Manufacturing Competitiveness: How Overtime Rule Compliance Can Create Opportunity

John Coyne / Nov. 23, 2016

(Note: A preliminary injunction against the Overtime Rule was put into effect yesterday evening. While the December 1 start date has been pushed back indefinitely, opportunity to enhance manufacturing competitiveness still abounds. Read on to learn how.)

Like every industry in the United States, manufacturing has a somewhat complicated relationship with our government’s policies, laws and regulations. Sometimes aided and abetted, sometimes stopped dead in its tracks, running a manufacturing business or CNC machine shop in the U.S. of A. is rarely straightforward. From Greenhouse Gas reporting to complying with the finer points of the Affordable Care Act, it’s a lot to manage.

Well, get ready to tee up the ball once more. The new Overtime Rule, an update to the Fair Labor and Standards Act (FLSA), takes effect on December 1st. In a nutshell, it raises the threshold below which salaried workers can earn overtime pay from $455 a week (or $23,660 a year) to $913 a week (or $47,476 a year). A rule that will affect 4.2 million workers across the country and cost U.S. businesses $1.5 billion a year, it’s a change few companies are excited about.

Fair or Foul?

Nobody ever wants to start paying for what they used to get for free, and business owners of all persuasions have cause to grumble about the new rule. Besides claiming — rightly in some cases — that the rule change presents a real threat to their bottom lines, many also fear the rule will endanger their employees’ job security, benefits, titles and flexibility.

Sit down with an affected employee, however, and any conversation about the new rule will likely take a different turn. The DOL predicts a full 80 percent of that $1.5 billion price tag to end up in the pockets of the workers the rule was designed to benefit. For any salaried worker affected, it’s hard to say that’s not good news. Should an employer choose to cap an employee’s time at 40 hours to avoid paying any overtime, the result is likewise beneficial: extra time without any loss in pay.

Overtime Rule EDM

One further point needs to be made before venturing into a discussion on how manufacturers can best maneuver the rule. In terms of the overall U.S. economy and annual payout of wages, $1.5 billion just isn’t a lot of scratch. According to the Bureau of Labor Statistics, U.S. businesses doled out $7.4 trillion in wages last year alone. Adding an additional $1.5 billion on top of that massive number is like adding $1.50 to a bill that’s already $74,000. It just doesn’t have enough overall weight to make much of a difference across the board.

For manufacturers and machine shops who rely on the extra hours lower-salary employees have literally been giving away, putting the effects of the rule in the perspective of the entire U.S. economy is cold comfort. Real consequences are about to be reaped, and if you’re affected, you need to figure out a way to cope with the change without laying off employees, crushing morale or shuttering your doors.

Some Silver Lining

The good news is that the Overtime Rule allows a surprising amount of wiggle room for the business owner willing to wiggle. In some instances, adapting to the rule’s demands might even breathe new life into your workforce. Take the end-of-the-year holidays, for example. This year, the pressure on businesses to either reward or curb overtime may have an unexpected morale boost among those employees left behind to fill in the gaps for those on vacation. Yes, you may find yourself in a bit of a scramble to hire temporary workers or make room for the added expense of overtime, but poorly compensated employees and overworked ones have proven time and time again to be unproductive, which means being forced to legally avoid each of these scenarios may yield a more productive and less chaotic end-of-the-year scramble.

Here’s the thing: Overtime, especially when it is relied on regularly and culturally within an organization, is rarely beneficial. Subtle but nefarious, overworking and under-compensating employees can wear an entire company out in ways that go far beyond lower productivity and morale. It can lead to a higher turnover rate among your employees. Besides the expense, effort and hassle of acquiring new and qualified workers, high employee churn often leads to lower quality. When quality suffers, you lose the trust of your customers, which yields lower marketshare and profit loss. It’s a vicious and avoidable cycle.

There’s more. Getting something for nothing — in this case, overtime hours from lower salary employees — too often keeps executives and managers from thinking as creatively as they could. From product development to procurement, if you’re meeting current demand with employees who routinely work 60 hours a week, it can feel like the system works. “If it ain’t broke, don’t fix it,” is a tempting way to conduct business. As tech makes the world smaller and faster, however, giving in to that temptation can do your organization in.

Whether you’re a CNC machine shop in Muncie that specializes in aerospace or a robotics manufacturer in Boston, here are some of the tips, tricks and tech you need to manage the new Overtime Rule and come out ahead because of it.

The Tips and Tricks

As has already been noted, a lot of good data suggests employees who work overtime (especially those who put in more than 50 hours a week) aren’t that much more productive than those who stick to a more standard 40-hour week. Because of this reality, you might be able to keep everyone’s salaries the same, eliminate overtime and see few ill effects in terms of productivity.  

Sometimes, however, you really do need those hours filled by the skilled and knowledgeable employees you have. If that applies to you, you can choose to raise the salaries of employees already within striking distance of the new threshold, say those making around $45,000, or just pony up the dough for their overtime hours. Yes, it’s an increase in expense, but if your business can’t run without those people’s time, you have little choice. Of course, other solutions may exist — outsourcing work to an internet machine shop, for example — but we’ll get to those solutions in the next section.

Overtime Rule Solo

If the work you need done isn’t highly specialized and immediate, hire on some temporary or part-time workers. This route will result in higher payroll costs than what you currently enjoy, but since you won’t be paying anyone time and a half, those costs will be considerably less than trying to go about business as usual after December 1st. New people will also give you the added benefit of new energy, and your current employees will likely find a boost in attitude since they’ll be pulling the same paycheck for less time. They won’t get any more money, but it will still feel as though they got a raise.

One other option is that you could also look into cutting costs elsewhere. Whether you find a cheaper employee health insurance plan or renegotiate the terms of the lease for your factory or office, you may be able to free up some money. That extra cash could then allow you to properly compensate your affected salaried employees when they put in more than 40 hours.

The Tech

Perhaps the greatest opportunity brought about by the changes in law around overtime labor are those that exist thanks to new and ever-improving technologies. It’s in the realm of tech that the opportunities to game the new Overtime Rule for gain are most palpable. Especially for CNC machine shop owners and manufacturers with razor-thin margins, employing tech to make up the time and money that would otherwise be lost to the new rule won’t just ensure your survival; it might also ensure resilience and revitalization.

Here are some examples to illustrate what I mean.

Say you run a CNC machine shop that employs six full-time machinists and a couple of office personnel. Your office personnel handle everything from sales calls to materials ordering and neither of them make above the overtime threshold, which means — come December 1 — you’re going to have to pay for any extra time they put in hunting down jobs for your shop, filling out RFQs, ordering materials and the like. What if you could expedite their work so their 40 hours went further?

Here’s another: Say your manufacturing company is developing a new line of products. You’re ready to start prototyping, and you’re under pressure to move fast. Your current procurement officers and engineers already make salaries that place them above the threshold, so their overtime hours won’t cost you any more money. However, numerous members of a support staff working with them sit well below it. What if there were technologies to expedite the efforts of your procurement and engineering teams so their workload — and the workloads of those who supported them — were manageable enough to fit inside a 40-hour work week?

Overtime Rule Group

Numerous workflow automation solutions exist that could help in these scenarios and others like them. Some solutions streamline payroll and accounting (e.g. Gusto, Justworks, Inova Payroll, etc.). Some of them streamline workflow, collaboration and communication (e.g. Trello, Slack, Asana, etc.). Some are specific to streamlining the work of manufacturing itself (AutoCAD, Fusion 360, SOLIDWORKS, etc.). Still others are able to transform that work so completely it almost ceases to be work at all.

MakeTime is an example of the latter.

Are you an OEM looking to make domestic CNC procurement more efficient? Are you a machine shop facing a spike in jobs and in need of fast access to a few more CNC lathes or mills to avoid paying too much for overtime? Are you a mid-size manufacturer looking for CNC machining services that go from prototype to production without a hiccup? Are you a tier one supplier whose tier two just fell down? We solve all of that. The transformation of work has long been the aim of technological progress. When it comes to CNC machining, that aim has finally been met in our proprietary technology that’s available to any person with an internet connection.

Imagine a fully qualified domestic supply base connected and at-the-ready to meet all your CNC machining needs from prototype through production. Imagine data-driven pricing for parts, materials and logistics. Imagine uploading files and receiving your parts on time and at quality two weeks later. Imagine managing production from your smartphone or laptop. Imagine a world without RFQs, where supplier vetting has always already happened, where you can just go online to see what phase your production is in.

Tech really can make the hard things easier, from complying with the Overtime Rule to speeding up innovation, but you have to be willing to embrace the change. Release the old ways of doing things and embrace the new. Let the Overtime Rule be your path to happier, more productive employees and a completely transformed way of going about your business.

Find out how MakeTime can revolutionize your CNC machining procurement needs here.