomed.

For those organizations that didn’t know about the rule, they can just go on about their business and not worry about it until a final ruling is issued. For those businesses that knew about it and were making plans or already made plans to comply with the new rule, things may be a little more complicated and until we get a final ruling, here is my advice:

  • Fortunately, the injunction was issued on November 22, before the payroll period in which the December 1 deadline fell. I had advised my clients to make their changes effective Sunday, November 27, the first day of the payroll period. By following my advice (Because I’m so smart, LOL), the re-classification of their exempt employees to non-exempt can be postponed until that final decision is made.
  • If the organization already re-classified their exempt employees to non-exempt, the organization will need to evaluate how the decision was accepted by the impacted employees. Did they take it well or did they take it poorly? If they took it well, the organization would be wise to leave the re-classification in place. If they did not take it well, the organization might benefit by reversing the re-classifications but need to make it clear to the employees that it may be temporary until the final ruling is issued.
  • If the organization already increased (or announced an increase) their exempt employee’s salaries in order to maintain their exempt status, it would be wise leave those increases in place. There will be a great deal of confusion and a big hit on morale if they reverse this decision. An organization can certainly reverse their decision but it will be at the cost of employee goodwill and engagement.

It will be very interesting to see how this case will eventually turn out. As I said earlier, I think the new rule, as it is currently written, will never come to pass. I think the judge issued the injunction because he thinks the challenge by the 21 states has a very good chance of being successful.

However, for those who made plans to comply with the rule, don’t toss out all the work that was done in preparing for it as the court may still issue a decision in favor of the DOL. At the very least, I anticipate that the rule will be scaled back with more gradual and less extreme salary threshold increases.

For those who didn’t know about the rule and didn’t make plans to comply, they’ve been given a pass for the time being but need to be ready to address it if a final ruling is made in favor of the DOL or a scaled back rule is issued.

Co-Working Spaces are Evidence that Flextime and Remote Work are Not Effective for Most

As my readers know, I’m not a big fan of the “flextime/remote work” trend that most of the HR media loves to support and promote.  I just don’t see it as being an effective option for the vast majority of people.  In fact, in my experience, I have found those who most want the option to work from home are those who are least capable of being able to handle and be effective with it.

Don’t get me wrong, there are some who can make it work well for themselves – freelancers, startup employees, entrepreneurs, and consultants, for example.  Again, I just don’t think it is effective for the vast majority of employees who work for organizations.

I defended Marissa Mayer back when she reversed Yahoo!’s flexible work arrangements and required all employees to work at the office.  The company was failing and she was tired of the empty parking lot and office and the fact the company’s vpn logs showed light usage.

She was quoted as saying this at an HR conference in LA as part of her reason for making the decision:

…people are more productive when they’re alone, but they’re more collaborative and innovative when they’re together. Some of the best ideas come from pulling two different ideas together.

While I disagree with the first part of her comment that people are more productive when alone (there are many more distractions at home than at the office), I definitely agree with her that collaboration and innovation are better when people are together.

HR media were quick to criticize Yahoo! and BestBuy when they reversed their flextime/remote work policies and required their employees to come into the office to work.  However, the reversal seems to be a trend.  Just recently, Reddit also announced it is requiring all their employees to relocate to San Francisco in order to get all their “entire team under one roof for optimal teamwork.”

These companies are finding out that it isn’t working.  I predict there will be many more reversing their flextime/remote work policies in the near future.

To quote myself last year, I called flextime/remote work a fad:

I think there are only a limited number of people who can be productive working remotely from home. It’s a fad and will eventually be proven as such. People are social beings and work better when with other people.

It’s important to leave home and all its distractions and go to a place that is designed to get work done – the office.

It seems the marketplace agrees.

I came upon this interesting article in the Denver Post the other day.  It’s about the rise of “co-working” spaces where people who work from home or have flexible arrangements with their company can go to an office with others similar to them and get their work done.

The article proves my point and reinforces my opinion about flextime/remote work.

Turns out, we are social beings.  Who knew?  We like to get together with other people and socialize, even at work.  Interaction with other people generates more innovation and creativity.

The article opens with these  sentences:

After two years of working from home, Bruce Wolk desperately needed a change in scenery.

It was “mind-numbing,” the Denver-based freelance writer said, recalling the many days he spent alone in his small home office.

“The truth of the matter is, it’s so incredibly isolating,” Wolk said. “Each hour seems like three.”

“I needed to find a space where I could work easily and at the same time interact with other people,” Wolk said.

“There can be four, five people here, and everyone will be merrily working along and all of a sudden, a spontaneous conversation will break out,” he said. “You really can’t do that at home.”

Looks like Mr. Wolk is finding that he is more productive at the office.

In addition, co-working spaces eliminate the distractions of being at home and help people be more productive.  In the article, Madison Carroll, who has a remote work arrangement with her organization claims she is more productive in an office environment:

The days she spends at Shift (Boutique Workspaces) are “definitely” more productive than the ones spent at home, too, she said.

“You do laundry, you do something else. You don’t work,” Carroll said. “When I come here, I work. I’m here to work.”

Again, it seems like Ms. Carroll is more productive at the office than she was working at home.

My point here is that even those people and professions most conducive to flextime/remote work are finding that they are more productive and creative in an office environment rather than working from home.

Despite the efforts of most of the HR media, I continue to consider flextime/remote work a fad that will never be mainstream.  The marketplace is experimenting with it and finding that it isn’t working.

It simply doesn’t make sense for the vast majority of people in the workforce.  And it doesn’t make sense for the vast majority of organizations.

Flextime/Remote Compatability

There is not a week that goes by where I read an article or blog post telling me how important it is to offer flextime/remote work in order to attract the best employees to an organization.

These claims are, of course, all backed up by surveys – usually done to measure the employee’s opinion of flextime. Well of course, a lot of employees will tell you they would love more flextime and be allowed to work from home, who wouldn’t?

I don’t ever recall, however, seeing a survey measuring employer’s opinions of flextime/remote work.

I know there are several employers out there who fully embrace the concept and can make it work, but the vast majority don’t want to go anywhere near it or it simply does not make sense for their operation.   In fact, Best Buy and Yahoo! have recently reversed course and called all hands back to the office. It must not have been produced the results they were promised.  I don’t think flextime/remote work is practical for the most organizations and I don’t think most employees are responsible enough to handle it.

My experience has shown me that the people who can least handle working from home are the ones who want that option the most.   In other words, most jobs and most employees are simply not compatible for flextime/remote work.

Perhaps I’m biased by the industries I am most familiar with, Retail and Mining.  Flextime/remote work is simply not practical for the majority of jobs in these industries.

Personally, I like my core schedule of 8-5, Monday through Friday (although as an exempt professional, I work significantly more than my core schedule!).  I like getting ready for work in the morning and driving to the office.  I enjoy the office environment and working at my office desk and interacting with my fellow employees throughout the day.  I like clearing the decks at the end of the day and driving home.

Yahoo!’s Mayer Making the Right Decisions About Flexible Work

There have been a lot of HR pros and others expressing their disappointment and anger with new Yahoo! CEO Marissa Mayer ending the flexible work arrangements and requiring employees to *gasp!* come and work at the office. Oh the humanity. I think all the noise made criticizing her was/is ridiculous.

She was hired to right a sinking ship and had to make a difficult and unpopular business decision. The flexible work arrangements at Yahoo! were obviously not working.

She had to make a drastic change.

Marissa came from Google, let’s not forget, and she is going to implement a lot of the successful strategies that worked there onto Yahoo! And she should, because that is exactly what she is expected to do. Shareholders expect and demand it. Shareholders are the owners of the company and expect their investment to grow, not decrease or stagnate.

Like it or not, fellow HR pros, the CEO’s first responsibility is to the shareholders and to ensure that the company’s stock is an attractive investment. The actions she takes have to please the market – and in her nine months, she has done that. Since she took over at Yahoo! in July 2012, the stock price has increased approximately 31%. I would be a very happy shareholder, and employee, with a 31% increase in nine months. It is clear that the strategic decisions she is making are being looked at favorably by the market.

Now I’m not saying a CEO should allow their corporate cultures deteriorate at the expense of just pleasing shareholders.  Having a culture that attracts and retains outstanding employees is looked at very favorably but shareholders but that culture must deliver good results.  There has to be a balance and, frankly, most times that balance has to lean towards the shareholders when a business decision has to be made.  Without a strong share price in the market a company cannot compete and risks eventually being taken over, reorganizing, or liquidating.

All those people squawking about the “horrible decision” she made have no idea what it takes to lead a huge company or the information she used to make the decision.  If HR pros want that “seat at the table” and want to be involved in the strategic planning process they need to have a better understanding of  a CEOs responsibilities.

I am embarrassed that many of my fellow HR pros are complaining so publicly about this decision.  It just reinforces corporate management’s opinion that HR is not ready and doesn’t deserve that “seat at the table” yet.

Turns out that Marissa didn’t like the empty parking lot, offices, or that Yahoo!’s vpn logs were showing light activity.  There is probably a lot more she isn’t telling us about the Yahoo! team she inherited.   I think there are only a limited number of people who can be productive working remotely from home. It’s a fad and will eventually be proven as such. People are social beings and work better when with other people.  As Marissa said at a recent HR conference in LA:

people are more productive when they’re alone, but they’re more collaborative and innovative when they’re together. Some of the best ideas come from pulling two different ideas together.

She’s right on.