New Overtime Rule Effect on Small Business

By | May 20, 2016

stores on streetThe final rule updating overtime regulations, which was announced Wednesday (May 18, 2016), will increase the federally required minimum salary level for exempt employees  from $455 a week to  $913 a week starting on Dec 1, 2016.  (Note: some states such as NY have a minimum salary level for overtime that differs from the Federal rate. In those states, the worker must be paid at whichever rate is highest.)

Under the Fair Labor Standard Act (FLSA), exempt employees are generally executive, administrative and professional employees and computer professionals whose salary exceeds the minimum amount set by the government.  Thus, someone whose job title is manager, and who is a salaried employer rather than an hourly worker is still entitled to overtime if their salary is below that minimum exempt level.

Under the new rules, a business who, say,  has a manager who now works about 45 hours a week and makes $700 a week on a salaried basis,  will have to pay that manager  $831.25 ($700 + $131.25 in overtime) for working the same 45 hours.

What the law means for employees, is that many more will technically qualify for overtime after Dec. 1. For some businesses – those who already pay their workers higher salaries than the exemption rate, or who pay their employees  overtime even if their salary is above the exempt minimum, the rule won’t change anything.

But for many small business owners the increase in the minimum income level for exempt employees may be a significant problem.

At the end of the day, the money to pay the increase has to come from somewhere. Among the choices: increase the price of the products and services; divide full time jobs into part-time jobs (with workers resulting in losing pay individually), reduce profits (which for many small businesses are already too low), eliminate all overtime and slow the production or delivery of goods and services, or cut other expenses such as marketing costs. Each of those options come with their own set of problems.

What effect will the new rule have on your business or industry? What changes will you make in your business as a result of the new rule?

Author: Janet Attard

Janet Attard is a small business expert and the founder and CEO of BusinessKnowHow.com. She is the author of several books and has written for magazines and websites as well as BusinessKnowHow.com

8 thoughts on “New Overtime Rule Effect on Small Business

  1. Ed Teixeira

    Most labor experts believe that the businesses that will be impacted the most are in the restaurant, lodging and healthcare sector. Business owners with multiple locations, regardless of whether franchised or independently owned, will need to adjust the hours that managers work. Some multi-franchisee owners will use 2 managers as a way to better control their payroll.

    Reply
    1. Eri

      Agree! Thanks a lot for sharing, great article!

      Regards,
      Eri

      Reply
  2. Attica

    Hi, I will agree with overtime rule effect for newly started business. But most of the employees want to go asap or otherwise on time. If company is ready to pay for extra hours employee will work happily to do overtime. Thank you for sharing this information.

    Reply
    1. Eri

      You are definitely right. It stands and falls with the decision of the companies to pay for extra hours.

      Regards,
      Eri

      Reply
  3. Josh

    Interesting take on the subject. I see you didn’t mention that businesses could raise prices!

    Reply
  4. kevin Wright

    Totally agree with the overtime rule. It is upto management to gauge whether more business can come through overtime work. However IF overtime is given too generously the employer needs to monitor the work productivity in normal working hours of those who readily take on overtime.

    I have known employees to slow up normal hours productivity to force overtime..
    Careful monitoring is necessary.

    Reply

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