Millions More Salaried Workers Eligible for Overtime

The U.S. Department of Labor and the White House announced final publication of a rule change that would update overtime pay regulations for salaried workers under the Fair Labor Standards Act. (See TradePost July 9, 2015.) The effective date will be December 1, 2016.

The final rule will essentially double the salary threshold under which full-time salaried workers qualify for overtime pay. The change would allow those making less than $913 per week ($47,476 per year, less than the proposed rule's $50,440) to qualify for overtime. The previous maximum is $455 per week ($23,660 per year). To meet the new salary threshold, quarterly or more frequent bonuses, commissions, and incentive payments may satisfy up to 10% of the salary level.

In addition, the change provides for automatic future increases in the overtime pay threshold every three years, rising to $51,000 on Jan. 1, 2020. This provision is intended to protect workers from future inflation or other dynamics impacting pay rates.

The proposed rule change does not cover--and would not impact--the compensation requirements for hourly workers.

Currently, a two-part test determines overtime pay eligibility. In addition to having salaried compensation below the pay threshold, a worker must also hold a position outside what's generally known as "white collar" jobs. Employees performing executive, administrative or professional duties were not allowed to earn overtime pay based on what's called the "duties test." The final rule did not change the "duties test." The proposal was not part of a piece of legislation and did not need to be approved by Congress. Instead, it is similar to an executive order--a change coming from a cabinet department charged with carrying out the already expressed will of Congress.

Labor Department analysts believe the rule change will expand overtime eligibility to about 35 percent of the full-time salaried workforce, up from about 8 percent. They expect the change to translate into a total increase in pay of $1.2 billion annually.

The intent is to dial back the clock about 40 years when it comes to making salaried workers eligible for overtime. In 1975, 62 percent of full-time salaried workers qualified for overtime compensation in the event they worked more than 40 hours per week. (Of course, only a fraction of such workers actually earned overtime pay at any given time.)

Outside observers are not convinced the rule change will have the sweeping impact projected by the Labor Department. These analysts point out that employers are sure to make adjustments of their own to limit the overall increase in overtime payments to workers.

Employers could do so in several ways. They could shift some now salaried positions over to hourly compensation, a move that would likely leave impacted workers with less robust benefits and reduced schedule flexibility.

Employers could also reduce salaries to compensate for the increase in overtime pay or simply mandate that impacted employees not work more than 40 hours. They might also increase the salaries of people just under the threshold, making those workers ineligible for overtime.

The final rule has been met with sharply divided opinions. Proponents argue that a threshold update was long overdue. After all, they note, the previous threshold was below the poverty line, having remained the same since 1975. Advocates say the added income for millions of Americans will stimulate the economy, creating more jobs.

Opponents warn of unintended consequences including job losses, less flexible schedules for workers, and a loss of status and even some benefits for those becoming eligible for overtime.

Under the rule change, some observers believe impacted employees are likely to work fewer hours, creating a need for more part-time workers. In fact, a study by Oxford Economics found that if the salary threshold were raised to $808 a week (not the final rules $913), an estimated 117,000 part-time positions would be created.

In the months ahead, business leaders will need consider how this final rule will impact employees, labor costs and, ultimately, the overall mix of their workforces.

Readers, how will your company be affected by the new overtime rule change? Comment and let us know!

"In the Dark" Ages: Company Transparency

There has been drama in daytime TV lately – but not from the soap operas. ABC's talk show "Live with Kelly and Michael" has been at the center of the melee. ABC has been less than transparent with co-host Kelly Ripa about Michael Strahan's permanent departure to "Good Morning America." While the GMA hosts were aware of the news in advance, Ripa was reportedly blindsided and staged a "sick-out" for almost a week. Upon her return to "Live," in her opening comments, Ripa said the issue was "about communication and consideration and, most importantly, respect in the workplace."

While ABC received a lot of negative publicity about its less-than-open behavior, another mega-corporation fared much better after its hidden venture came to light.

On the advice of its ad agency, Kraft chose to keep the reformulation of its iconic Macaroni & Cheese a secret, presumably to avoid another New Coke debacle. When Kraft announced a year ago that it would be removing artificial preservatives and dyes, consumers expressed concern via social media. So in January, while the blue and yellow box looked the same, the ingredient list was quietly changed with paprika, annatto, and turmeric replacing Yellow Dyes #5 and #6. Months (and 50 million boxes) later, Kraft let the public in on its semi-secret switcheroo with the "It's changed, but it hasn't" commercial. Kraft is calling it "the largest blind taste test ever done" and apparently, America did not mind.

But in the corporate world, would employees be as forgiving as mac-and-cheese consumers? A Tiny Pulse survey found that transparency is the #1 factor contributing to staff happiness. Using "Ripa-gate" as a cautionary tale, transparency during periods of change (such as high-level staff changes or a company merger) can prevent employees from being caught unaware or alleviate acrimonious misunderstandings. When you let your employees in on the inner workings of your company, it builds trust. To foster transparency at Credit Karma, CEO Ken Lin employs an open door policy, town hall Q-and-A meetings, and a company-wide meeting outlining a full board report down to the line item. Social media company Buffer even instituted an open salary policy.

Internet payment processor Stripe allows any employee searchable access to virtually every company email in an effort to reduce the number of meetings. Zillow Group, which prides itself on opening up real estate information to home buyers, uses social media "exhaustively," according to CEO Spencer Rascoff, to engage with employees.

In a culture where honesty is encouraged, employees may be bold enough to admit if they're in over their heads. Joe Silverman, owner of New York Computer Help, gives crash-course training to technicians who admit they have not done a particular repair before, with no repercussions.

Chuck Cohn, CEO of nationwide Varsity Tutors, advocates making transparency a company priority, from the top down. A company culture of transparency can trickle down to its relationships with consumers too, preventing publicity nightmares like Volkswagen cheating on its U.S. emissions tests or the Takata airbag scandal – for a decade, the company put the safety of millions at risk to avoid paying $100 per inflator replacement. But at what cost?

Readers, should businesses be totally transparent with their workforces or should some information remain on a "need-to-know" basis? Comment and let us know!

Flying in the Face of a Culture Clash

Fasten your seat belts; there may be turbulence ahead when Alaska Airlines and Virgin America combine two divergent company cultures. A merger between the two airlines was announced on April 4, 2016. Virgin America is described as innovative and hip, while Alaska Airlines is a bit more under the radar with a dependable brand image. The airlines' origins couldn't be more different. Alaska Airlines' roots go back to 1932 when a depression-era fur trader began offering flight service from Anchorage in a tiny three-seat plane. Relative newcomer Virgin America was founded in 2007 by rock-and-roll billionaire Richard Branson to "make flying fun again."

While both air carriers have loyal patrons, passionate Virgin America fans are expressing dismay about the forthcoming merger on social media. One FAQ on the Alaska Air website addresses the hot button of Virgin America's "fly" safety video – but fails to answer if Alaska will create its own choreographed safety dance. Even Virgin Group founder Richard Branson admitted sadness that his U.S. airline is merging with another carrier.

Virgin America has prided itself on the passenger experience. Virgin's Airbus fleet boasts mood lighting, electrical outlets in the leather seats with seatback touch screens that allow you to stream Netflix or even send a drink to another passenger. Contrast that with Alaska Airlines' barebones Boeing jets with an old-fashioned safety card and magazine in the earth-toned seat back. Alaska's only "cool" factor may be the Starbucks coffee service. While Alaska Airlines lacks VA's flashy amenities, the Seattle-based company is well-regarded for reliability, exemplified by its 20-minute bag guarantee.

What the airlines have in common is a history of customer satisfaction. In the Wall Street Journal's Middle Seat scorecard of the largest U.S. airlines, Alaska has been ranked #1 or #2 for the past six years. The carrier has also rated highest in the J.D. Power Airline Satisfaction Study eight years in a row. Virgin America has been ranked the #1 U.S. airline in the 2012-2015 Airline Quality Rating report, and has been named Best Domestic Airline by both Travel + Leisure, and Condé Nast Traveler from 2008-2015.

Once combined, Alaska will become the fifth largest U.S. airline, ousting JetBlue, which lost out on the bidding for Virgin America. Some argued that JetBlue was a better fit culturally, and could have greatly expanded east-coast routes. The Alaska-Virgin union will instead create a west-coast low-fare powerhouse.

Management consultants Hay Group claim 91% of mergers and acquisitions fail due to cultural differences. Notable examples of oil-and-water mergers include the Nextel/Sprint merger (casual khaki culture meets buttoned-up bureaucracy), AOL/Time Warner (unruly internet upstarts versus conservative media fiefdoms), and Daimler/Chrysler (no-nonsense Germans contrasted with free-wheeling Americans). While culture clashes were certainly not the only factor in the downfall of these seemingly mighty alliances, they certainly played a significant role.

The Alaska Airlines-Virgin America deal won't even close until January 2017. The newly created website assures passengers that Virgin America's premium inflight experience won't change – for now. Can Virgin can convince Alaska to up its game? Flyers will have to check in Q1 of 2018 to see if they are greeted with ambient lighting, contemporary tunes, and fresh flowers.

Readers, do you think Alaska Airlines and Virgin America will be able to merge their dissimilar company cultures? Comment and let us know!

Will China Cause the Next Recession?

When China's stocks crashed last month, economies across the globe worried about a market meltdown; China, the United States, and countries across Europe worried whether the hard-won economic recovery could be on the brink of reversal. The Dow plunged 1,000 points, the worst day since August 2011. Stocks for a number of large American companies also fell the same day. A few weeks later, China's economy is still limping along and their slowing economic growth may be even worse than originally feared. Some worry that without improvement, China could bring on the next recession.

China has the second-largest economy in the world and has had explosive growth for the last twenty years. Its rapid industrialization has also fueled growth in other countries that feed China's appetite for natural resources, such as Brazil. As a juggernaut leading global growth, China's slowing economy has produced fears that many countries might find their own economies declining, and even sliding back into a recession.

In the weeks following the plunge, China's government intervened in order to prop up the domestic market and to stabilize the yuan and prevent the currency from spiraling into a freefall. However, China's slowdown may be worse than originally predicted: in the last month, its output of industrial commodities weakened, growth in factory output missed predictions, and production of steel and coal declined. The government is aiming for 7% economic growth in 2015, the lowest in fifty years (CNBC, 9/13/15).

Volatility in America's own stock market from China's instability and fears of an economic slowdown may affect the Federal Reserve's decision whether to raise interest rates on Thursday. A majority of economists polled believe that the Fed will not raise rates amidst the uncertainty (The Wall Street Journal, 9/14/15). Meanwhile, some 75% of investors view China as the largest risk to investments and only about 20% feel positive about the global economic outlook for the coming year (Business Insider, 9/15/15).

China's weakening growth could send other countries into a dangerous downward spiral. The repercussions of the stock market crash has been a rollercoaster, which other economies have no choice but to ride.

Readers, do you think we should be worried about China? Comment and let us know!

Where are They Now? Updates to the 4 Biggest Stories of 2015 (So Far)

So far, 2015 has been a year with many businesses and hiring trends making headlines daily. Cities have raised their minimum wage, companies have made unique (and sometimes controversial) personnel decisions, and court decisions have thrown some companies' entire existence into jeopardy. These stories continued to be front-page news. Here are the updates for the biggest four stories of 2015 so far.

Walmart Gives 500,000 Employees a Pay Raise
When the retail giant notorious for low pay decided to raise the hourly wage for 40% of its workforce, it was applauded for following successful companies with high wages. The company estimated it would be spending an additional $1 billion in increased pay and revised training programs. Almost 6 months later, Walmart is experiencing weak second quarter earnings and has predicted that extra expenditures in pay will decrease its earnings per share by 24 cents in 2015. However, Walmart is confident investors will see a payoff for higher pay; same-store retail sales were the highest in 3 years and the company had its third straight quarter of higher traffic (CNBC, 8/18/15).

Lawsuits Spell the End of the Sharing Economy?
A wave of lawsuits against companies that are part of the "sharing" or "gig" economy had their entire business model thrown into jeopardy. The suits claim that that companies like Uber and Lyft exploit workers by classifying them as independent contractors, not as employees, and therefore avoid paying benefits, health insurance, and other costs. Last week, a judge in California allowed drivers in a class-action lawsuit against Uber to proceed with their claim. If the drivers win, Uber could face a large settlement - and more devastatingly - a possible change to their business model, at least in California.

The Company with a Starting Salary of $70,000
In April, Dan Price, CEO of Gravity Payments in Seattle, decided that all 120 employees at his company would earn at least $70,000 a year. The choice was both lauded as a smart and generous business practice and also criticized as foolishness that would make the company unstable by eating into its profits. Just 3 months later, Price is seeing some fallout from his decision. Two of the company's "most valued" employees quit and although the company was signing on new clients from the positive publicity, some customers left, anticipating a rate hike.

Los Angeles' $15 Minimum Wage
Los Angeles became the largest city to pass legislation that would institute a $15 minimum wage and a familiar debate around the possible benefits or detriments ensued. The success of the Fight for $15 in Los Angeles, also spurred other cities to raise their minimum wage. New York plans to raise wages for fast food workers to $15 an hour by 2018. In the Bay area, an arms race of raising wages was triggered as Berkeley, Oakland, and Emeryville all increased minimum pay.

Readers, what do you think has been the top story this year? Comment and let us know!

August Jobs Report

In August, U.S. employers added 173,000 new jobs and the unemployment rate decreased slightly to 5.1%, according to the Bureau of Labor Statistics' Employment Situation Summary. The amount of new jobs was weaker than expected and economists are predicting that slower growth will delay the Federal Reserve from raising interest rates.

Industries that experienced the most growth in August included health care and social services (+56,000), professional and business services (+33,000), food service (+26,000), and financial activities (+19,000). Staffing firms created 10,700 new jobs in August and temporary help services increased 0.4%.

Back to School: 3 Reasons To Train Your Front-Line Managers

TradePost would like to welcome back Bonnie Cox, founder of Power Training Institute. As summer ends, Bonnie outlines 3 reasons that you should send your managers back to class.

Fall is just around the corner. Books, pencils, and notebooks are filling the backpacks of children once again. Of course, most employees aren't at that stage of life anymore. How long has it been since your managers have been trained? Did it stick? Is it in the budget this year? Do you need to hire... again? Here are the top 3 reasons why sending your managers "back to school" should be one of your company's top priorities.

1) Not training has a cost.
It's proven that it is far more expensive to hire and/or fire an employee than to train them. Remember what Marcus Buckingham (First, Break All the Rules) says about employees that resign: "People leave managers, not companies." Well-trained managers will help you maintain your workforce and their morale. It costs more to remain on standby as your turnover rate escalates, than to invest in a professional development program for your managers.

2) A happy manager means business.
A recent Gallup poll highlights that only 35% of managers in the U.S. are engaged in their workplace . What does this mean? A disengaged manager means that the workforce under their watch will be less inclined to perform. It will affect key profit factors such as productivity, profit margins, and customer satisfaction. Employees who work for engaged managers are 59% more likely to participate in their work (Gallup, 4/2/15) . This means high quality performance and workforce stability for your organization.

3) Focusing on purpose can increase profit.
So how do you engage your managers? Franklin Covey always taught to "begin with the end in mind." To grow any company you need a high-performance management team that is organized, accountable, and strategic. Managers need to feel engaged to the company's mission and purpose in order to perform and influence others to perform. Just understanding a company's purpose is not enough; managers and employees need to feel that their efforts are a contributing factor to your mission.

Equip your staff with the right tools to take your company to the next level. Think about what your staff needs. Are they lacking motivation? Are you experiencing high turnover? Are your managers communicating effectively, consistently, and appropriately with their teams? Don't hesitate and join the back to school season. It's time to send your managers back to class.

To learn more about PTI and their management classes, call (805-456-5227) or visit

Amazon: The Future of White-Collar Work?

Last week, The New York Times ran a lengthy article on the work culture for white-collar employees at retail giant, Amazon. The piece describes a harrowing experience where Amazon employees (often self-dubbed as "Amazonians") face punishingly long hours, sabotaging feedback from coworkers, and an annual purge of the staff who are performing in the bottom 10% of employees. But for some Amazonians, their workplace, although harsh, allows them to work on innovative, groundbreaking ideas, to openly question the status quo, and to interact with some of the smartest people in the tech world. Amazon will never be described as an employee paradise for white-collar workers, but is the results-focused culture obsessed with innovation the future of American workplaces?

Amazon is not a forgiving place for employees: an internal feedback system allows coworkers to sabotage each other anonymously, individual performance is measured obsessively, and personal crises can make workers the target of escalated monitoring and even being edged out of the company. Jeff Bezos, founder and CEO of the online behemoth, created the twelve principles, Amazon's foundation for its work environment and management culture. The principles are not guidelines or vague banalities; they are essential to the company and Amazonians who want to stick around must adhere to each one. In a 1997 letter to shareholders, Bezos wrote that "you can work long, hard, or smart, but at Amazon you can't choose two out of three."

Unlike other tech giants famous for employee perks, Amazon does not offer unlimited vacation, on-site gyms, free meals, or even any parental leave policy. So with a grueling culture and minimal perks, why does Amazon employ 50,000 white-collar workers on its Seattle campus alone with more clamoring at the door to join? Compensation is competitive and successful employees can earn the equivalent of an extra salary from stock. But more than that, those who thrive as Amazonians do so because they have bought into the company and have truly embraced Bezos' twelve principles, especially the first: customer obsession. One former Amazonian found herself "addicted to wanting to be successful." With the second highest turnover rate of Fortune 500 companies, the average tenure at Amazon is about 12 months (PayScale, 7/28/2013). This is partly due to the fact that the company has grown rapidly and adds new staff all the time; their Seattle office alone currently has about 4,500 job openings (The New York Times, 8/15/2015). Despite high turnover and a need for workers, Bezos and Amazon have not toned down the culture and survivors are only those able to buy totally into the vision of the company.

Although taken to the extreme, some of Amazon's principles may sound familiar. Companies are becoming ever more obsessed with results, data, and evaluating employee performance with hard metrics. Businesses are looking for employees who will take ownership (Amazon's 2nd principle) of their work and care about the long-term success of a business. Working 'round the clock has become the norm for many white-collar employees, and not just at tech giants. Many companies are even adopting internal feedback systems similar to Amazon's where coworkers give comments on their colleagues' performance. Amazon's culture may be the modern American workplace taken to the extreme, but are other companies heading down a similar road? Is an obsessive, almost cult-like culture the future of the workplace?

Readers, would you work for a company with a culture like Amazon's? Comment and let us know!

The Digital Destruction of Middle-Class Jobs

When a new piece of technology is introduced, it's touted as the miracle solution to make work and life smarter, easier, and faster. Nearly every person carries around a small super computer in their pocket, the Internet keeps faraway family or coworkers connected, and mountains of data and information can be stored for time immemorial. Technological innovations claim to aid people in life and employees at work, but is the constant march of digital development actually destroying middle-class jobs?

The end of employees and the rise or robots is an apocalyptic prediction that has been forecast before, but never come to pass. However, the rapid advancement of tech could eliminate middle-income jobs that sustain many households, leaving workers without a digital skill set out of luck. Until about the year 2000, labor productivity and private employment grew together in the U.S. However, at the turn of the century, a gap emerged between productivity and employment: productivity continued to increase, while private employment decreased (see chart). Because of new technology, the economy and GDP were growing, but not coupled with job creation (Tech Republic, 8/19/14).

Since that time, new technologies created high-paying jobs – but only for a few and only for those with the right skill set. In the past, most middle-income households were sustained by factory or manufacturing jobs. In 1970, more than one quarter of U.S. employees worked in manufacturing (Bloomberg, 4/25/2014); those jobs accounted for only 8.8% of U.S. employment in 2013 (Economic Policy Institute, 1/22/15). The decline of U.S. manufacturing has several contributing factors: outsourcing and a surge of Chinese imports both contributed to the continual drop. However, manufacturing employment is falling globally in nearly every country, including China, (Bloomberg, 4/25/2014), due mainly to technology and the elimination of the need for industrial workers.

It is not just factory jobs being claimed by automation. About 47% of all present jobs in the U.S. are predicted to be computerized or automated within the next two decades (Oxford University, 7/17/13). Some service and white-collar positions are also expected to succumb to technology; accountants, retail salespeople, technical writers, and telemarketers, all have a high probability of being replaced by robots within the next twenty years (see chart, Business Insider, 7/23/14).

As middle-class jobs decline because of automation, others jobs do replace them; however, these are typically highly-skilled tech jobs or low-wage service jobs, leading to a polarized workforce. Those working in high-skilled jobs will benefit from high wages, while those working in low-skilled jobs will encounter the continuing trend of finding their earnings depressed. Additionally, technology allows companies to substitute labor for capital, which boosts productivity, but does nothing for wages, and concentrates wealth among a small group and resulting in ever-increasing inequality (University of Oxford, 2/2015).

But are the dire predictions are a bit too apocalyptic? Is the technology boom all part of typical economic cycles that destroy some categories of jobs but open up a whole world of new employment? A few decades should determine whether technology replaces workers with robots.

Readers, do you think technology is creating or destroying jobs? Comment and let us know!

A (Practically) Perfect Parental Leave Policy

Last week, Netflix, a company used to receiving fanfare for its employee policies, announced that it would be offering new mothers and fathers the opportunity to take off as much paid time as they'd like in the first year of becoming parents. Netflix's new plan goes well beyond even generous parental leave policies of other companies like Google or Facebook, and far surpasses outstrips the majority of American companies which offer no paid parental leave. The streaming company announced the new plan in a blog post and has made the policy accessible to both men and women. Netflix's new plan may be spurring other companies to offer more generous parental leave: Adobe and Microsoft both expanded their policies shortly after Netflix's announcement. The policy seems practically perfect, and it could be, if implemented correctly.

The company's new plan states that new "parents can return part-time, full-time, or return and then go back out as needed,"without changes in pay in the first year of parenthood. This policy is coupled with Netflix's unlimited vacation plan, but not every employee benefits. The parental leave applies only to salaried workers, not the hourly employees working in the DVD distribution centers. Netflix won't disclose exactly how many employees are not eligible for the parental perk, but it has reported about 2,300 total workers, of which an estimated 400-500 are not eligible (NPR, 8/6/15).

America is only one of three countries in the world, and the only developed nation, which does not offer paid maternity leave (ABC, 5/6/15); so although groundbreaking compared to receiving no paid parental time off, Netflix's new policy ushers in its own set of challenges. Like unlimited vacation time, such a flexible policy means that some employees may be unsure of if and how they can take advantage of it. Without defined limits, employees may be hesitant to partake of this new perk, and if they do they may be resented by their bosses or coworkers for doing so.

New mothers may have a particularly hard time taking advantage of the policy without repercussions. Although the leave is open to both men and women, women are already under-represented in tech companies and if only women use their paid parental leave, while men tend to pass up the perk or take less time off, women could still be pushed in a "mommy track"at work, with fewer promotions and raises once they return to work, a cycle already typical for many women.

Netflix should be applauded for implementing a paid parental leave policy for its employees. The next step will be ensuring that company culture actually supports its usage.

Readers, what do you think of Netflix's new parental leave policy? Comment and let us know!

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