Background: On Dec 1, 2016, a new rule to FLSA went into effect - see https://ww

Question

Background:

On Dec 1, 2016, a new rule to FLSA went into effect - see https://www.dol.gov/whd/overtime/final2016/ (Links to an external site.)Links to an external site.. In July 2017, a RFI (Request for Information) was published by the U.S. Department of Labor as a possible first step to revising this ruling, and on Aug 31, 2017, a Texas federal judge struck down the rule after more than 55 business groups had challenged the Obama administration's 2016 ruling. At this time, this new ruling may/may not remain in effect; however, for the sake of our case study, assume that the new 2016 overtime ruling of FLSA (see the link above for details) will remain in effect long-term.

Case Study:

SamiStyle is a five-year-old, up-and-coming designer clothing chain in the West catering to professional

women. Samantha Santorina owns the chain and has five stores in three major metropolitan areas.  Samantha takes pride in treating her employees well. She provides above minimum wage salary for all of her nonexempt employees, provides health insurance at low cost, and provides tuition reimbursement for all of her employees who pass classes they take toward a degree at their local community college.

Samantha has one manager and two associate managers in each store. She has paid her managers more than the market rate in the areas where her stores are located since opening. Even so, the new FLSA rule for classifying employees who make below the $47,476 threshold as nonexempt rather than exempt is causing her some distress. Her managers currently make between $40,000 and $45,000 per year, depending on time in the job and performance.

After meeting with her accountant, Samantha has to make a tough decision. She has to decide between two choices: (1) hire another associate manager for each store to avoid having to pay overtime to her current managers, or (2) pay overtime to her current managers who each regularly work 50 hours a week and reduce some of the other benefits she provides to all employees.

Your response to the Case Study:

1. Recap the new overtime rule as you understand it.

2. What criteria about her employees and/or her business should Samantha use in making her decision?

3. How would you propose that Samantha handle this situation? Are there any other choices than the two listed in the case study? If so, what are they?

4. How do you think Samantha's decision will affect the HR Challenges of Company Culture, Employee Concerns, and Ethics?

5. Since the new rule requires that the threshold be increased every three years, what advice would you give Samantha to help her plan for these changes?

Explanation / Answer

1. Recap the new overtime rule as you understand it.

As per my understanding, the new overtime rules state that an employer has to pay an additional amount if the employees are working beyond stipulated working hours. In this case, managers are working 50 hours a week, so Samantha has to pay them overtime for the excess hours worked.

2. What should criteria for her employees and/or her business Samantha use in making her decision?

Samantha can use following criteria for making her decision:

3. How would you propose that Samantha handle this situation? Are there any other choices than the two listed in the case study? If so, what are they?

Samantha should do a cost-benefit analysis of the options to arrive at the following decision. This analysis will give her a clear picture of the impact of increasing the salaries and its effect on business profitability.

4. How do you think Samantha's decision will affect the HR Challenges of Company Culture, Employee Concerns, and Ethics?

Till now, Samantha has paid her employees well and taken a good care of them. Employees are also motivated and added to the growth of the company. So any reduction in their salaries or firing them and hiring a new set of managers may not go down well with the rest of the staff. The other employees may feel demotivated and they might lose interest in the company. This could lead to a flight of talent which will be a costly move for the new startup.

5. Since the new rule requires that the threshold is increased every three years, what advice would you give Samantha to help her plan for these changes?

Samantha should create a corpus for meeting the future needs of the benefits and salaries. This can be put in the bank or invested so that she has enough corpus at the end of every three years to fulfill and meet the threshold without cutting on employees and firing people. She may also take an option of paying in equities and shares to the employees so that they remain motivated and invested in the growth of the company.

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