Perhaps it is uncertainty surrounding the January 1 fiscal cliff, which has cast a pall over business spending for much of 2012.
Or perhaps companies have re-defined compensation norms.
In either case, Massachusetts employers are planning to award virtually the same 2.9 percent to 3 percent average salary increases in 2013 as they did this year, according to the Associated Industries of Massachusetts HR Practices Survey released today.
Overall salary growth has remained in a narrow range of 2.5 to 3 percent for the past three years as employers have faced a balky economic recovery, a recession in Europe and a series of governmental debt crises both here and abroad.
The AIM survey found that a company’s perception of business conditions is a key ingredient of its approach to employee compensation. Ninety-three percent of companies that view business conditions as “excellent” expect to grant pay increases of 3 percent or more, while only 47 percent of companies that believe conditions are “fair” have budgeted the same raises.
Uncertainty surrounding the fiscal cliff - the simultaneous expiration of tax breaks, introduction of tax increases and spending cuts at the end of 2012 if Congress fails to enact long-term deficit reduction - has been pervasive for employers. Nonresidential fixed investment fell 1.3 percent during the third quarter, and more than 40 percent of companies surveyed by Morgan Stanley this summer cited the fiscal cliff as a major reason for spending restraint. Bottom line: The days of six, seven and eight percent salary increases appear to be a distant memory.
Not all the news is grim, however. Employers in Massachusetts and throughout the nation are enjoying at least temporary relief from the spiraling cost of health insurance. Rate increases for health insurance appear to be holding steady in the range of 4 to 6 percent as the weak economy dampens demand for medical services and employers manage costs through plan design.
And employers have only scratched the surface of controlling health costs. A paltry 15 percent of Massachusetts employers plan to implement tiered or limited network health insurance plans, while twenty-eight percent expect to take no steps to control health-care costs.
Companies navigating federal and state wage-and-hour laws often find themselves on the wrong side of right.
Consider this example: The federal Fair Labor Standards Act (FLSA) requires companies to determine whether a position is exempt or non-exempt from overtime. Companies make their best effort to properly classify their positions but may not classify them the same way the U.S. Department of Labor (DOL) will. Guess who wins that dispute?
Companies struggling to meet wage-and-hour responsibilities need to understand:
- the intricacies of how to calculate overtime
- what to consider “work time”
- how to handle lunch and rest breaks
- what can be deducted from a final paycheck
- how to handle non-exempt remote employees
- who qualifies as an independent contractor
- whether the company can use paid or unpaid interns; and
- hundreds of other wage and hour scenarios
Even the most knowledgeable HR professional can be left scratching her or his head.
To further complicate the picture, Massachusetts implemented the Treble Damages law in July of 2008. The law mandates treble, or threefold, damages for a wage-and-hour violation, regardless of whether it was the result of a good-faith mistake, difference of opinion or interpretation, or willful or egregious conduct. Employers found in violation prior to 2008 would be assessed treble damages only when willful or egregious conduct was found. The potential for huge damage awards has brought a host of plaintiff’s attorneys into the field, looking for clients and anxious for a chance to file a non-payment of wages claim.
In 2010, U.S. Wage and Hour Deputy Administrator Nancy Leppink announced the agency would pursue an aggressive auditing and enforcement policy. Although audits can be focused on any area of wage and hour compliance, two areas specifically mentioned were misclassification of workers as independent contractors and misclassifying non-exempt employees as exempt to avoid the need to pay overtime.
What should a company do?
AIM provides clear solutions with a new whitepaper entitled Pay and Payback | Navigating the Minefield of Wage and Hour Compliance. The whitepaper poses 10 common questions about wage and hour issues and provides plain-English answers. Read the questions below. Then download the whitepaper for the answers.
If you get one or more questions wrong, or you were unsure of the answer, it may be time to get more information. Keep in mind, this is just the tip of the iceberg.
1. The Department of Labor estimates what percent of employers are out of compliance with wage and hour laws?
2. How many collective actions were filed in federal court in 2011 alleging wage and hour violations? An FLSA Collective Action is a lawsuit (enforcement action) on behalf of a large group of similarly situated non-exempt employees within a company.
3. The Massachusetts Minimum Wage is currently:
a) $7.25 per hour
b) $8.00 per hour
C) $8.10 per hour
D) $8.50 per hour
4. True or False - Employers are free to hire interns as either paid or unpaid interns.
5. True or False - An employer who has a formal policy requiring employees to get supervisory approval prior to working overtime may refuse to pay the employee for non-authorized overtime work.
6. True or False - If a job requires a college degree, it will meet the criteria to classify the job as exempt under the FLSA regulations.
7. If someone supervises two or more people, would the supervisor be classified as exempt or non-exempt?
8. When calculating overtime, what discretionary compensation needs to be factored in when determining the regular rate of pay?
a) Incentive pay
b) Bonus pay
c) Shift differentials
d) Retro pay increases
e) All of the above
9. Many companies have an automatic lunch-period deduction for non-exempt employees consistent with lunch-break policy. Which one or more of the following presents an issue to the auto lunch period hours reduction?
a) Technology – the employee has a smart phone or tablet and can review emails during lunch breaks.
b) The employee sits at his/her desk during the lunch period.
c) The employee is asked to take a call, or help a customer for a couple of minutes during lunch, but can finish his/her lunch break after the call.
d) The company has employees attend lunch-and-learn sessions during the lunch break to review company policies or to participate in training.
e) The employee is too busy for lunch, but will leave a half hour early at the end of the day.
10. The FLSA requires companies to pay for breaks when the break is equal to or less than:
1) 10 minutes
2) 15 minutes
3) 20 minutes
4) 25 minutes
The 2012 Associated Industries of Massachusetts General Wage Report released today indicates that the lurching economic recovery has finally begun to transform the job market for both employers and employees in Massachusetts.
Employers are planning the largest wage increases in three years, changing their emphasis from compensation freezes and other defensive tactics to long-term compensation objectives for star performers.
Employees, meanwhile, are moving to new jobs in numbers that have almost doubled the voluntary turnover rate at Massachusetts companies to 7.8 percent. The U.S. Labor Department reports that the number of Americans leaving their jobs hit 2 million in February, the highest number of resignations since November 2008.
The changes in the job market reflect an underlying level of comfort among employers and workers even as the economy continues to struggle with issues such as the European debt crisis, slowing job growth and stock market declines. The Associated Industries of Massachusetts Business Confidence Index (BCI) edged off three-tenths of a point in May to 56.8, but remains 5.1 points above its reading in May 2011.
“What is evident is a lack of sustained upward momentum in the economy, even though business conditions and business confidence have improved over time,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc., the chair of AIM’s Board of Economic Advisors (BEA).
Employers in Massachusetts, where the 6.3 percent unemployment rate stands nearly two points below the national average, plan to boost wages at about the same rate as companies around the country. The General Wage Report finds that those employers planning to provide salary increases have a 2012 merit increase budget of 3.0 percent (2.55 percent when factoring companies not providing increases), showing a continued upward trend since 2009 when reported merit increase budgets were 1.7 percent.
National survey data for planned merit increase budgets fluctuates between 2.8 percent and 3.0 percent. The Economic Research Institute reports budgeted merit increases at 2.8 percent, Mercer Consulting reports 2.9 percent and the Hay Group reports 3.0 percent. Three years ago these national numbers barely reached the 2 percent mark.
Only 11 percent of respondents to the AIM survey implemented a pay freeze last year, compared to 66 percent in 2009. None of the 2012 survey respondents reported plans for a hiring freeze this year, compared to fourteen percent of survey respondents in 2009.
Growing confidence is changing behavior on the employee side as well. In 2009, survey respondents reported that 4.5 percent of employees voluntarily left their positions. This year, respondents report a 2011 voluntary turnover rate of 7.8 percent.
As employees increasingly look to outside opportunities, it will be necessary for employers to focus on retention strategies. Survey results indicate an awareness of this need. The percent of companies concerned with communicating the value of total compensation, for example, has nearly doubled over the past three years from 26 percent in 2010 to 50 percent in 2012.
Survey responses indicate that employers will focus retention efforts in 2012 on top performers. Forty-six percent of employers are concerned about focusing compensation on high-potentials.
The job-market shift is prompting long-term changes as well. Companies are reviewing their current compensation packages and gradually increasing the money spent on performance incentives. Companies are advised to monitor their turnover and consider any budgetary impact these factors may drive. You may not want to lead the market direction, but failing to keep up with the market will impact both your ability to attract and retain staff.
Massachusetts may be outperforming the rest of the country economically, but Bay State employers appear unconvinced that the time is right for significant salary increases.
The annual AIM Human Resource Practices Report released this morning indicates that companies throughout the commonwealth are planning smaller salary increases for 2012 than their counterparts around the nation. Massachusetts employers predict salary increase budgets in the 2.53 percent to 2.8 percent range, while a recent Culpepper survey revealed salary budgets across the U.S. are projected to increase 2.92 percent to 3.01 percent.
The cautious approach to compensation comes despite the fact that more than two-thirds of the 368 participants in the AIM 2011 HR Practices Survey report business conditions as good to excellent. Twenty-seven percent report fair conditions and 5 percent report business as poor in a state where the unemployment rate of 7 percent remains well below the national jobless rate.
Two-thirds of employers who participated in the survey plan to increase salary ranges in 2012, with an average increase of 2.8 percent. An indication that caution remains the watchword is the fact that one in four companies plans to reduce, freeze, or delay salary increases this year. Only one percent of companies plan to eliminate the 2012 salary increase. These numbers are virtually unchanged from 2011.
“Companies are trying to create human resource strategies that make them the employer of choice in a hiring market that is substantially more competitive than it has been over the past several years, while at the same time dealing with an economy that continues to put financial pressure on the business community,” said Sandy Reynolds, Executive Vice President of the Employers’ Resource Group at AIM.
“The sluggish recovery coupled with spiraling health-care costs have squeezed the resources companies have available."
The Human Resource Practices Report analyzes data from 368 Massachusetts employers spread almost evenly throughout the commonwealth. Forty-seven percent of participants were manufacturers, with the majority having fewer than 250 employees.
A few highlights from the report:
- In 2011, 75 percent of companies paid incentives at or above target to their executive and exempt level staff, compared to 60 percent in 2010.
- Employers looking to control the escalating cost of health insurance are evaluating the types of health plans offered to employees, and the cost-share arrangements of those plans. A small number of companies have moved to Tiered Network Health plans and Limited Network Health plans.
- Employers use a mix of techniques to source qualified candidates, with the use of technology taking center stage. One out of every two job openings is advertised online.
- Employers have apparently embraced work-schedule flexibility.
Last weekend’s freak snowstorm disrupted hundreds of businesses. Some closed. And some workers couldn’t get to work, leaving employers trying to figure out who should be paid and how much.
Massachusetts regulations define reporting pay this way: “When an employee who is scheduled to work three or more hours reports for duty . . . and that employee is not provided with the expected hours of work, the employee shall be paid for at least three hours on such day at no less than the basic minimum wage.”
What does it mean to your company? Here are specific examples:
- A non-exempt (hourly) employee reports for work, but the company is closed - The employer must pay the employee at least $24 in wages (3 hours x minimum wage).
- A non-exempt employee reports for work, the company opens for a short period and then closes - The employee must be paid actual wages for time worked and minimum wage for remaining time, up to 3 hours.
- A non-exempt retail employee reports for work on a Sunday (law requires 1.5 times base pay for Sunday and holidays) - The employee must be paid at least $36 (3 hours x Sunday minimum wage of $12 per hour).
- Exempt employees - Employers may not deduct time from an exempt employee’s pay when closing early due to the weather. Any unauthorized deduction runs the risk of losing exempt status.
Managing the issue
Many companies find it too difficult to rely on managers to reach all employees in a timely fashion before they report to work. Employers wishing to avoid this problem should consider establishing a phone message loop and require that all employees call into the message system before leaving their house if there is a risk of closing due to the weather.
Put the requirement in your handbook and make sure all employees are aware of it. And then enforce the rule. That means that if someone ignores it and reports to work when you were closed, you will owe the employee show-up pay, but you may also discipline the employee for violating the policy.
Alternatively, employers should use local media (radio and television) to communicate that they are closed. While you may also post the closing notice on your Web site, remember that asking employees to check the Web site/email prior to leaving for work may invite requests to be paid for that time by non-exempt employees.
Addressing employee morale
Although an employer is required to pay only minimum wage, many companies elect to pay employees their actual wage for the three or four hours (half day pay) in the interest of employee relations. Most AIM members pay more than minimum wage.
How do most employers deal with wages foe weather closings? According to the AIM’s 2011 Statewide Compensation Survey:
- 34 percent of employers pay four hours, with most paying regular wages;
- 28 percent pay 3 hours, with most paying regular wages;
- 15 percent pay more than four hours, with most paying regular wages; and
- The remaining 23 percent report other pay practices.
If a non-exempt employee wants to be paid for the balance of the day (5 hours), allow the employee to charge paid time off to make up for the lost pay.
The ground is firming underneath the economic recovery.
The 2011 Associated Industries of Massachusetts HR Practices Report released today finds that Massachusetts employers believe the job market is shifting, even though unemployment remains high at 8.2 percent. Employers are reversing two years of salary freezes, furloughs and benefit reductions in an effort to attract and retain key employees in an increasingly competitive hiring environment.
- Employers budgeted average wage and salary increases of 1.7 percent for 2009 and paid actual increases of 1 percent;
- The 2010 AIM Annual Wage Report found that employers expected to raise salaries and wages 2.1 percent this year and paid actual increases of 2.5 percent.
- Employers are now budgeting increases of 2.45 percent for 2011. Exclude those companies planning to freeze wages and the projected increase totals between 2.6 and 3 percent.
- Sixty-one percent of employers report current business conditions are good to excellent.
And fewer companies are keeping wages level or reducing them to shore up the bottom line. The percentage of companies planning compensation freezes for 2011 dropped to 11 percent from the 24 percent who anticipated freezes for 2010, while the share of companies expecting to reduce pay declined from 10 percent to 6 percent.
The results paint a picture of employers growing confident in the economy and taking steps to ensure that their compensation plans remain competitive as the two-year-old buyer’s market for talent begins to shift. The stakes are high for employers - job seekers who have spent the past 24 months trying to scratch out a single employment offer increasingly report having the choice between two or more offers from companies seeking to build market share during the recovery.
Companies are also stepping up training and aggressively using electronic recruiting to gain an edge in maintaining and hiring key workers. More than half of all recruitment now takes place online, with companies moving beyond large job portals such as Monster.com and CareerBuilder.com and into social media environments such as Facebook and LinkedIn.
The 2010 Associated Industries of Massachusetts General Wage Report confirms that the Massachusetts economy has started to grow again and that compensation has re-emerged as a business priority.
After multi-year salary freezes, companies are assessing the competitiveness of their compensation programs to ensure retention of critical talent and the ability to recruit the people needed to meet business opportunities.
The most important result of the survey is that employers are hiring again. More than half of survey participants are filling open positions, while only 3.5 percent report a hiring freeze. Few companies are freezing salaries, delaying salary increases or cutting compensation in 2010.
Other positive signs include the restoration of overtime hours, second and third shift operations and internal promotions. Half of the employers who previously implemented furlough programs, reduced or eliminated bonus programs, or cut work hours during 2009 have restored operations to former levels.
The survey finds that Massachusetts employers plan to grant average merit pay increases of 2.1 percent for 2010. The actual pool varies significantly by company - 40 percent of employers report a merit pool budget of 3 percent, 27 percent have established no merit pool and a handful of companies are taking a more aggressive stand and have budgeted anywhere from 3.5 to 5 percent.
The bullish approach to compensation reflects steadily growing confidence in the economy during the past year among Massachusetts employers. The AIM Business Confidence Index surged into position territory for the first time in two years during May and has risen in 13 of 15 months since hitting an all-time low in February 2009.
Good news indeed for a Massachusetts economy still running at 9.3 percent
unemployment during the early and sometimes uncertain phases of
One thing is clear. The picture is very different from one year ago.
Massachusetts employers spent 2009 walking a tightrope between the need to control benefit costs amid a recession and the need to maintain a competitive benefit structure to retain key people. Get ready for a similar high-wire act in 2010.
AIM's newly published 2010 Benefits Survey Report finds that the global economic downturn dominated benefits practice during 2009. Ten percent unemployment, declining sales, and the increased cost of doing business pushed companies to their limits. Employers responded by freezing salaries, instituting furloughs to reduce labor costs and looking hard at employee benefit programs to find ways to carve out cost.
There is little dispute that the cost of employee benefits cuts into the bottom line. The good news is that despite the poor economy, employers recognize the importance of competitive benefits as an integral part of overall employee compensation.
Experts say that while the economy is healthier than it was a year ago, it still faces an uncertain journey toward recovery during 2010. The economy has resumed growing, but a turnaround in the employment market remains months away and the jobless rate is expected to remain near double digits.
"We've been stabilized, and moved from intensive care to the recovery floor of the hospital, but we're still in the hospital," says Raymond Torto, Global Chief Economist for CB Richard Ellis Group.
The sluggish recovery will keep the pressure on employers to maintain employee benefits in the face of strained earnings, flat investment results and the rising cost of health insurance. Ninety-five percent of companies cite controlling health insurance costs as their benefit priority for 2010, and many expect to continue shifting premium and deductible costs onto employees as national health reform lurches forward in Washington, D.C.
At the same time, employers know that too many reductions in benefits may leave them vulnerable when the recovery accelerates late in the year. Welcome to the tightrope.