IBM Responds to Overtime Lawsuits With 15% Salary Cut

bcmbyte writes "IBM in recent months has been hit with lawsuits filed on behalf of thousands of U.S. employees who claim the company illegally classified them as exempt from federal and state overtime statutes in order to avoid paying them extra whenever they worked more than 40 hours per week. The good news for those workers is that IBM now plans to grant them so-called "non-exempt" status so they can collect overtime pay. The bad news: IBM will cut their base salaries by 15% to make up the difference."

Hmm

Maybe I am confused, now that they are classified non-excempt, does that mean the OT pay is retroactive? If so, grab money, cue job search...

Re:Hmm

Typically the settlement includes retroactive overtime pay for a limited amount of time, maybe a year or possibly even more. The new pay scheme is probably exactly equivalent to the old, but substitutes overtime hours for base pay, meaning wages stay the same. However, this doesn't account for the possibility that now, if their hours are reduced to below overtime, they are compensated much more poorly. It's a short term monetary gain (in the form of a settlement), for a net loss in wage security (as fewer hours now means lower wages, compared to under the "exempt" pay plans). So, jumping ship could be a smart move here, or at least an easier one with the settlement.

Re:Hmm

It's a short term monetary gain (in the form of a settlement), for a net loss in wage security

Depending on the job, wage security is often less of a concern than schedule security, ie the possibility that the boss will tell you you're working 80 hours next week. Now he has to account for extra overtime over the usual in his budget, and that's a heck of a deterrent.

Each may very well be more important to different people. As another respondent said, this probably is best for the quality employees who always find themselves overcommitted and working hard, and maybe less good for clockwatchers.

Stapler

This is the last straw....

Re:Stapler

Woah woah woah. It's not last straw until you a) stop getting a paycheck, b) get moved down to storage B, and c) find a hundred grand laying on the floor.

Typical.

This, folks, is a good example of why labor unions are still around. Not that it's going to help any in this case...

Re:Typical.

What are you, a fucking Presidential candidate? That's not remotely close what I said.

Re:Typical.

How can you make the assessment that IBM is in the wrong by introducing the 15% reduction without knowing the salary range in question?

Re:Typical.

Well, to be fair, the labor unions are the reason we have people who demand to be paid 1.5x their pay if they work a minute over 8 hours per day or 40 hours per week, or don't get their two smoke breaks per 4 hours.

I've been "exempt" for the past 10 years, and wouldn't trade it for hourly wages + overtime for anything. The fact I'm "exempt" pretty much assures that I have a strong salary and needn't worry about those extra 5 overtime hours per pay period to make rent. I realize that sounds snobbish, but TFA gives examples of jobs in the 80k per year range...hardly the types of jobs that worry about making the rent payments.

A better solution than the labor unions would be for these 80k/year salaried folks to take their skills elsewhere, like to a company that values their contributions. I've never understood how a union supporter could go back to work for the same pricks they were fighting with in the first place.

Re:Some reference materials

No, this is great business and I love it. I am considered an exempt employee, so I am salaried with no OT; however, I love seeing corporations telling their employees to fuck off when they pull shit like this. IBM said, "You want to be hourly, fine here is your old pay minus 15%." Now, do not cry too much for these people. Assume their old salary was equivalent to a rate of $x per hour. Their new rate would be about $(x * .85).

Previously, their annual salary would've been approximately 2000*x. It is now about 1700*x. Assume overtime is time and a half, they would get paid 1.275*x for each hour of OT. This means they would need to work about 236 hours of OT a year, or about 4.5 hours per week. If they were working so much OT that they were willing to sue, then this should be easy to make up and in the end they are making more money, since they weren't getting paid OT before.

Their only other option would've been to unionize; however, if these are programming and/or engineering jobs, you can bet IBM would've outsourced them in a second to save the money and the hassle of dealing with a workers union. Also, don't think there aren't plenty of engineers in the US who are willing to "scab". Most the engineers I know (myself included) absolutely abhor unions.

Again.

I wonder how many times this will work, before large companies adjust their payrolls. Radioshack settled a similar lawsuit with their store managers several years ago, and lowered their base salaries to offset the new overtime payouts. I'd think they'd want to act preemptively, to avoid a lawsuit--I'm somewhat surprised IBM had succumbed to this practice.

Re:Again.

Radioshack settled a similar lawsuit with their store managers several years ago, and lowered their base salaries to offset the new overtime payouts.

I've heard about lots of this sort of thing going on in smaller corporations, that you wouldn't hear about in the news. Fact is, the 'industry norm' is in many cases to not pay overtime for these sorts of jobs, even though people constantly work beyond the normal hours (these aren't 9 to 5 jobs!). As compensation, the base salaries are typically quite high. But it turns out that this norm is somewhat at odds with certain laws regarding overtime, and employees in many cases demand what they think they deserve.

The end result is exactly what IBM did. Suddenly starting to pay for overtime means IBM is raising effective salaries by 10-20% or more, so naturally IBM lowers base salaries. The end result is that we are exactly where we started - people work the same hours, and get the same pay.

Well, at least on average; for individuals who work more or who work less, there will be some change. There are also motivational issues - if you are paid for overtime, you have less incentive to work efficiently (one reason why hi-tech managers, and many workers, don't like paid overtime and prefer to raise the base pay). Overall, it is hard to say that the change is for the better. The old salaries and norms were already 'working' - they were comparable to industry norms, were arrived at after years of haggling, corrections, and so forth, and most importantly people knew what they were getting when they signed on.

Lawsuit? Prepare for Other Pain...

I used to work for a Accenture, a rival firm. While we officially got paid overtime, booking it could get you into a lot of trouble. Bosses would say, not in writing, to not book OT. Try confirming that by email and you get stern warnings to not be a smart-ass. One guy I knew booked OT anyway. Legally, they couldnt say no. Next thing he knew, he was staffed in St. Louis! Ouch. So the people *suing* IBM? Expect pain much worse than salary cuts. They will probably be executing 100,000 line test scripts soon.

Sounds about right, actually

When I started working, I heard from multiple sources that our company budgeted for exempt employees by treating them as hourly employees who worked 5 hours of overtime per week. Given that most overtime is paid at time and a half, that's the equivalent of being paid for 47.5 hours at at a straight hourly wage. 7.5/47.5 = .1579, or about 15.8% of salary. Now the real question is, how many of these folks will get 5 or more hours of overtime per week?

Re:Sounds about right, actually

Now the real question is, how many of these folks will get 5 or more hours of overtime per week?

In my experience, the biggest drawback to being an hourly employee is that the company tells you when you can't work. If you're really enjoying a project or on a roll, it's extremely frustrating to be told that you have to stop for the day/week. You can't just not record any extra hours worked either as it's a liability for the company.

It's stories like this...

That remind me why I stopped being an employee, and became a contractor.

The bad thing about being a contractor is I only get paid for the time I work (no sick leave, public holidays, annual leave etc)

The good thing about being a contractor is I get paid for _every_ hour I work.

Strangely enough, once I was working on a strictly per-hour basis, the boss found far fewer 'emergencies' that required me to work all weekend.

Re:It's stories like this...

The bad thing about being a contractor is I only get paid for the time I work (no sick leave, public holidays, annual leave etc)

The worst day working for yourself is better than the best day I've ever had as an employee...ever. There is a lot of detail work necessary: Invoicing, collecting on the invoices, insurance, license fees, expense tracking, quarterly taxes. And there are liability issues to consider. But as more and more employers keep pushing responsibility and accounting issues down to the lower ranks, the amount of paperwork really isn't that different. Many employers expect you to process all that paperwork on your own time and travel on your own time. Plus a lot of them are getting dickishly intrusive monitoring and spying on their employees.

Besides, cubicles suck ass.

IBM gets caught breaking the rules and responds by cutting salaries. Nice. Just keep pulling stunts like that and your turn over will remain painfully high.

Strangely enough, once I was working on a strictly per-hour basis, the boss found far fewer 'emergencies' that required me to work all weekend.

Funny how that works, isn't it? Want me to work all weekend? No problemo! Just sign this invoice...right there...here's a pen.

Penny wise and pound foolish

15%? That's cheap compared to the damage from the loss of morale and confidence in management.

Re:sounds about fair

No harm done -- the employees just have to keep doing regular overtime and they get the same salary they used to. If they do less, they get less money and if the boss deamnds more, they get more pay.

... and if they show up for their normal time, but spend all day on Slashdot or on personal projects, they still get their regular pay...

Sounds fair to me.

indeed...

Re:Free market

And how exactly do you live if you don't work? Property is owned by the government so you must always pay taxes or you loose "your" land. Food, power, transportation? Yes, why don't you show us all how you can live without working aside from taking up residence in a shopping cart on the corner. Also, don't the employees who do the work deserve some of the benefit? It seems corporate executives want to make multi-million dollar bonuses based on the work of others without sharing. Work hard so the boss can buy his 16 year old daughter a $65,000 car! Look at the striking writers guild in Hollywood. Are they wrong for wanting a piece of what they create or should they allow the executives who do nothing to take all the money for themselves? How about all these mergers? Can anyone compete against a mega-corp that owns politicians and writes the laws themselves? If you think the market is "free" then you are living in another world.

Re:regulated in contract or law?

Don't they have their salary regulated in contract? Or is it accept-or-be-fired (article doesn't tell)?

When I used to work for IBM (10 - 8 years ago), it was standard U.S. practice: each year, your manager calls you into a meeting and tells you what your new pay level is. You can accept it, or quit your job, or treat it like the beginning of a negotiation, which will in most cases get you labeled as a difficult employee.

It's pretty laissez faire, except that they can't base your pay level / pay level changes on race, religion, etc.

Re:Free Market

I wouldn't be surprised to see a (relative) handful of people quit over this, but I'd bet good money the majority will stay put - despite the 'insult' the paycut hands out. The reason - take a good look at the US economy. There isn't a lot of upward mobility it the numbers, economists are worried about a recession - and that fear usually turns into a self-fulfilling prophecy; at least to a point. Things aren't looking so good right now, people are worried. The Housing sector is the number one place not to be stuck working right now, tech isn't far behind.

Re:Free Market

Exempt employees get paid more because it's anticipated that they will work some uncompensated overtime. If you change from exempt to non-exempt, then your pay SHOULD be cut. You can't get the best of both worlds - unless you're a contractor. This is especially important for government contracts - you negotiate rates for certain job categories, and you're stuck with them. Your profit is limited by law, so you can't just absorb a 15% hit like this. So you've got to cut the salaries.

Re:Free Market

The free market only works if everyone is on a level playing field. The employees of IBM and IBM itself are far from being on a level playing field.

This does sound like a slap in the face, but the first slap was by the employees -- suing your employer (or anyone) "means war".

No, the first slap was IBM breaking the law by classifying employees as exempt when they were not. The employees are totally in the right here, and IBM 100% on the wrong side.

Companies like to claim exempt vs. non-exempt is a "gray area." Its only gray when you're trying to screw your employees out of overtime pay.

My personal belief is that salary pay should be made illegal except for strickly management positions. That would solve this problem nicely.

Re:Seriously

That's life for the gutless slaves who refuse to stand up and organise and fight these fascist moterfuckers back. Why computer workers haven't properly organised with a union is something I still don't understand. If you work for someone else: YOU'RE A SLAVE. So ORGANISE! If you employ others, you're a SLAVE OWNER so EXPECT ORGANISATION.

You have obviously not thought that through to completion. You decide to form a union, and your employer does not like it. One of several things can happen:

1) Your employer takes it on the chin and suffers from a significant loss in net earnings (usually gets executive types all fired up, pun intended).
2) Your employer accepts it after fighting about it and is then undercut by union free competitors, typically using H1B labor, or worse yet simply outsourcing to another country altogether.
3) Your employer gets smart and simply outsources your job, thereby skipping all of the intermediate steps.

Our economy has become a service economy because those are the only jobs that cannot be outsourced easily, but a service economy can't survive indefinitely without outside support. Either way, unionization is not the answer, the only viable answer is to accept that you will suffer a significant drop in standard of living to adjust for the fact that you were way far above the median to start with. Don't like it? tough, welcome to the global economy, there isn't a damn thing you or I can do about it. If you shut down all foriegn trade, there goes your cheap goodies from china, and your standard of living plummets. Imagine if you had to pay $30,000 for a low end car, because it was made using exclusively american labor? How about $120 for a pair of jeans? What about $5,000 for an entry level PC? If you need proof, just look at the cost of housing. It is hideously expensive because there is no good way to offshore the labor needed to build the houses, and as such the cost of these things has been rising at many times the rate of inflation. It is a no-win situation. Americans are not going to enjoy their standard of living much longer, but there isn't anything we can do to stop it. Maybe slow it down a little, or speed it up, but there is no stopping it.

-=Geoskd