What Do New Overtime Rules Mean For Professional Services Firms?

What Do New Overtime Rules Mean For Professional Services Firms?

Earlier this week, the US Department of Labor released new rules for overtime pay, doubling the income threshold below which firms are required to pay time-and-a-half to employees who work more than forty hours per week. Traditionally, long work hours have been the norm at professional services firms, who avoided providing overtime rules because professional and creative employees are generally considered overtime exempt. But the new thresholds would have entry level associates in industries like public relations, advertising, accounting, or consulting. So what do these regulations mean for professional services firms? It’s too early to see how individual firms will react, but here are four things you can expect to see once the rules go into effect in December.

We’ll Likely See a Pay Bump

First off, does this pay threshold even affect professional services firms? For some industries, like management consulting or law, it’s likely only relevant for administrative positions that are already paid overtime. But in other cases, junior employees fall squarely in the range targeted by these new regulations. According to PR Week’s salary survey, the median salary for the bottom three levels at most firms is below the new overtime thresholds. Robert Half has starting salaries at many public accounting firms, especially in smaller firms or less expensive markets, falling into a similar range.

Considering that most of these salaries are right at the threshold of whether or not firms will have to pay overtime, it’s likely that firms will give their junior employees and new hires a slight bump in pay starting in December, rather than deal with the added expense and complexity of paying overtime. The amounts in question just aren’t big enough for firms to give up the flexibility that comes from asking junior employees to work more than 40 hours per week. For those just above the new pay levels, with 2-5 years of experience, they’ll likely get a bigger cost-of-living increase this year to normalize things across the levels, but it’s unlikely that it will trickle much higher up into the firm.

Timesheets become even more important

For firms that choose not to bump up associate pay, timesheets just went from a necessary evil tied to billing to a compliance mandate tied to pay. Letting junior employees work more than 40 hours can get expensive, not just from the overtime pay, but also from legal trouble if you forget to pay it. Time tracking has always been one of the intractable problems, with firms using a combination of sticks and carrots (IoT beer fridge?) to get people to fill them out, but now it’s even more important.

Performance Management is a Bigger Deal

In the more creative professional services, especially marketing and communications, there’s a lot of downtime waiting for brilliant ideas to come. And it just so happens that those are also the industries where junior employees are likely now eligible for overtime. But how long will firms tolerate downtime that’s made up late at night if they have to pay extra for it? Overtime is going to make performance management – motivating people to deliver what you need from them, making sure they follow through on what they promise, and making sure you have the right people on the team – more important than ever. Otherwise those post-it-note wars are now going to cost time-and-a-half.

More Contractors or Contingent Labor

For some firms, peaks in business were handled by hiring a few extra junior employees, training them during the slow season, and working hard during the busy season. But with the new rules, those peaks just got a lot more expensive and the valleys didn’t get any cheaper. Firms are already using contractors and other contingent labor more than ever, and we’ll likely see this practice expand further. This can be a boon for some, for instance experienced professionals who opt to work part time for lifestyle reasons, but it may also result in less opportunities for people early in their careers.

By |2016-11-10T10:20:09-04:00May 20th, 2016|People|

About the Author:

David Dworin has spent over a decade helping professional services firms to grow and scale their businesses by developing and implementing strategies that are resilient to change.