President Barack Obama signed an executive order expanding the number of people who qualify for overtime pay under federal labor laws. This motion has left many employers across the labor spectrum, including HVACR contractors, on high alert.

Taking Care of Business

The March 12 order apparently applies to salaried workers who may be expected to work more than 40 hours a week without receiving overtime pay, which potentially impacts a large number of middle-management HVAC employees.

Dana Thompson, assistant director of legislation for Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), said changes are on the way. “The Obama administration’s executive order will increase the threshold for salaried workers’ exemption from overtime pay. Currently, as set by the Bush administration in 2004, if a salaried employee makes approximately $450 per week or more, they are exempt from overtime rules. We are aware there has been some discussion that the Obama administration wants to take that threshold to $970 per week. The White House directed the secretary of labor to update the regulations without, as I understand it, directing specific changes.”

Charlie McCrudden, senior vice president for government relations, ACCA, said it’s difficult to assess the impact this order will have on HVACR contracting companies. “First, the memorandum is relatively vague on specifics and only directs the Department of Labor to ‘propose revisions to modernize and streamline the existing overtime regulations’ through a rulemaking. It could take at least a year before a final rule is issued; before any changes are made to the overtime pay rules.

“Second, it’s uncertain how many workers this would cover. Currently, there is a two-part test to determine which employees qualify for overtime. A worker’s salary must fall below an income threshold, and they must not be classified by the employer as a manager or an executive. The Obama administration wants to raise the current income threshold of $455 a week, and it wants to tighten the current exemption from overtime pay for managers. The Bush administration amended the exemption in 2004 to cover any worker who performs at least some managerial or supervisory tasks.

“But, by raising the income threshold and restricting the exemption for managers, it is possible more employers in the HVACR industry will face the prospect of paying their employees for work performed in the event that overtime is required,” said McCrudden. “Some critics of the proposal have pointed out that changes in the rules could drive employers to limiting an employee’s overtime opportunities or reconsider the titles and responsibilities of certain workers.”

Jon Melchi, director of government affairs for Heating, Air-conditioning, and Refrigeration Distributors International (HARDI), called the matter troubling. “For distributors, you are looking at a clear impact regarding branch managers and inside sales people. It is concerning, as it impacts existing labor and compensation agreements.

“But we need to wait and see what comes out of the Department of Labor regarding this.”

Those comments were echoed by Lowell Randel, vice president, government and legal affairs, Global Cold Chain Alliance (GCCA); and government affairs director for the International Institute of Ammonia Refrigeration (IIAR).

“This raises a number of questions and concerns,” said Randel. “While details are not yet available on specific proposed changes to overtime regulations, it appears likely that the Department of Labor will propose a significant increase to the minimum threshold for salaried workers to be exempt from overtime mandates. Such a large increase could have significant impacts on the industry as employers adapt their practices in response to revised regulations. The end result could be reductions in the number of full-time employees, more part-time employees, and an increased cost of doing business. These challenges would come at a time when the economy is still trying to recover and unemployment rates continue to be a concern.

“Again, it is important to recognize that no specific proposals have been released, and the rulemaking process can be lengthy,” he added. “As a result, the full impacts of the president’s memorandum and how businesses will ultimately respond won’t be known for some time.”

Punching the Clock

“This very topic came up within our company several years ago,” said Greg Crumpton of AirTight Mechanical in Charlotte, N.C. “We have switched the whole company, with a couple of sales folks who were commissioned-based, to an hourly rate. This way, we pay what they work and there is no need to keep score for paid-time-off accounts and all of the other ways compensation has been derived to accommodate this topic.

“The challenge is that all folks work at their own unique speed. Some people are more productive after normal hours when it’s quieter, versus the everyday hoopla that contracting can provide.”

Theo Etzel, owner, Conditioned Air Corp. of Naples, Fla., said, “This will depend on how tightly contractors have observed laws and not stretched definitions to create salary positions out of hourly positions.”

Etzel said his company has avoided that by having very few people on salary except for some managerial and outside sales employees. “Based on our interpretation of the law, I don’t anticipate having to make any changes.”

George ‘Butch’ Welsch, owner, Welsch Heating and Cooling of St. Louis, said despite Obama’s intention, companies will still allow salaried workers to work more than 40 hours. “We have proven it here in the St. Louis area. Up until Aug. 1, 2013, when we received a new sheet metal contract, our contract stated that when the out-of-work list reached 20 percent we would change from the standard work week of 37.5 hours to 35 hours. The concept was that contractors would hire more men if their men were working 2.5 hours less per week. We found out it just didn’t work. Contractors wanted to have their employees working on their jobs, and the list was not reduced at all. I believe that if one of the main goals of the 40-hour overtime rule is to encourage more employment, it simply won’t happen.”

Publication date: 4/28/2014 

Want more HVAC industry news and information? Join The NEWS on Facebook, Twitter, and LinkedIn today!