Nicole Krawcke recently published an article in archnews.com which certainly poses some interesting questions about the future of HVAC workers. The whole issue is about a new governement mandated raise in overtime eligibility from $23,660 to $47,476 per year, starting on Dec 1st 2016. This is an increase of more than 50% in overtime pay.
This gives employers a little under 4 months to get their business in order to accomodate the coming changes in overtime pay.
Earlier this year, The U.S. Department of Labor (DOL) made waves when it announced the publication of a final rule updating overtime regulations. The new rule raises the salary threshold for overtime eligibility from $455 per week, or $23,660 per year, to $913 per week, or $47,476 per year. As a result, more than 4.2 million salaried workers across the country will now be eligible for overtime pay. Employers have until Dec. 1, when the rule becomes effective, to prepare for the changes.
The rule will also automatically update the salary threshold every three years based on wage growth over time, increasing predictability. Based on wage growth projections, the standard salary threshold is expected to rise to more than $51,000 with the first update on Jan. 1, 2020. Industry leaders predict the mandate will affect employees up and down the entire HVAC supply chain.
Many in the HVACR industry believe the new rule will have a negative impact on business. Jon Melchi, vice president, government affairs and business development, Heating, Air-conditioning & Refrigeration Distributors International (HARDI), spoke of the rule’s potential ramifications during HARDI’s Congressional Fly-In.
“If you think about the training our manufacturing partners provide, the events they attend, and the high-potential employees that are sent to those events that don’t make that [$47,476], now, guess what? They’re traveling, and that counts as time on the clock, so those costs have just risen,” Melchi noted. “That’s a problem. It’s going to limit opportunities for a lot of people. We commented that $23,660 was too low, so it was time [for an increase], but this was a big jump. This is going to impact a ton of people.
“You’ve got to convince [Congress] that this impacts your business; you have to tell them why and what it’s going to do to you,” he continued. “I think this is one of those rare opportunities where there may be some groundswell. Don’t think that delaying this until Dec. 1 [after the election] wasn’t done on purpose. The thing I love about our members is that you always send your staff to learn new things, and this is going to restrict that. The funny thing is, what do we hear about millennials all the time? They want flexibility. The fact is, they want more options, and this does nothing but restrict such options.”
Marianne O’Leary, human resources director at Meier Supply Co. Inc., said the new rule will force companies like Meier Supply to set limits on which employees may travel to attend training and development sessions when those events occur outside a normal 40-hour workweek.
“In the past, with more employees classified as exempt, the travel time was not an issue,” she said. “Now, we must compensate a new group of hourly personnel at the overtime premium rate. These additional labor costs will add up for all employers and may impact their bottom lines significantly. For small employers, it may even be cost-prohibitive, and such training and development activities will go away all together for those impacted. This is a negative for employees and employers.”
The rule will also change how Meier Supply manages its stores during the busy season, O’Leary noted. “Throughout the year, we have always been concerned about labor cost and minimizing unnecessary overtime. We have managed our labor costs partly by having the right mix of hourly and salaried personnel at each store. Now, with more employees eligible for overtime, it will definitely impact our bottom line. While we cannot yet quantify the additional cost, it will ultimately force us to modify product prices, which will impact our customers and the consumer in the end.
“There is also the intangible cost of negatively impacting employee morale,” she continued. “We believe there are employees who place value in being in salaried positions. These employees have been the ones who we rely on to do whatever it takes [including working longer hours] to service our customers. Under the new overtime rules, they must now punch a time clock and closely manage their hours so as not to incur unintentional overtime. This may ultimately result in them feeling they are taking a step backwards in their careers.”
Susan Kirkland, president of Packard Inc., agreed that switching a salaried employee to hourly could have a negative effect.
“This rule is bad simply because the limits have been set unreasonably high,” Kirkland said. “Where it is at now is too low, and I do agree there is an adjustment that needs to be made, but $47,476 is too high. In our company, I like to have a mix of seasoned managers as well as new managers in training. The ones coming up out of college do not necessarily start out at $50,000. I can’t start them out at a high rate and spend money to train them. If I have to make the choice of taking these young managers and increasing them to a level I don’t think is appropriate in their salaried positions or moving them to an hourly rate, I’m going to have to make them hourly. And, if I make them hourly, I won’t send them to educational and training opportunities because it will cost too much. Also, bumping a young manager back to hourly sends a negative message. I don’t think that’s a positive way to encourage our young managers getting started in the industry.”
Kirkland noted that out of Packard’s 74 employees, the new overtime rule will only impact four individuals. “I can justify bumping up three of them, but the other one I can’t, and I’m probably going to lose that employee because that person won’t feel it’s fair being put back on the clock. The millennial mindset says I should be able to arrive when I want, leave when I want, and not be held accountable to a time clock. So, having to go from a salary to an hourly rate is just a negative connotation in millennials’ minds; they feel as if they’re taking a step back in their careers if they have to revert to punching a time clock.”
The new rule will also impact how HVAC businesses hire new employees, Kirkland said.
“Most of the businesses in our industry are considered small businesses,” she said. “We have 74 employees, and we’re growing really quickly. I have one pot of money to spend on employee retention and benefits, and if the government continues to say, ‘You have to pay your people more, I’m going to tell you where to start them at, and I’m going to tell you where their health insurance needs to be or I’m going to penalize you,’ that really makes me think about the number of people I hire on a full-time basis. In the past, when an individual came to me and I recognized they had Packard DNA and talent, if I didn’t have an open position, I would create one for them because I wanted them on my team. I can’t do that today because there’s so much mandated overhead in the hiring process. Industrywide, I don’t think employee retention numbers will remain as high as they currently are.”
A CAREER KILLER
Steve Lauten, current ACCA chairman and president of Total Air & Heat Co. in Plano, Texas, said the overtime rule is being referred to as a ‘career killer’ for small businesses.
“This is just another tax on my small business that ultimately will impact my customers because, at the end of the day, the costs of doing business are passed on,” Lauten said. “However, what matters more to me than the additional paperwork/tracking and accounting work is the cost to the workers. In order for HVAC contractors to avoid the costly overtime pay, managers may get moved from their salaried positions to hourly jobs, will need to keep time cards, and may be prohibited from working overtime. This will be a burden on businesses that depend on managers and supervisors to work, when needed, in exchange for flexibility and other benefits. Worker morale will likely take a severe hit, as well. Low- to mid-level managers making less than the $47,476 oftentimes enjoy perks, such as flexibility of hours and health insurance benefits. Fewer salaried managerial positions would signal to employees that there is little opportunity for growth at that company. The DOL failed to understand the real-world impacts of this rule. An increase in overtime eligibility does not mean an increase in overtime pay. Whether we are talking about HVAC contractors or distributers, this impacts the careers and morale of employees.”
Total Air & Heat had very few salaried employees last year who were below the wage threshold, and for those who were, Lauten switched them to an hourly rate based on their current wages in preparation for this rule.
“Washington far too often forgets the rest of the country is very different than Washington, D.C., and urban areas,” Lauten noted. “The average median annual household income in the great state of Texas is just a few thousand dollars more than this new minimum wage. It’s unbelievable to me that Washington has the audacity to set a national minimum wage standard that almost equals the household average.”
Meanwhile, Butch Welsch, owner of Welsch Heating & Cooling Co. in St. Louis, believes the new overtime rule won’t have a significant impact on his company or the industry in general.
“To begin, a high percentage of those employed in our industry are hourly employees, and this overtime law does not impact them,” Welsch said. “An employer is still required to pay time and a half for all hours over 40 worked in a week, as has previously been the case. That’s the way it has been, and this does not change that process. Additionally, there are a number of exemptions that eliminate several groups of employees, such as sales personnel, administrative personnel, company officers, etc., from being affected by the regulations. Any one company may have one or two employees who fail to quality for the exemption, and they would be affected. If that is the case, the contractor could just pay the employee hourly, including time and a half for overtime hours, and regulate the total cost involved by regulating the number of hours that employee works each week.”
In the meantime we have heard nothing from the HVAC workers themselves defending the new rule.