When the new U.S. Department of Labor overtime rule goes into effect on Dec. 1, construction prices could start to rise.
That’s what Norm Brady believes.
The Associated Builders and Contractors Western Michigan Chapter president and CEO said it is natural to believe construction prices might climb as companies will have to pay some of their workers more money.
“I don’t think that it’s a terrible thing,” Brady said. “Employers are just going to have to recognize the potential change and handle it correctly.”
The ruling first made in May set a standard salary benchmark at the 40th percentile of full-time earnings in the lowest-earning census region, the South, which is $913 a week or $47,476 annually. If a worker earns below that threshold and works more than 40 hours a week, an employer must pay overtime wages, unless exemptions are met.
The ruling will affect more than 4 million people nationwide. Those affected in the construction industry likely won’t be out in the field, Brady said.
He said most trade workers in the field are hourly, but for office staff, pay will get tricky. Construction project assistants, administrators and estimators likely will be on a tighter leash when it comes to time worked, Brady said.
Other office positions, such as project managers, likely will stay above the threshold, he said.
“It’s more office workers than the field, for sure,” Brady said. “This isn’t something we’re for, but we do recognize it’s coming and that we have to help get the word out to help obey the law.”
More than anything, Brady said, the new rule will take some time for employers to learn. He said ABCWM will hold training sessions and help employers the best it can.
Among the most important tasks is to evaluate companies’ staff so they understand which employees are exempt and which fall under the new ruling, he said. Once identified, employers will have to decide how to handle the employees and teach them how to “punch a clock, track PTO and have an obligation to pre-approve overtime,” Brady said.
“All of that adds up to changing the relationship, and we think employers and employees will have some difficulty with it,” he said. “In some regards, it will feel as though the employee is being demoted. Before, they had autonomy, the ability to come and go because they got their work done and were treated well.
“The culture will change as the companies have to abide by the rules, and there can be a downside with that when it comes to the relationship employers have with the employees.”
The way the next several months are handled leading to the implementation of the new rule will have major implications for company cultures, Brady said, which is why planning by managers and human resources departments is critical.
“It’s just the awareness, having a plan and making the assessments,” Brady said. “Companies need to give raises to those they’ll give a raise, and those they aren’t, they need to make sure they’re talking to them.
“They’ll really have to watch the morale.”
With raises and overtime pay necessary for at least a portion of the construction industry, those costs will creep slowly into construction prices, Brady said. It will be a slow rise, as most construction contracts are agreed to months ahead of time and jobs often run between six months and two years.
“You’ll see them tick up a little bit,” he said. “It won’t be, ‘Go get your work done before Dec. 1 because after that prices jump.’
“But price of projects will go up, no doubt.”
Brady’s biggest concern with the overtime ruling is it seems to be “one size fits all.”
“It will have a disparate impact on regions where the cost of living is less than (in) other areas,” he said. “Grand Rapids, we’re getting lumped in with Boston, Chicago and the rest of the country. It’s 12 percent less to live in Grand Rapids than those parts of the country.
“This pay gap will be wider for some employers based on this one-shot approach.”