Working overtime

Working overtime | Insurance Business

Working overtime
A new Department of Labor rule relating to overtime may have negative consequences for employers in the insurance business, industry officials are warning.

The rule, issued last month by the department’s Wage and Hour Division, raises the salary threshold below which most salaried workers are entitled overtime to $913
per week, or $47,476 annually for fulltime workers. That’s more than double the previous threshold of $455 per week, or $23,660 annually.

Under the terms of the rule, which is scheduled to take effect in December, that level will be revisited every three years and will be maintained at the 40th percentile of fulltime salaried workers. That could move the threshold to more than $51,000 by January 2020, projections indicate.

While employees are eagerly anticipating these changes, employers are hesitant – and those in the insurance industry are certainly no exception.

Tom Santos, vice president of federal affairs for the American Insurance Association, said the rule will impact property & casualty insurance companies because many employees may see operational and compensation-related changes.

“The Department of Labor’s adoption of changes to the overtime rule will have negative consequences for both employees and employers in the insurance industry,” Santos said. “Due to the diverse nature of our industry’s orkforce, these changes will not be helpful. The rules will not provide the workplace flexibility sought by employers and employees alike. We believe that this rule will result in a scramble to reclassify employees that will ultimately undermine job security and future opportunities for employees.”

The AIA is hardly alone in its opposition. Jules Gaudreau, president of the National Association of Insurance and Financial Advisors, said the new rule could “force employers into decisions about their employees they do not want to make, which will ultimately hurt the workers the rule is supposed to protect.”

Retail insurance agencies – among the smallest businesses in the insurance industry – are particularly concerned over the effects of the rule. In testimony submitted to the US Senate in May, the Independent Insurance Agents and Brokers of America [the Big I] said the proposed rule could impact up to 1 million white-collar workers in the industry and as many as 250,000 agents, brokers and other agency employees.

Though the association doesn’t oppose adjusting the threshold for inflation, it believes the increase is “excessive” and the proposal to readjust the rate annually – giving employers just 60 days’ notice – is “overly burdensome for small businesses.”

There are also industry-specific concerns.

The highly regulated nature of the insurance business makes it difficult for agents to increase revenue to cover the new compliance costs outlined in the proposal. That’s because the commission earned by agents, based on the prices of insurance products, are closely regulated by state officials, and agents are unable to charge their customers more.

Under the new rule, agents may also be limited in their ability to respond to clients in times of emergencies. Noting that accidents and other claims scenarios do not always occur “conveniently during working hours,” the Big I says severe weather and catastrophic events requiring overtime would hinder agencies’ ability to pay their employees.

“If insurance agencies are required to convert their employees from salaried to hourly, closely tracking hours and absorbing unpredictable and irregular overtime costs, it will make it harder to assist their clients when their services are need the most, following an accident or disaster,” the group said. 

“Currently, this type of overtime would generally be compensated with comp time,” which is not sanctioned under the DOL rule. Finally, as many lines of insurance are
seasonal – particularly those with January 1 effective dates, many agents work longer hours during the fall and winter and fewer hours during the spring and summer to make up for that overtime.

Agencies are already considering changing employees to hourly pay and cutting back even further on hours during the off-season to make up for having to pay overtime costs in the busy months.

The best option for those worried about the DOL rule’s impact on insurance agencies is likely to throw their support behind Senate Bill 2707, the “Protecting Workplace Advancement and Opportunity Act.” 

Sponsored by Senators Tim Scott and Lamar Alexander, the legislation would halt the current rulemaking process and stop the DOL from re-proposing the rule unless certain conditions are met, including forbidding the DOL from issuing any automatic salary threshold update for inflation and requiring the DOL to conduct sector-specific and small business-specific impact analysis. Otherwise, employers must take caution in reclassifying employees and communicating those changes, whether pay is raised, converted to an hourly rate or changed to a fluctuating workweek plan, said law firm Seyfarth Shaw.

“While there are a variety of new pay plan options and operational changes to consider for employees that an insurance industry employer may decide to reclassify, the need for a thoughtful change-management and communication plan will not,” the group said. “To reduce the likelihood of rumors or fears filling any gaps in understanding, insurance industry employers should work with counsel to carefully plan how they communicate the changes to those affected.”