Practical HR advice on new overtime and non-compete rules (featuring Patrick Rogan)

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Chip Griffin: Hello and welcome to another episode of Chats with Chip. I’m your host, Chip Griffin, the founder of SAGA, the Small Agency Growth Alliance. And I’m, I guess I would say I’m delighted to have with me Patrick Rogan of Ignition HR, a great mind when it comes to all things talent related to agencies. And it is a pleasure to have you here, Patrick.

I’m not sure it’s a pleasure to talk about regulatory issues, but that’s what we’re going to be doing today.

Patrick Rogan: Well, it’s kind of like going to the dentist. No one wants to go, but if you don’t, it’s just going to hurt a lot more later. So that’s, that’s why I’m here.

Chip Griffin: Yes, absolutely. So we’re going to try to make it hurt less and we’re going to talk about new federal regulations around non compete agreements with your employees as well as around overtime pay. And we’re going to start with non competes because I think that should be a little bit easier and Patrick and I have both been of like minds for many many years which is giving advice: don’t do non competes. Don’t, don’t have it as part of your arsenal, but we’ll elaborate on that and share what you need to do in light of this new, regulation for, or I guess ruling from the Federal Trade Commission.

Patrick Rogan: Yep. I’m looking forward to it.

Chip Griffin: So, so what has the Federal Trade Commission done to American businesses?

Patrick Rogan: Well, regarding non competes, they’ve outlined a process, 120 days after it’s filed, where it will effectively be illegal to have non competes with employees you’re going to hire, employees you have, contractors, independent consultants they basically are saying that, this will be wiped out.

No more non competes. and when we say non competes, let’s be really clear. What we’re saying is that we’re not allowing employees with a non compete to typically work for a competitor of ours – depends on how it’s working, but it’s more about going to one of our competitors. Which is different than other things that we’re going to be talking about in a little bit more that kind of get more to the meat of what’s important. But that that piece in particular assuming the courts don’t overrule this which You know, who knows what’s going to happen.

that’s the piece, that’s changed.

Chip Griffin: And I think that’s an important caveat. Both of these decisions and regulations are facing strong opposition, shall we say. Yes. And the courts and or Congress may step in. Public pressure may cause decisions to be changed. Who knows. But this is what appears to be taking effect and I think it’s important to plan in both cases as if these regulations will take effect because it’s a lot easier to back off on whatever plans you might have than it is to scramble at the last second to figure out what your solution might be.

Patrick Rogan: Yeah, and also it’s a great time to take a look at what do you have in place right now. On the day this came out, I was talking to one of my agency clients who are like, Oh my gosh, we can’t do non competes anymore. And this is going to be a huge change for us. And, and my response to that was, well, you actually, you don’t do non competes. You do non solicitations. And they’re like, no, no, we, we, we do. And I’m like, no, you don’t. Let’s look at it. Right. And they’re like, I thought that was a non compete. No, you’re good. You have a non solicitation. That’s fine. Right now. Stick with that.

Chip Griffin: We’ll come back to that in a minute, but I think that I do want to underscore one of the things that you said, that I think has been glossed over in a lot of the media coverage, but it’s really relevant to agencies, which is that this applies to independent contractors as well as employees.

Yes. And so, so you need to look at those agreements as well, not just your employee handbook or employee agreements. It is absolutely applicable to independent contractors, which is a place where even agencies that have gotten it out of their employment agreements, I have typically seen often still keep it in their independent contractor arrangements.

No go. Can’t do that. The other thing is you need to understand that these are retroactive to previous employees. So it’s not just, it’s not just people who will work for you today or in the future. If you have this with someone who has already left your agency, unless it’s already the subject of, of court action,

 then it’s gone, too, assuming these rules hold up.

Patrick Rogan: Yeah. The only exception, is there is a carve out for some highly paid senior level employees.

That’s a, that’s a small piece of it.

Chip Griffin: Yes. I mean, there are exceptions, you know, we always encourage you to talk with someone about your specific circumstances, whether that’s an HR advisor like Patrick or a lawyer, or somebody who can help you evaluate the specifics of your circumstances. But the vast majority of agencies don’t have individuals who are going to be exempt.

It also applies to partners within your agency in most cases. So just, just because someone’s a co owner doesn’t exempt them, from being able to be submitted to a non compete. The one place where non competes do appear to still be permitted will be in the case of you selling your agency, there can still be non compete covenants in the purchase and sale agreement, that takes, that takes effect there.

So that is, that is what, but the vast majority of you aren’t going to be selling your businesses anytime soon. So that’s, that’s not really a major consideration for you today. But so, so, so explain the difference between a non compete and a non solicitation agreement, because this is, you and I have advised going the non solicitation route, which appears that this new decision is silent on non solicitation, but the current legal analysis that I’ve seen, and I don’t know if you’ve seen anything different, seems to suggest that non solicitation probably will survive at least for the moment.

Patrick Rogan: That’s what I’m reading as well too, and I’m hearing as well. I think we should keep an eye on non solicitation. But when we say non solicitation, we’re primarily talking about something that comes in two flavors. The first flavor of non solicitation is if you leave our company, you’re not allowed to take any of our clients with you

for a period of time. And typically I recommend that be limited to clients that the employee worked on. that’s probably the norm. In some cases, it’ll be a little bit broader than that, any client that the company did business with a little bit harder to, enforce. But you know, but I’ve, but I’ve seen it both ways and usually it’s for a time period prior to the termination.

So probably 12 months is probably the typical one I would see. So if you leave our organization, if you leave our company, you can’t solicit work from any of our clients or any clients you worked on that were for a period of time, usually 12 months, that’s flavor A. Flavor B is, if you leave our company, you can’t hire any of our employees out.

And I think they’re both important, to have in place because it does kind of protect the company. I’ve seen it happen many times. And they need to be written in a, in a way, you know, I’m not a legal person. I’m an HR person, but, typically you want the document sort of buttoned up that they cannot hire anyone or calls anyone to be hired.

So they can’t call their headhunter friend and have their headhunter friend call their person and then, you know, and do a triangle thing. That doesn’t work either. So it’s important that it be worded correctly. But those, those are the two flavors that I tend to see with non solicitations.

Chip Griffin: Yeah. And I think both are important and valuable.

I think that they need to be carefully tailored, you know, narrowly tailored, you know, not, not any agency, any client the agency has ever had, whether you know about them or not, not, you know, for perpetuity. I mean, you do want to put some frameworks around it because that A, makes it more enforceable and B, frankly, it makes it more understandable, from the, the employee’s perspective.

I do believe that in both cases, Even though you have these provisions, I would generally try to avoid enforcing them directly and instead use them as leverage to negotiate some kind of an arrangement. So if you have an employee who leaves and a client wants to go with them, then fine, work out a deal where you get a referral fee or something like that.

Same thing. I mean, a little bit less so if they want to poach employees, I mean, that’s a little bit more challenging, particularly if they’re, if they’re just trying to strip you know, a lot of your talent away, but still, if you’re forcing someone to stay because of a legal document that you have, that’s going to backfire you in backfire on you in the end. Even if one employee leaves and they want to take three other folks with them to go start their own business.

You might be able to enforce that, but now you’ve got three disgruntled employees working for you who would rather not. You’ve got a past employee who has already left. They’re even unhappier about you and will badmouth you all around town. So, is it really what you want to do? But having those documents allows you to have an adult conversation that says, Hey, I could block this if I want.

I don’t want to. I want to try to come to an arrangement. And usually that will work out.

Patrick Rogan: The strength of a good non solicitation is it sets an expectation for future behaviors. And in essence, when you make it clear that this is against the rules, you can’t take our clients, you can’t hire employees when you leave. We make that clear before you even start working for us.

It just prevents it from happening. Like, you know, the, the strength of it isn’t what happens after it does happen. It’s still going to be messy. And to your point, you need to figure out a way to kind of gracefully get through that. But what I, what I’ve observed is it just tends to prevent that bad behavior from happening in the first place, which is kind of what you want, which is why you want it fair, which is why you want it concise.

You want it clear and set expectations and make sure people understand.

Chip Griffin: Yeah, and look, ultimately, agencies need to treat their employees well, they need to treat them fairly, so that they’re not inclined to go out and try to screw them over by stealing clients or employees, right? So, so part of this comes down to, if this is something you’re really worried about, ask yourself, why?

Are you hiring untrustworthy people?

Patrick Rogan: Mm hmm.

Chip Griffin: Are you, are you not treating them well? So you think they’re going to want to run away at the first chance they get? I mean, think about why you really feel like you need something that strong in there and solve that problem rather than putting together a legal document that puts, you know, unfair handcuffs on people.

Patrick Rogan: Yeah. I would say if your employees are regularly leaving, whether it’s to go to your clients or to steal your clients or to hire your employees, maybe the first place to look is what are things you can do to give your employees incentive to stay in the first place? That way we, we don’t have to deal with so much of that.

Chip Griffin: Well, and your clients.

Patrick Rogan: Yeah, for sure.

Chip Griffin: I mean, if you haven’t built a strong enough relationship with your clients that they want to go anytime an employee leaves, that’s a problem too. So in any case, I, you know, I think, I think the bottom line is stay away from non competes regardless of what happens with this FTC decision.

For sure.

Focus on non solicitation, focus on confidentiality and reminding departing employees of their obligations regarding trade secrets and returning information. Those things haven’t been gotten rid of. Those are all still there. So, rely on those kinds of protections rather than non competes anyway.

And then you won’t even have to worry about whether this gets struck down in the courts or not because you’re already on the side of the angels.

Patrick Rogan: The other thing I see is when I hear the complaint from clients in terms of the need for these types of agreements is well, you know i’ve invested in these employees if they leave and take that to one of my competitors then I lose that investment. And if that’s something that really bothers you, you can create clawback agreements so that if you provide specific training for employees and they leave with the next months of the training They would have to pay you back a percentage of that.

I mean, if that’s something that really bothers you, that’s one way you can address that, but a non compete isn’t really going to fix that.

Chip Griffin: No. And I would still advise against those kinds of provisions. You certainly can have them, but I mean, they’re just, again, it, it sends the message to your team that you don’t trust them, that you think they’re basically stealing from you and they’re going to leave as soon, I mean.

I shoud, you want to go into it assuming the best of your team. And if you can’t assume the best of your team, your hiring practices need some help. Right. For sure. You can talk with Patrick about that too. I’m sure you can help with that. But, but now let’s, let’s move on to the, the, the rule that I think is, has the potential to impact a lot more agencies in a lot more meaningful ways and something that you really need to give some thought to how you prepare.

And frankly, as you’re looking at both of these issues, I would say it’s a great time for you to be looking at all of your HR policies and procedures. I mean, I’m not trying to, you know, turn this into the full employment for HR consultants role show, but, but that really is something. The fact that these both came out in the same week is It’s a wake up call to a lot of agencies that probably haven’t looked at handbooks and policies and agreements in many, many years and they probably didn’t give it a lot of thought even when they first put it together.

So now is a good time, as you’re looking at non competes and overtime rules, just take a fresh look at everything. See if there’s anything else that needs to be tweaked because there are a lot more rules and regulations that have taken effect in recent years that are more employee friendly and they’re not just at the federal level, they’re at the state level and I expect we’ll be seeing even more of these In the months ahead.

Patrick Rogan: So I totally agree.

Yep.

Chip Griffin: So, over time.

Patrick Rogan: Yeah.

Chip Griffin: What is First of all, I think a lot of people are confused when you talk about exempt employees. They don’t understand like an exempt employee What does that mean? And that’s most of these regulations are written around fancy terms that that are, I don’t know if they’re intentionally confusing, but they’re more friendly to lawyers than they are to lay people, which is why instead of talking about exempt employees, I just talk about overtime rules because that’s the practical impact.

But explain how overtime works and what the change is.

Patrick Rogan: Sure. So the Department of Labor enforces a law called the Fair Labor Standards Act. And what that law does is it requires All employees to be paid overtime for hours over 40 per week unless they fit within several defined categories, at which case it’s okay to pay them a salary for all hours worked in a week.

By the way, if you’re paying someone a salary, And they work 20 hours a week. You still owe them their full salary. So you, there’s two sides to that, but, but it’s so that the, in the agency world, well, there’s a, there’s an executive exemption, there’s the administrative exemption, there’s a professional exemption, which cover, you know, more than 90 percent of employees who

are eligible for exemption, and it’s the professional exemption is the one that applies most to agencies. And, you know, currently, there’s a, you know, there’s a, minimum amount of salary that has to be paid. It’s very low. It hasn’t changed in a long time. Right now, it’s just a little over 35, 000 a year.

And what we’re, what will be changing, unless this goes back to the courts again, is, that’s going to bump up effective July 1st to 43, 000 and change, but most importantly, in January 1st, that’s going to bump up to, over 58, 000. So that’s something we’re going to probably need to talk about.

Chip Griffin: So there are, there are essentially three questions then that need to be asked, right? Did an employee work more than 40 hours a week, right? Correct. And it is, it is 40 hours. It’s not whatever, if you set a 37 and a half hour work week for your agency, you don’t have to pay for hour 38, you have to pay for hour 40, right?

So, so, That’s the first thing. If nobody works under 40 hours, yeah, you’re not going to have to pay overtime.

Patrick Rogan: Right.

Chip Griffin: If they work over 40 hours, that first test that you suggest is what kind of work are they doing? And the vast majority of particularly small agencies in 2024, the professional exemption is going to apply.

Still work. You know, working with your HR advisor just to make sure you don’t have anybody on your team, or you don’t have some kind of a business model where you have somebody who wouldn’t qualify. I don’t know very many small PR marketing agencies that have anyone on, on staff these days that wouldn’t qualify.

I mean, 20 years ago, you had secretarial support or things like that. You know, that would have qualified for overtime in most cases, but today that’s not the case. Everybody does all of their own clerical work. So we’re all professionals.

So then the real thing is this salary number. And as you say, the 35, 000 number hasn’t changed in a long time.

The vast majority of even small agencies are paying full time employees more than 35, 000 these days. So frankly, you know, It’s been a while since anybody has even given any thought to overtime. Probably the last time was eight years ago. If your agency was around eight years ago, hopefully you were thinking about how to deal with it then because this same attempt was made or a similar one was made in 2016.

And I remember working with you, Patrick, on this, for some agency clients trying to figure out how we can solve this problem.

Patrick Rogan: Right.

Chip Griffin: And at the last second, it went away. We cannot assume that this one is going to just go away at the last second. So we need to prepare So that’s my question. What do we do to prepare for the fact that it’s going up to assuming these hold 44 000 or so on July 1 which is less than two months or two months exactly Right very very close. But I think that’s an almost irrelevant number because that’s, to me that’s just for political purposes so the Department of Labor could say well, we’re doing it in you know in gradual steps. But the next step is January 1 which is seven months away.

And that’s a very substantial bump to 58, 656 a year as the minimum salary in order to not think about overtime for somebody, right? There are a lot of small agency employees for sure less than that. So what do we do today? What if you’re, if you’re sitting in the owner’s chair or an owner calls you up, what do you tell them they should be doing, here today in May of 2024?

Patrick Rogan: Well, there are multiple steps to this. and it’s a little bit tricky. So, I’m not aware of any agencies that are, that are paying employees, a salary of 35, 568, which is the official minimum salary right now, most are in the neighborhood, of the July 1st for entry level, let’s say for entry level employees.

43 888 is the number, getting that up to date by July 1st. I’m not really worried about that. That’s kind of, you know, for 99 percent of agencies out there, I think they’re probably pretty close to that anyway. That’s a rounding error. to your point though, January 1st, that’s significant. If this goes through, this is, you know, upwards of 59, 58,656.

That could be a significant increase, for exempt employees. And I think it’s going to be important for employers to be very careful about how they approach this. So, so there could be some employees that maybe they’re going to change them to non exempt status. So they are overtime eligible and maybe they will just work 40 hours a week.

in other cases, they’re going to need to, to increase to that salary level. And it’s not just the employee who’s getting, you know, eight or 10, 000 or more increase, there’s the downstream impact of that. So like, if you’re normally bringing in today. Let’s say you’re bringing employees in at 44, 000 and the July 1st means nothing to you.

So typically after a year, you would bump that up to what, maybe 48 or 50, 000. So you’ve got people who’ve got, you know, a year’s experience. Or even two years experience. They might still not be at the January 1 level of, of almost 59, 000. So, all right, so we, we’ve got our, our, all our entry level hires.

We’re going to bump them up to 58,656, January 1st. We can meet that, but wait a minute. What about all the, all the employees you have a year or two experience? Are you going to, are you going to pay all your employees the same, the same salary? Obviously. So that’s, that’s where it gets a little bit tricky and that’s where it’s going to take a significant amount of planning to make sure that we begin right now, figuring out how we’re going to approach this.

What do we need to do? Easy, I think, relative to your most for July 1. But for January 1, if that goes through, we need to be careful that we’re prepared that has approached that really impacts not just those employees who are below, but all the, even the ones who are above, is there going to be a differentiation in how you’re paying your employees?

And we also have to be careful. We’ve been down this road before, where we almost got to the 11th hour. And then they said, no, we’re not going to do that. In which case I did have clients who had actually already made changes. And they were like, okay, well, I guess we’re prepared for when it does come through.

So that’s we’re going to keep that in the background too. So this is tricky.

Chip Griffin: Because it was eight years later. So all those employees are being paid either a lot more or they’re not even there anymore. Right. Yeah. But, but yeah, so the, the absolute easiest is just to get somebody up above that number. Right. Because then you don’t have, you know, you can keep them as exempt and you don’t have to worry about it.

And so, as you say, for July 1, I think the vast majority of entry level employees, even at small agencies, are over 40 now. So if you’re within a couple of thousand, just move them up. Just go to 44 and call it a day and buy yourself the breathing room to look ahead to what to do on January 1st. So that way you don’t have to rush into anything in the next few weeks.

And in general, I think for, for either of the deadlines, if you’re, if to get someone clear of, non exempt status and, and, and avoid paying overtime, if it’s less than a 10 percent bump in their pay, that’s, that’s, that would, I would use that as the rule of thumb. It’s probably best if it’s, if it’s a single digit percentage increase, just give them that.

And it makes it easier for everybody involved. Because overtime is, you know, it, it takes some calculation to do. It takes paperwork to actually make it work regardless of whether or not you’re going to pay it right. Even if you say we’re not going to let you work over the 40 hours a week, it still requires a lot more process.

And we’ll talk about that in a minute, but, but I love that you pointed out that you need to think about what the downstream effects are, because you and I have talked a lot in previous forums. about the importance of having proper salary bands within your agency to make sure that you’re paying people equitably, that you have a path forward for them from a career progression standpoint, that you avoid, you know, any, any issues around equity problems because you are paying one class more than another.

And if you, if you have salary bands that define roles and appropriate salaries for that. You’re much more likely to be in the right place and paying everybody fairly and giving people those paths forward. So you need to think about that, particularly if you’re doing more than a 10 percent bump, right?

Cause anytime you’re giving a group of people more than 10%, now you probably do have a meaningful downstream effect. 5 percent you probably can wiggle it within your existing system. 10, 20, 30 percent now you’ve got a huge problem. And you don’t want to be taking someone from 42, 000 today to 60, 000 on January 1, just to avoid having to deal with overtime compliance.

That doesn’t make a whole lot of sense, either from a business perspective or from what it does to the rest of your organization.

Patrick Rogan: Yep, I totally agree. And salary bands, we’ve talked about this before, they’re coming whether we want it or not. You know, a number of states already require putting salary ranges for postings.

Maryland and D. C. will have passed effective this year, D. C. I think it’s July 1st, and Maryland I think is October 1st. Colorado was sort of the first one to jump in on the bandwagon, so it’s coming. We might as well get the salary bands done whether we want to or not because we’re gonna have to.

Chip Griffin: Well all of these things are coming and you know whether it’s non competes or new overtime thresholds because it’s not just the federal government that can get involved with these. State governments can and are. I mean California for a long time has had more stringent regulations around a lot of things including prohibiting non competes.

I mean that’s been in place for a long time Right. And we’re seeing more at the state legislative level where they are, they are following California’s example. And I think because both of these issues are getting attention, even if they are stopped at the federal level, you’re likely to see more state action.

And because many listeners have employees in multiple states now, because post 2020 hybrid remote agencies have become the norm. So you hire the best talent, wherever it is. You might as well comply with the most stringent standard you’re going to have to deal with rather than trying to figure out, well, Sally gets this set of rules and Joey gets that set of rules, because that’s confusing for you.

It’s bad for team morale. So just figure out what the toughest is you have to comply with and comply.

Patrick Rogan: That’s my total recommendation. I think Oregon jumped on the bandwagon too. But yeah, just, just make it fit the, the hardest one, and that way you’re done. You don’t have to go back and redo it again.

Otherwise you’re, you’re all over the board. And then, you know, you wanna make sure from an internal equity perspective, you have some rhyme and reason, you know, that isn’t, tied up to state litigation or federal litigation. You, you want to, you have a business you gotta run. So make sure you have consistency and and if you make it consistent with the hardest one out there, that usually works out to be easier for everyone in the long run.

Chip Griffin: Yeah. And if you are making these bumps to avoid overtime, you also need to look at what, what’s the impact on your agency’s pricing. A lot of times we give employees raises and we don’t think, I mean, whether it’s for this or anything else, we don’t think about what does it mean for prices to existing clients or new business.

And so as you pay your team more, which everybody’s having to do regardless of these rules, right? I mean, everybody complains to me, Oh, gee, some entry level employees cost so much more today than they did 20 years ago. Well, yeah, there’s inflation and all that kind of stuff. So it happens whether we like it or not, but you need to be updating your pricing at the same time and making sure you understand that impact. But let’s, so let’s say, let’s say we come to January 1, Patrick, and, and we’ve got some employees.

We’re just not going to pay them 60, 000 just to, to avoid the headache. We have to have them at a more reasonable salary. That’s more appropriate to the work that they’re doing and how we can price it and all that. So what do I need to be thinking about if I, because I haven’t been thinking about overtime.

I haven’t been thinking about the record keeping around it or the policies for approvals and pay and all. So what do I have to be thinking? What are the key things that I need to be thinking about in preparation for that?

Patrick Rogan: So if we’re going to have employees. that on January 1st are going to be non exempt.

So we’re going to, they’re going to be overtime eligible. One of the things I see is, well, we’re just going to say there’ll be no overtime. And so, so there, and there are two flavors of that. So there’s, there will be no overtime and we don’t want you to work over 40 hours a week. So that’s one. The other one I see is.

There’s going to be no overtime pay and, and you’re not expected to work any hours over 40 wink, wink, nod, nod. That’s not good. That’s not good because the onus is on the employer. So if you say there’s going to be no overtime and you know, your employees are working overtime or if you say there’s no overtime and you’re not aware your employees are working overtime, you still owe them for overtime. And probably interest in penalties and all that kind of stuff on top of that there.

So it’s not like, we can say, you know, well, I wasn’t aware. We have to be aware and we need to have the systems, tools, and processes to make sure, we are aware. And it’s probably a pretty good idea to know how many hours your employees are working anyway. Like it might be you know, like if you want to determine profitability or things like that I mean probably would be a best more your area than mine, but You know, that probably is something that, that would be good to know.

Chip Griffin: I’m a staunch advocate of timesheets regardless of overtime, but with overtime, they start to take on a different level of significance, right? So it’s, it’s not just, you know, kind of, do your best to figure out some timesheets and give me something that I can kind of work with. And, and I I’ve shared the story previously that, that when I was a junior account executive, I lied on my timesheets all the time to give the employer what they wanted, not from an overtime avoidance perspective, but from the perspective of, you know, We’re only supposed to work so many hours on certain clients.

People will report what whoever is seeing that report wants to see. Right. I didn’t want to get yelled at by the client for not doing the work. And I didn’t want to get yelled at by my boss for, for working too many hours. So I just made the timesheets work so that they made everybody happy. You can’t have that.

And I think that you’ve done a good job of explaining that the burden of proof is on you, the employer, right? To make sure that there is compliance. Wink and a nod does not hold up in court. Never has, never will. And, and you can’t just stick your head in the sand and claim ignorance that you didn’t know, right?

You need to be taking proactive steps to be able to demonstrate that to the best of your knowledge and you put in your due diligence, nobody was working over 40 hours.

Patrick Rogan: And when push comes to shove and you get asked the question, how did you clarify that your employees, you made a change effective January 1st or right before then, how did you clarify that your employees were eligible for overtime pay?

How did you make that clear? Give us examples of that. And I want to see that documentation. It was like, well, we just had a conversation and you know, everyone pretty much… no, no, no, no, no. So that’s not going to work.

Chip Griffin: Right. So the first thing you can do is you can say, look, overtime is not authorized in any case, and we’ve got to document it.

So for that documentation, timesheets that you collect on a weekly basis and hold on to, as long as you believe that they are accurate and you’re not playing any games, that presumably is sufficient documentation. How long do you need to keep that documentation for? What’s the best practice there?

Patrick Rogan: In general five years, but ten if there’s going to be some type of litigation. So ten’s a good rule of thumb.

Chip Griffin: So basically it’s electronic. Just keep it.

Patrick Rogan: Yeah, just keep it. Yeah, just keep it

Chip Griffin: Just keep it, there’s no downside. Make sure that if you switch time tracking platforms, you download a copy of it so you’ve got it so that if someone comes to some disgruntled employee, ’cause all of these come about usually by disgruntled employees, right?

That’s how it normally works.

You have an employee who is unhappy with you, whether it’s current or former employee, they file a complaint and that’s how these things come to light. So, you know, it behooves you again, to treat your employees well so that they don’t want to do that to you. But okay, so we’re, so we’re, we’re documenting it.

We’re saying you can’t do it. So that’s, that’s policy A, policy B is. You can only work overtime, but you need prior authorization for it. And I would encourage you never allow employees just to work overtime on their own. Right? So to me, it’s either ban it and document it or it’s allow it, document it, but require pre approval so that at least you’re not just being surprised by someone saying, I worked 80 hours last week.

You got to pay me for it now, right? There needs to be a level of authorization that takes place in advance.

Patrick Rogan: And if you do the option your option, I guess we’ll call it B there with with prior approval for overtime You can manage that right? You can you are in charge of managing how much overtime there’s going to be and there may be enough profitability that that it it totally makes sense. And it does kind of fit a little bit more of the real world test. Like even if your employees just work a little bit of overtime and this goes to litigation and you’re keeping good records and you do some overtime in certain cases and other cases there’s no overtime versus you just made this blanket policy that said no one ever does overtime.

How realistic is that? Maybe it is, but you know, did it meet your business needs? Did it meet your employees’ needs? And is it going to pass a litmus test if this goes sideways?

Chip Griffin: So, so require that prior authorization, and, and it does, as you say, it allows you to manage it. The other thing that you need to think about then is how you calculate it, right?

Because I, and for most agencies, it’s, it’s relatively straightforward, but there are some potential gotchas, particularly if you have employees who, you know, who are doing some form of sales as part of their role, and they’re getting some commissions, because that needs to be factored into overtime pay calculations, correct?

Patrick Rogan: Right. It’s the total compensation divided by. You know, 2, 080 hours a year. That’s your, however you calculate that out. But it’s total comp at time and a half.

Chip Griffin: Yeah. So most agencies don’t run into that, but I, but I know there’s a not insignificant number of you out there who do have employees who get commission as a meaningful piece of what they’re doing.

And so you need to make sure that you’re factoring that in to frankly, not just overtime. There are other things, you know, retirement contributions and things like that, where it also comes into play. And so you need to be looking at it there as well. If you’re not already.

Patrick Rogan: And you could typically true that up at the end of the year too, they’ll usually allow that, like, if it gets kind of complicated in terms of how those payouts are usually truing it up at the year is how that’s handled.

Chip Griffin: Yeah, and my general experience with, you know, government auditors and such on things is they’re willing to work with you as long as you’re showing good faith, right? They are not – the vast majority of them, despite all public reputation. They’re not there to get you. Right. If you are trying your best as a small business owner to comply and, and working things through, they’re not going to come in there and pop you in the face if they find out that you, you know, messed up and you, you missed by, you know, 1 percent the number that you were supposed to give somebody, you know, because of an honest mistake.

Right. You know, it doesn’t mean you’re not gonna have to pay for it and pay a fine probably for it, but they’re not, they’re not looking to, to jam you up unnecessarily.

Patrick Rogan: And the more you can prove that you’ve done your due diligence, to your point, it means a lot, you know, it’ll help you there. Maybe it’s a slap on the wrist or just do this differently going forward versus, Oh boy, you better lawyer up.

Chip Griffin: Right. And ultimately, you know, assuming that you go through this process, the actual paying of overtime these days is relatively straightforward. Whatever payroll processor you’re using likely has the ability to pretty easily add this to the next pay period. You do need to make sure that you are doing it in a timely fashion.

You don’t just, you know, Randomly pay overtime whenever you feel like it. There are standards as far as you know when those overtime payments need to be made.

Patrick Rogan: It should be in that check that covers that time period for sure.

Chip Griffin: So that means you also need to be collecting accurate time sheets in a timely fashion, right?

You can’t let someone just do a time sheet at the end of the month if you’re paying twice a month. You need to make sure that the time tracking is matching up with your pay period so that you can pay people properly. And I think this is as good a time as any to mention that the practice that that many owners think they can do where they just give comp time for overtime. That doesn’t fly.

You know, you can’t just say well you worked an extra half day this week I’ll give you a half day off next week and we’ll call it good. No, I mean, honestly, I don’t love that. I think that comp time should be permissible As long as it’s mutually agreed, but that’s not how the law works.

Patrick Rogan: It is not unfortunately Comp time should only be used … in general, I’m not in favor of it anyway, just because it gets, but only with exempt employees, salaried employees would, was the only time I would ever. But for non exempt, you just can’t do it.

Chip Griffin: And I would prefer not to, just don’t call it comp time. Yeah. It’s just, yeah. If you want to let someone take a little bit of extra time off because they’ve been working hard, fine.

Patrick Rogan: Yeah.

Chip Griffin: You know, let’s not call it an exchange of this for that.

Patrick Rogan: Right. Right. Yeah.

Chip Griffin: Any time you’re connecting two pieces together, even if they are exempt, it just gets messier than it needs to be.

Because then, then you create an expectation. Well, every time I work an extra half day, I get an extra half day somewhere. You know, maybe that’s right. Maybe it’s not. I don’t know. But, you know, keep it a little bit more informal when it comes to those kinds of things. if you can. But I think that the most important message that we’re sending here, particularly as it relates to overtime, is you need to sit down and you need to figure out what is your, first of all, what’s your strategy for this?

What, what kind of problem do you have if these numbers do indeed take effect? Can we solve it just by increasing salary? Do we need to put in a proper process and a full overtime payment scheme? And if you do make sure that you’re setting it up in a way that both works for your business as well as complies with the relevant laws and regulations.

Patrick Rogan: And how does it impact your entire team, not just the few that are in, you know, if all of a sudden, you know, half your agency is making the same exact amount of money and, you know, some have eight years of experience and some just started, you know, that, that might be a problem.

Chip Griffin: Yeah. I mean, look, if you’re giving 30 percent raises to a bunch of people on your team, it’s going to cause you problems.

Right. I mean, I guarantee it. If you’ve got only one employee who needs to get a substantial bump, maybe you can find a way to work around that, you know, because if you’re willing to do that, to keep them and avoid overtime, you must feel pretty strongly about them, right? In that case, you know, you can probably find a way to promote them so that they are still being paid within an appropriate salary band.

And it becomes a more effective story to tell that employee as well as others. So, but bottom line, put your plan together, give it some thought. Don’t just go into this willy nilly. Don’t sit back and hope that the courts or Congress will save you because that is a fool’s errand, and, and ultimately will cause you problems down the road, even if it’s not in the next six months.

Patrick Rogan: Yes. Eyes wide open.

Chip Griffin: So Patrick, if someone has more questions, they’d like to talk to you. They’d like to call up in a panic and say, Patrick, I need you to take a look at things. You need to help bail me out. How can they get in touch with you?

Patrick Rogan: Real easy. You can find me at ignitionhr.com. On the lower right hand corner there’s a little box, click it and schedule a Zoom meeting for us.

Chip Griffin: Excellent. And, Patrick is, he’a great HR guy to work with. He can help solve your problems without feeling like he’s an HR guy, if, if you know what I mean. So, in any event, thanks for, for taking the time to help simplify these things, explain them in terms that I think most owners will understand.

It’s a very valuable service and, and obviously we’ll continue to keep an eye on this issue. And if there are major developments, we may do a fresh episode to take a look at whatever changes or adjustments might be in place or whatever that next regulation is, that’s going to be part of your full employment plan.

Patrick Rogan: Or the next two that happen at the same time.

Chip Griffin: Oh, there we go. There we go. I mean, it’s always nice when it happens twice at once. So we can, we can condense it into one episode instead of two red tape episodes. So anyway, thank you for your time, Patrick. Thank you everybody for listening. Again, I’m Chip Griffin of SAGA, and I look forward to having Patrick back on a future show and I look forward to having you as listeners come back for my next episode as well.

Thanks for joining me.