A rule change announced May 18 by the U.S. Department of Labor would expand overtime protections to an estimated 4.2 million workers, extending the rule to cover those making less than $47,476 per year and removing long-standing exemptions in the law.  

Scheduled to go into effect Dec. 1, 2016, the new rule changes overtime regulations under the Fair Labor Standards Act's minimum wage and overtime protections. Previously, employees were excluded if they were salaried, earned at least $455 per week ($23,660 per year), or were in positions considered executive, administrative or professional.

Now, those exemptions will be lifted and the pay threshold for overtime protections will be raised to $913 per week, or an annual salary of $47,476. That pay threshold will be updated once every three years, indexed to wage growth over time.

So what does the overtime extension mean for architecture and engineering firms? Basically, any employees who do not make at least the threshold salary and classify as exempt — now a narrower classification than before — are entitled to time-and-a-half pay after they've worked 40 hours in a week.

After delving into the specifics of the new regulation, we heard from a number of A/E firm leaders about the anticipated effects of the change, for both employers and workers. Of particular concern is how A/E/C firms compensate interns, many of whom may fall below the pay threshold and often work overtime when under project deadlines. And, while it is questionable whether such entry-level level employees qualify to be salaried, many of today's Millennial interns may balk at the thought of going from salary to hourly pay. It is on these issues and more that the following panel of  A/E firm leaders have a lot to say.

Many firms must be grappling with how to deal with this quantum change. I know the last firm for which I was an employee expected interns to be working a minimum of 50 hours a week. Our firm does not expect this, but there are certainly weeks where interns put in more than 40 hours to help with a deadline. Historically we have rewarded this with additional holidays (July 4th is on Wednesday ....we'll close Thursday/Friday) and very generous bonuses. Additionally, being salaried, not hourly allowed a flexibility of schedule.

This coupled with the incredible increase we have seen in healthcare costs, for us more than 100% in two years for much less desirable insurance, puts the leadership of our firm of 26 in a unexpected and untenable position. Fees are not increasing anywhere near the level salaries and expenses are.

This new regulation is the cherry on top. Our firm has projected that doing less work with our most capable people would garner us more profit; so is that what we do, fire 15 because we are drowning in regulatory expenses? Our firm does multifamily, which is booming, but as I mentioned fees are not keeping up. 

I know legally the definition is correct but with a salaried employee, at least in my eyes, there is much more complex contract, more adult. I pay you a base amount of money a year upon which we I treat my employees like professional adults, I allow them to use their independent judgement for their time management.

The fundamentals I expect in return is that when there is a deadline, when some client suddenly has an emergency, my people are there, willing to jump in and help, doing whatever it takes to get the job done. A more important benefit from treating people fairly and like adults is that I have unusually high employee retention. In the past 5 years the only employees who have quit did so because they were moving out of the area for family.

What I deeply resent with myopic regulations like this is that it treats all employers like they are Simon LeGree. Ironically, in our case it is threatening to turn us into that sort of employer. I have no problem with people chatting in the kitchen for 15 minutes because I know it all balances out in the end. If I am forced to pay over time, suddenly I am hall monitor and at 8:30 one had better be in their seat working.

This sort of monitoring crushes the spirit of a great office. I either have to suck it up and pay people overtime because they are use to an easygoing management style or I have to be, as I have had an employer be, a time monitor. Making certain people are in their seats working, no personal calls, up at 12 for lunch back in their seat at 1. Breaks quick, efficient and back in your seat.

My frustration with all this is that it is getting harder and harder to be the good employer. For us, the firm owners would definitely make more money if we fired a bunch of staff and did less work. I never wanted to be the employer who views employees as a line item on a spread sheet, but the government is pushing us in that direction.

Robert Carlson, AIA 
Principal
Carlson Design Team PC 
Iowa City, IA

This goes back to the ever sore subject of intern pay.

IRS has burned multiple firms over the years for putting interns on salary.  Employee filed a complaint about not being paid time and half over 40.  Wage and Hour Division investigated and the employee and their fellow employees all got back pay at time and half and the firms get a hefty fine.

A typical intern does not meet the criteria for being on salary.  They do not manage other employees, they cannot exercise independent judgement (we had this conversation with members of our state licensing board who reminded us that only registered architects exercise independent judgement) and they do not manage aspects of the firm's business.

Some perpetual interns can probably be assigned managing certain parts of the business but have to be careful and read the rules.

We hire interns on an hourly basis and pay time and half over 40 hours.  We tell them to expect to work so many hours a week and over 40 is time and half.  Show them their weekly pay and what that means for a year.  Need to be realistic about the number of hours.  They will get upset if they do not get the number of hours so they are not getting the desired pay which they need to live on and pay off their debt.

Don't mistake interns working hourly for non-professional.  No one punches a clock. If they say they worked they get paid. If you cannot trust someone why would you let them work for you.  They work from home when needed.  We take a couple days off each year with pay for fun days of their choice.  Hours are flexible, Long lunches as an office.  Interns go to meetings, they are responsible for small projects soon after being hired, they are involved in design decisions and hopefully they learn from my 40 years.

When eligible I give them the choice of staying hourly or salary.  They all manage some part of the office;  I pay their health insurance but they meet with the agent to decide on the plan, and they are more frugal than I am.  When there are profits, we all get a share based on contribution to the office.

The gist of the new overtime law signed by President Obama is actually fairly straight forward and simple, but the implications of it are not. In general, the law will affect any salaried employee making less than $47,476/year and is meant to quote “put more money in the pockets of middle class workers – or give them more free time.”

The law stipulates that any salaried employee under the $47,476 threshold will be required to be paid time and a half for any hour worked over 40 hours per week. The old threshold of $23,660 was essentially doubled by this new law. 

For starters, employers now have to determine if they wish to essentially give a $3,500 - $15,000 raise based on adjustments from a 15% to 25% tax bracket due to new wages to all salaried employees falling under this new threshold. These employees will be doing the exact same job with the exact same skillsets and the exact same credentials.  If businesses opt to give these imposed salary raises, rest assured that the prices of the services delivered by that company will increase and be passed along to the consumer. Otherwise businesses will essentially opt to make less money and we all know that won’t happen. And for the record, it shouldn’t happen. 

What will most likely take place and has already been publically made clear by several organizations in the retail and hospitality industry is that employers will opt to convert salaried employees to hourly employees. Their bottom lines will go unchanged by either cutting wages, limiting hours, or both. In this scenario, those who value “free time” over money will be happy. Those on the opposite of that spectrum will not be so happy. Employers of all shapes and sizes will handle this law differently. There is not a one size fits all solution. And just to be clear, there never is. 

I truly believe this will mostly affect GEN Z and Millennials in the workforce, a group that has largely proven to be willing to jump ship as the mood strikes them. For this reason, I do not see a huge impact on the way employees feel they are being treated. Those who prefer money over free time will find those companies who have adopted those principles, and will have to work accordingly to garner that lifestyle. Those who prefer free time over money will find companies who incorporate those beliefs into their work environment. 

The ultimate judge will turn out to be what it has always been in any capitalistic society – the free market. You see, despite this wave of dictatorial behavior, we are still a free nation. We the people are free to decide who we give business to and why. My belief is that competition will drive our businesses to innovate within their respective fields and at the end of the day there will be a clear cut winner and loser further distancing the wage gap felt by those doing the same work within our country. 

You cannot have your cake and eat it to. Write that down.

Now it's your turn: What are your views on how the new overtime law impacts  A/E/C firms?

PSMJ is always looking to publish diverse views on emerging issues and trends in the A/E/C industry. We invite you to submit a 500-750 word post on any industry-related topic. We look forward to hearing from you.