Should an Employer Increase Employee Hours with No Extra Pay?

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May 7, 2015

Reader Question:

The office I work in will be moving from a 38.75 work week to a 40 hour work week. The current thinking is that salaries should remain the same after hours are increased. This doesn’t affect exempt employees so much (most work over 40 hours) but does mean a pay cut for all full-time non-exempt employees; with no salary change and additional hours required, the hourly rate will be cut by just over 3%.

Full-time non-exempt employees are salaried unless they work overtime or take unpaid time. According to payscale.com, the salaries of the full-time non-exempt employees are in the 10-15th percentile for our industry in our area and the organization hasn’t given raises or cost of living adjustments in several years. This change would reduce an already low hourly rate.

I want to be sensitive to the budget but do want to respectfully and politely express how that decision could impact the morale of the employees in the office. How would you recommend handling this situation?

Response:

Your concern about the morale of the employees affected by this is absolutely correct, but you should have been concerned about that for a while, considering they make such low salaries already.

I've actually been through almost this exact scenario. We were at 37.5 hours per week and moving to 40 hours. Like your company, we decided that exempt employees would see no increase — after all, who was working 37.5 hours a week anyway?

No one was.

But, we decided to keep all of the nonexempt staff at the same hourly rate, which means that they got a pay raise. There was a little grumbling among the exempt staff, but the non-exempt staff was overjoyed. A raise! In the middle of the year! Who cares that they were working more hours.

Their paychecks were growing!

I can imagine the mutiny that would ensue if they had been told they had to work an extra half hour per day for free. Because, this is exactly how the non-exempt staff will see it. They won't go, “Oh, this is so great that we can help the organization succeed!”

Now, of course, you're only asking for 15 minutes extra per day, so it's not a big deal. But, let me ask this question — if it's not a big deal for them to work an extra 15 minutes per day, why is it a big deal for you to pay them? After all, it's only a 3% raise.

To put that in perspective, if your employees are earning $30,000 a year, a 3% increase works out to less than $20 per week. You're risking turning your staff against you over $20 per week. That's crazy. The right thing to do is to continue to pay people the same hourly rate.

Business Rationale for Paying Nonexempt Employees More

But, you have a great business reason to present to the decision makers that has nothing to do with doing the right thing: turnover is really, really expensive. Some estimates of the costs of turnover are as high as 150% of annual salary; for entry level staff, you can expect lower costs.

But, even if it's only 10% of the cost of the annual salary to replace an employee, think about how you're spending 10% to save 3%.

Because their pay is so low in the first place, it's likely you'll have to pay replacements more.

It's not the brightest idea, and it's something you should make clear to the management team that is considering this move, that it may ultimately end up costing the company more.

If they still hold fast and refuse to do the right thing, both morally and financially, you're going to be stuck explaining to the staff how their hours are going to increase but their pay won't. You already know they will be unhappy, so you can try offering them something else in exchange. For instance, you could increase their paid time off bank.

You must also consider the legal side of things. You are cutting their hourly rate, so you need to formally tell them in advance. Some states require that you inform them of this pay cut in writing.

Make sure you check and make sure you're doing it legally in your state.

But, if you approach management with a, “Hey, I've been researching this, and it could lead to higher turnover and that will cost us more than we're saving, so it just makes sense to go ahead and keep everyone's hourly rate the same,” maybe they'll listen to the voice of reason.