The Effect of New Overtime Rules on Small Businesses

What are the effects of new overtime rules on small businesses?

According to new regulations from the U.S. Department of Labor, as of this past December, approximately 4.2 million more Americans have become eligible for overtime pay. As long as you own a small business with full-time employees, this change is likely to affect you.

The new regulation stipulates that hourly workers, lower-wage earners and non-managerial workers must now be paid overtime wages, one and a half times their regular hourly wage, when they work more than 40 hours in a week. As a result, overtime will be paid to considerably more workers than previously, including those who are salaried.

What specific changes do the new regulations make?

The new regulations involve the following changes:

  • Minimum salary threshold for exemption from overtime rules for a full-time salaried worker has been raised from $23,660 to $47,476 annually ($455 to $913 per week)
  • There will be an adjustment to this level every 3 years
  • Employers can include up to 10 percent of the employee’s salary level in non-discretionary bonuses and commissions

History of Labor Law

As most of us are aware, working conditions in the U.S. were extremely poor during much of our history. During the Great Depression, things had gotten particularly bad. It was at this time, during the 1930s, that the Fair Labor and Standards Act (FLSA) was enacted to address some of the issues of worker maltreatment. This act established:

  • A 44-hour work week, which morphed into the current 40-hour work week
  • An 8-hour work day
  • A national minimum wage of 25 cents — now $7.25
  • Limitations on child labor
  • Overtime pay of time-and-a-half

Clarifications of New Regulations

In order to understand the new federal regulations, one has to comprehend the difference between exempt and non-exempt employees. Even when the FLSA was first enacted to prevent worker exploitation, it was recognized that flexibility was necessary, so executives, administrative and professional employees, as well as outside salespeople and many technology employees were exempted from overtime pay.

It is essential that employers understand the distinction between exempt and non-exempt employees, since it is the latter group that is covered by FLSA labor laws. Although exempt employees aren’t entitled to overtime pay, they are required to meet particular pay and job criteria in order to be considered exempt.

Why have changes been enacted?

Clearly, there has been some hanky-panky going on in regard to FLSA regulations. In 1975 a full 62 percent of full-time workers received overtime; in 2016 only 8 percent of workers qualify for overtime pay. Business owners have been taking advantage by naming employees “supervisors” in order to avoid paying them overtime though they routinely work more than 40 hours per week. This practice is especially prevalent in the fast-food industry.

Nonetheless, many businesses are uncomfortable with the new minimum threshold, feeling that those in supervisory positions that pay $20 an hour, or just over $40,000 a year, should not be averse to  completing some tasks after hours without requiring overtime pay.

As a small business owner in California, you have many options to consider. You need to retain your profit margin while accommodating the new regulations and staying within the new legal parameters. Conferring with a knowledgeable, capable employment and labor lawyer is essential to developing and maintaining a clear perspective as labor law evolves.

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