Brave new world: Agencies prepare for harsh realities of new salary rules

New salary regulations proposed by the Obama administration that might go into effect as early as this fall could be a rude awakening for agencies that have long relied on junior staffers doing yeoman's work.

In the midst of a crisis or product launch, agency life can be demanding – and typically the more tactical elements of the work are left to junior staffers, who can easily rack up work weeks of 50, 60, 70, and even 80 hours. But what happens when a PR firm is required to pay those employees overtime?

That’s the conundrum facing PR agencies, who could see that dilemma become reality as early as this fall. Due to new rules proposed by the Obama administration, salaried employees making less than $50,440 a year would be entitled to time-and-a-half when their work week tops 40 hours.

The current threshold for exemption from overtime pay, as stipulated by the Fair Labor Standards Act, is $23,360.

In March, the Labor Department submitted its final proposal to update the act, which would raise the threshold for only the second time since 1975. Designed to strengthen the middle class, the White House Office of Management and Budget is conducting a cost-benefit analysis on the proposal.

The industry-wide median salary is $92,125, according to the 2016 PRWeek/Bloom, Gross & Associates Salary Survey of 1,078 communications professionals. Yet many at the entry and junior levels definitely fall below the proposed new threshold. The median salary for an account executive is $48,800; an assistant account executive is $40,750; and account coordinator is $37,500.

Should the regulations be finalized without amendment, those PR practitioners could end up costing agencies much more once overtime pay is factored into their compensation.  

The agency leaders interviewed for this article say firms will likely feel forced to raise most junior salaries to the threshold. However, doing that would come with negative consequences for the same employees via cutbacks elsewhere in the business.

Industry opposition
The PR Council is not in principal against raising the threshold, but it has been pressuring the Labor Department for concessions since the update was announced last summer.  

The organization has, for instance, joined other business groups to say the increase is too extreme, and that any pay boost should be phased in gradually. It also contends that employers are scrambling to find room in their budgets for potentially millions of dollars in additional staffing costs, and could use more time to adjust to the change.

The PR Council would like to see other amendments, as well. In September, it sent a letter to the Department of Labor explaining that salaried PR pros often work long hours because of the nature of PR work, a 24/7 news cycle, and growing client demands. The letter notes that PR agencies as a whole have done a good job of rewarding employees in other ways, such as with paid vacation, bonuses, healthcare benefits, training and development programs, and the opportunity to work from home, which can reduce their commuting expenses.

It argues the monetary value of those benefits should be calculated in addition to the base salary to determine whether an employee’s position is above or below the salary threshold.

The letter warns that without these types of concessions, agencies could make cuts. The Council contends firms already spend a lot of money on employees, citing data collected from its members that 61% of their operating budgets, on average, goes towards labor. It also notes that most firms have "relatively thin margins," earning between 14% and 17% profit before taxes.

"This new threshold could backfire, negatively affecting the very people it is designed to protect," reads the letter, which is attributed to former PR Council president Kathy Cripps. "If the higher salary threshold goes into effect, many firms might well be forced to pare back the non-salary incentives and benefits they already offer."

"It could possibly decrease jobs," Cripps adds.

The PR Council is also educating its members about the issue. On Friday morning, it was holding a session with agency leaders that included a discussion about the policy. About two dozen CEOs attended.

The Public Relations Society of America, which has yet to look at the issue, did not have a comment.

Agencies respond
Every holding company and almost every agency contacted for this story says this issue is top-of-mind. An executive from one holding company told PRWeek that each of its PR firms have been told to map out how they will address the change. Firms have differences in pay scales, client work, geography, and culture that play a role in shaping how one agency might approach the policy versus another.

Victor Malanga, EVP and worldwide CFO of Edelman and Zeno Group parent DJE Holdings, says, "We have analyzed the impact of the proposed changes but haven’t made any final decisions about addressing it."

However, he anticipates several ways the overtime pay rule could affect the industry.

"Where client rates are built on a cost-plus model, the basis for those rates will go up," says Malanga. "I would also anticipate some combination of cost pruning including from training and development, and rate increases at the lower levels."

Agency leaders interviewed for this article concur it would make the most sense for salaried employees to be bumped up to $50,000, since overtime costs can be hard to predict and budget for, given the fast and unpredictable nature of client work. They say it would also avoid creating a scenario where staffers lower on the salary scale would make as much as someone at $50,000 because of a bump-up from overtime pay. 

Jim Delulio, president of recruitment firm PR Talent, which places candidates at all levels, predicts "a major adjustment period" for the industry should the proposal be finalized.

"Historically, the more junior staff – the assistant account executives and account executives – have been the workhorses for agencies, because they are lower-cost and will work longer hours," he says. "And so when it comes to time-consuming tasks like research, social media content development, and traditional media relations, those tasks get assigned to this group."

Rather than bumping up everyone in this group to the threshold, he says agencies may try to get more working hours from them by minimizing their professional training and development.

"I think firms will delay developing some junior people’s strategic expertise so they can get the most production out of them," he says. "I think their more strategic training will be to some degree delayed until they surpass that $50,000 salary threshold."

"I call it the ‘arrested development effect’ on junior staff," he adds.

Delulio predicts agencies may also opt to hire more account executives rather than assistant account executives. In most markets, the latter would typically be at a salary level much lower than the new threshold. Agencies may also rely more on freelancers, he notes.

The majority of agency presidents contacted by PRWeek say they are trying to figure out how to make the best of the change. As Julie Batliner, president of midsize agency Spong, explains, "While there are opportunities and challenges that come with the act — and we can continue to debate those — the reality is we need to continue preparing for its likely implementation."

To that end, Spong is analyzing team members with salaries below $50,440, including what their job descriptions are and how to make sure they are fairly compensated for the role given the update.

"There’s no doubt we all strive to provide fair work-life schedules," says Batliner. "But at the same time, we have to run successful, profitable businesses so we have jobs to offer – and so we can attract the best talent to work on our clients’ businesses."

"We’ll all need to work together to continue to adjust as this act plays out," she states.

Ending a culture of overwork
Junior staffers have long realized that to get ahead in their careers, they have to work long, sometimes punishing hours. Some agency leaders interviewed for this article say they hope the new policy would push the industry to question whether long hours are really in the best interests of not only junior employees, but also a thriving agency.

"For Text100, it’s an important part of our culture that we don’t succumb to some sort of agency legacy that junior staff stay late to get the work done," says Aedhmar Hynes, CEO of Next Fifteen firm Text100. "If there is a deadline or a client need, the entire team stays, so the work is done more efficiently and everyone gets to go home at a decent time."

As for Text100’s compensation model, she says, "For the most part, our salaried consultants are already paid at or above the proposed salary threshold, so we don’t anticipate the need to increase salaries due to the proposed changes." Hynes adds that the firm reclassified how it pays junior staffers years ago and works to make sure overtime is kept at manageable levels.

Andrew Pray, founder of boutique firm Praytell Strategies, says the doubling of the threshold will have a minimal impact on staffing costs.

"We don’t have too many folks under the $50,000 watermark, and those that are there won't stay there very long," he says. "With our hubs in Brooklyn and San Francisco, it's important to make sure everyone – junior employees included – have a wage that is appropriate for the market."

He adds that the industry shouldn’t place excessive overtime burdens on its staffers.

"I understand the economics of junior staff being paid less and working a ton, I get how that drives agency profit. But at the end of the day, it's important for these kids to not be chained to a desk for 12 hours a day without fair compensation," he says. "Ideally, they'll be out in the world being interesting and creatively inspired versus slaving away on irrelevant coverage reports with bogus impression numbers."

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