Small Business News
Small Businesses Should Prepare Now for New Overtime Rules
Employment expert shares tips to help small businesses meet the new regulations
When the U.S. Labor Department’s new overtime compliance law becomes effective, most likely later this year, it could have a profound effect on small businesses. “The burden that will be placed on small businesses’ operations, and potentially profitability, are significant,” says employment expert Rob Wilson, CEO of Employco. “While business owners shouldn’t panic, they should understand what it will mean for their business and start to plan and implement changes now.”
Under the Department’s new rules, any salaried worker who earns less than $50,440 will be eligible for overtime. The new rule would also link the overtime threshold to the 40th percentile of earnings for full-time salaried workers.
“Many small businesses will need not only to change their compensation structure to become compliant with the new rule, but also may need to change the way they operate their business,” says Wilson. “Customer service, productivity and employee moral could suffer, and profitability could be impacted.”
The National Federation of Independent Business (NFIB) estimates that about 40% of small businesses will be affected by the new rules. Wilson recommends that business owners take the following actions now, before the new rule kicks in. “Regardless of its final form,” said Wilson. “The standard salary threshold will likely increase, and businesses need to be prepared.”
Understand the new classifications. Business owners should fully understand their current compensation structure, classifications and the rules around exempt vs. nonexempt status, and what changes they need to make to ensure compliance. “Certain positions earning greater than the proposed threshold amount may be exempt from overtime pay if they perform certain duties as described in the regulation,” states Wilson. “But small businesses are likely to have more employees that don’t meet these requirements. The increase in payroll costs could have a significant impact on operating costs and profitability. Businesses owners might consider hiring more long-term, independent contractors, or part-time employees, in lieu of full-time staff as a way to manage costs.”
Manage and Monitor Employee Hours. Business owners can reduce the proposed rule’s financial implications by managing and monitoring employee hours to help make informed staffing decisions. Wilson suggests that employers implement a time and attendance management system to track hours, and consider different staffing scenarios and options when any employee is near the 40-hour mark.
Switch to Hourly Pay. Depending on the type of business, it might make sense to switch employees who typically work less than 40 hours a week from salaried to hourly pay, and pay them for overtime hours when, and if, overtime occurs. “This switch could cost less in the long-run,” says Wilson. “However, business owners should also keep in mind how benefits packages might change and how employees will react.”
“The most important thing for small business owners is to be proactive and to prepare for compliance once the final rule is released,” says Wilson. “It’s often more cost effective for a small business to comply than to try to work around it. Implementing sound HR solutions and processes is imperative to staying on top of changing employment regulations.”
For more on this topic or to speak to Rob Wilson, please contact:
Sam Chapman, CEO
Prime Media Management
About Employco USA
Offering human resource related solutions for small to mid-sized businesses, Employco saves companies from the complexities of managing human resource functions. The structure allows employers to become a part of a large purchasing group, offering more control over employee costs through controlled rates. Employco assists businesses in critical areas by providing protection from employer liabilities and reducing risk in areas such as: workers' compensation, insurance policies and compliance with federal, state and local regulations. For more information, please visit http://www.employco.com