More than Just Compliance: The Changing Face of Wage and Labor Law. Research Brief

Transcription

1 The Changing Face of Wage and Labor Law Research Brief Brandon Hall Group Research Team January 2016

2 TABLE OF CONTENTS Introduction 3 Wage and Labor Law Compliance Today 4 Why is This So Difficult? 7 What Can Be Done? 10 Wage and Labor Law Compliance Decision Matrix 12 Conclusion 14 Authors and Contributors 16 About Brandon Hall Group Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 2

3 NOTABLE INSIGHT More than two-thirds of organizations surveyed expressed some level of concern about changes to wage and labor regulations, but find themselves behind in terms of preparedness. Introduction The past decade has been a quiet one in the world of wage and labor laws. The Fair Labor and Standards Act (FLSA), for example, has not undergone any major revisions since 2004 (minimum wage increases notwithstanding). But the hiatus is over: FLSA 13 (a) (1) has received its first updates in over 11 years, which for many people working today was before their tenure began. Several proposed changes could impact how we broadly define exempt and nonexempt workers, a classification that has been largely static during that same 11-year period. The California Fair Pay Act went into effect on January 1. It has the ability to change the wage practices of up to 7% of Americans. There are several state regulatory variations and sometimes massive upheavals in global labor law (e.g. Safe Harbor in the European Union.) With many regulatory changes in effect or soon to be in place, organizations must now prioritize wage and labor law compliance. In October 2015, Brandon Hall Group launched a 22-question survey to determine the current state of wage and labor law compliance. With 255 respondents across more than 35 industries, the results create a rather alarming landscape. Only the most productive organizations in our research (in terms of revenue, employee retention and engage ment, and customer satisfaction) indicated they would be willing to spend the money necessary to shore up those resources by automating their processes. Other key findings include (next page): 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 3

4 Key Research Findings 69% behind 31% and 19% increasing of organizations surveyed expressed concern about changes to wage and labor regulations, but find themselves in terms of preparedness. of organizations still manually create manage schedules. of organizations still manually manage time and attendance. The level of manual processes is concerning because automating these processes can largely pay for themselves by worker productivity levels. Wage and Labor Law Compliance Today When wage and labor law compliance is discussed, one can expect most stakeholders to react with eye-glazing indifference. It can often feel like more red tape an issue that must just be dealt with. However, it is more than a risk-mitigation issue; there is also the real possibility that real monetary gains are being missed when the potential positive impact on employee engagement is ignored. The evolution of technology focused on user experience -- even in the wage and labor law compliance space has the potential to create a better connection between company and employee. This is especially true for digital natives, who primarily experience a sense of company through technology. However, 61% of organizations do not have fully automated compliance reporting systems, reducing the chance for a better connection with 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 4

5 employees that could lead to increased discretionary effort, decreased turnover, and ultimately the potential of lost revenue. However positive the benefits of increased automation are, there is still the question of compliance, and in that aspect there is still plenty to worry about, as our research shows: 7 of 10 organizations are concerned or somewhat concerned about compliance with wage and labor regulations. 71% of organizations act at the time of regulation implementation or revision, or react after implementation, rather than plan for the change in advance. Figure 1 Concern over Compliance Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 5

6 Figure 2 Level of Readiness for Regulatory and Compliance Changes Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) Taken together, less than one-third of companies surveyed feel they are fully prepared for new regulations or changes to existing regulations (Figures 1 and 2 above). This lack of preparedness could be a function of not adequately reviewing legislative and regulatory action. 42% of organizations review their compliance with wage laws once a year or less, despite the fact that there are more than 180 labor laws presided over by the Department of Labor in the U.S. (according to their own statistics), all of which can and do change. This is risky behavior in terms of liability exposure, but particularly so when you take into account that 40% of respondents indicated their organizations have global distribution or multiple locations across the globe, which means taking into consideration not just the U.S. labor laws, but the countless others in multiple areas of operations Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 6

7 Figure 3 Frequency of Review: Regulations that Affect How Employees are Paid Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) Why is This So Difficult? Why don t organizations check on their changing regulations and their compliance more often? The research shows it mostly has to do with time; the time taken to update internal policies and update employees on those changes is more than organizations are allowing Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 7

8 Figure 4 Greatest Challenges in Keeping Up with Regulatory/Compliance Changes Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) The graph above lists a number of activities that are heavily influenced by time allocation resources (it takes workers hours to update internal documents, collect data, and communicate changes). All of these types of activities are streamlined by automation, yet the most common forms of people data are still handled manually by an average of 20% of organizations. (Figure 5 below). Figure 5 Organizations Using Manual Processes for Workforce Management Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) In addition, 61% of organizations have not fully automated their compliance reporting capabilities (Figure 6 below). This puts them at risk due to increased burden on 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 8

9 NOTABLE INSIGHT The most common forms of people data are still handled manually by an average of 20% of organizations. Not optimizing wageand-hour tracking through automation reduces the ability to offer transparency to employees who are accustomed to easy access to financial data and other information in their personal lives. their staff (compared to a fully automated department) and these organizations lose the ability to react quickly to changes or potential changes in their work environment. A lack of automation is also a lost opportunity on two other fronts: Not optimizing wage-and-hour tracking through automation reduces the ability to offer transparency to employees who are accustomed to easy access to financial data and other information in their personal lives. (31% of high-performing organizations in Brandon Hall Group s 2015 HCM Technology Trends Study listed increased employee engagement due to transparency around time and labor processes/policies as a main benefit of automation.) Automation would reduce the risks of falling behind on regulator changes (17% of high-performing organizations listed reduction in litigation due to wage and hour disputes as the main benefit to automation in the HCM Technology Trends Study.) Figure 6 Levels of Compliance Reporting Capability Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 9

10 NOTABLE INSIGHT Our data analysis showed a statistically sig nificant correlation between organizations with increased organizational success over the past year and those that said they were likely to invest in additional resources to manage wage and labor law compliance. What Can Be Done? While organizations generally expressed reluctance to take substantive actions to better manage regulatory and compliance changes, their most likely action expressed by about one-third of respondents -- is to automate workforce management processes that are currently manual, and to work more closely with trade associations (e.g. SHRM, APA, American Society for Healthcare Human Resources Administration (ASHHRA), HR Policy Association) to stay aware of legislative changes. The decision matrix on page 13 incorporates these actions according to the specific state and needs of the organization. So let s start with the question of automation. If you add in the somewhat likely responses to this question, just fewer than 70% of respondents are willing to at least consider further automation and work with trade associations to bolster compliance readiness. A compelling business case can be made for either option. By investing in fully automated workforce management processes rather than having a hodgepodge of manual and partially-automated solutions, companies can better predict risk, provide solutions to mitigate existing risk, and create effective communication to employees of pending or existent changes to the law. This also enables them to reallocate valuable employee hours now spent with these manual processes, a possible reason for high-performing companies to consistently have more automation in both time and attendance and scheduling process (5% and 2% more, respectively, according to our HCM Technology Trends Study). Taking advantage of services that trade associations offer to monitor legislative and regulatory changes for those already paying membership fees is merely an investment 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 10

11 of time to optimize the use of association resources. For those not belonging to a trade association, the investment is modest. In addition, our data analysis showed a statistically significant correlation between organizations with increased organizational success (significant increases in five Key Performance Indicators) over the past year and those that said they were likely to invest in additional resources to manage wage and labor law compliance. As seen in Figure 7 below, organizations that indicated they had significant increases in the KPIs (revenue, market penetration, customer satisfaction and retention, and employee engagement) were more likely to have also indicated they were investing in additional resources to assist with compliance management and/or working with trade associations. Figure 7 Likelihood of Taking Action to Manage Regulatory and Compliance Changes Source: 2015 Brandon Hall Group Wage and Labor Law Compliance Study (n=255) 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 11

12 With the caveat that correlation does not imply cause, the fact that there is a relationship between organizational performance and willingness to invest in wage and labor law compliance helps organizations make the business case for additional resource (people and technology) allocation. One final benefit of automation is the effect that it has on employee engagement. In the 2015 HCM Technology Trends survey, 31% of high-performing organizations listed increased employee engagement as the main benefit of time and labor automation, and as mentioned above, organizations that have invested additional resources to assist in compliance management are more likely to have experienced higher levels of employee engagement. This only makes sense because the primary interaction many employees have with their organization is through their time tracking and scheduling programs. The ease of use of these programs (and their ability to make those systems work) speaks volumes to the employee about their importance to their organization. Wage and Labor Law Compliance Decision Matrix In determining what actions your organization should take related to wage and labor and law compliance, it is helpful to look at decision options in context through a decision matrix. Use the following steps for the instrument below: Step 1: Select a Current State of Organization that most closely matches your own. Step 2: Choose a review frequency that is most closely aligned with your own. Step 3: Based on that assessment, use the legend to find the recommended actions to help bring your organization into a state of preparedness for the modern regulatory environment Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 12

13 Figure 8 Time and Labor Compliance Decision Matrix CURRENT COMPLIANCE CLIMATE + + Source: Brandon Hall Group Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 13

14 NOTABLE INSIGHT The path to becoming prepared for the glut of regulatory changes is a variety of investments -- both modest and substantial -- to assess risk, improve employee engagement, and to create effective communication to employees. Other steps to consider: To truly understand the state of readiness, it may be helpful to conduct surveys or run focus groups to find out how often employees are being both informed about time and labor law changes, and how often your systems are being updated to reflect those changes As manual systems are moved to partial and eventually full automation, plan ahead to allocate the time previously earmarked for administrative tasks to analysis and change management Set aside proper time for proper training and implementation of new systems, and communicate to employees how the new systems will benefit them (as opposed to the communicating the time and cost saving to the organization) Conclusion The overarching message of our research is that organizations do not have the level of preparedness needed for the glut of regulatory changes that took place on January 1, The path to becoming more prepared is clear: a variety of investments both modest and more substantial including increased automation that will help predict risk, provide solutions to existing risk, potentially improve employee engagement, and to create effective communication to employees of pending or existent changes to the law. Our data analysis shows that those organizations that have been successful in the past and feel most prepared are usually the same that have created predictive models for possible outcomes, are connected with trade associations to alert them to changes, and have automated their systems to help mitigate the risk of compliance discrepancies 2016 Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 14

15 NOTABLE INSIGHT Having more vigorous compliance awareness is more than an earlywarning system, it s also a signal to your employees that you value and respect the time they have put in. and create a more engaging bond between employee and employer through technology. Based on the research of the practices of high-performing companies, the Time and Labor Compliance Decision Matrix outlines the activities aligned with success for each organization readiness level (e.g. partially-automated organization with semi-annual compliance reviews). The end result of these activities is a more productive, engaged, and aware workforce. Having more vigorous compliance awareness is more than an early-warning system, it s also a signal to your employees that you value and respect the time they have put in, and a data-rich environment for monitoring spend in term of labor hours. Legislation and court rulings are notoriously hard to predict, but only being able to notice and react to those changes once a year is a recipe for failure. Those organizations that have systems that can collect, inform, and adapt to those changes as they happen is the trademark of success Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 15

16 Authors and Contributors Cliff Stevenson wrote this report. He is Principal Analyst, Workforce Management Practice.His expertise includes HR data and analytics, workforce management process automation, performance management,recruitment, acquisition, retention, and attrition. He also has experience as the HR leader for a Boston consulting firm. Claude Werder (claude.werder@brandonhall.com) edited this report. He is Vice President of Research Operations and Principal HCM Analyst for Brandon Hall Group. His responsibilities include overseeing the firm s analyst team, directing research priorities and product development, research and content quality assurance, and producing the annual HCM Excellence Conference. Nissa Benjamin (nissa.benjamin@brandonhall.com) is Marketing Coordinator at Brandon Hall Group and created the graphics and layout for this report. Carol Clark (carol.clark@brandonhall.com) is an editor/ graphic designer and handled copy editing for this report Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 16

17 About Brandon Hall Group Brandon Hall Group is a HCM research and advisory services firm that provides insights around key performance areas, including Learning and Development, Talent Management, Leadership Development, Talent Acquisition and HR/Workforce Management. With more than 10,000 clients globally and 20 years of delivering world-class research and advisory services, Brandon Hall Group is focused on developing research that drives performance in emerging and large organizations, and provides strategic insights for executives and practitioners responsible for growth and business results. At the core of our offerings is a Membership Program that combines research, benchmarking and unlimited access to data and analysts. The Membership Program offers insights and best practices to enable executives and practitioners to make the right decisions about people, processes, and systems, coalesced with analyst advisory services which aim to put the research into action in a way that is practical and efficient. The Value of Membership The Brandon Hall Group Membership Program encompasses comprehensive research resources and an array of advisory services. Our Membership Program provides: Cutting-Edge Information Our rigorous approach for conducting research is constantly evolving and up-todate, providing your organization with current and future trends, as well as practical insights. Actionable Research Your membership includes advisory services and tools that are research-driven and provide you a breakthrough approach to addressing immediate challenges and opportunities inside your organization. Customizable Support Whether you are an executive or entry-level practitioner, our research and analyst insights can be leveraged at an individual level and across the entire organization. We realize that every organization has unique needs, so we provide multiple analyst and research access points. Community of Peers We realize the value of connecting with your peers and being part of a community that is focused on continuous improvement. Your membership provides you with personal connections to fellow professionals. Unlimited Access Every member of your team has the ability to utilize research, best practices, and advisory services when they need it most. To learn more about Brandon Hall Group, please call us at (561) or us at success@brandonhall. com Brandon Hall Group. Licensed for Distribution by Kronos Incorporated. 17