Good news and not-so-good news about the new overtime rule for small business owners

The U.S. Department of Labor released the official regulations about the new overtime rule.

The rule is to result in putting “more money in the pockets of middle class workers – or give them more free time”, according to the DOL’s website.

The speculations surrounding the rule were mixed and now with its official status, there are bound to be even more stomach-churning, heart-burning and squeals of joy, depending on which side of the fence you are on.

The new rule takes effect at midnight on December 1, 2016.

In my opinion, the new overtime (OT) rule has some good news and some not-so-good news for small businesses who already employ staff or are thinking of employing staff.

Let’s have a quick look at what this may mean for you and your small business.

Your small business before the new OT rule

  • Employees were exempt from OT rules if paid a minimum of $455 per week.
  • There were additional “tests” to determine eligibility of an employee’s exempt status, including a “duties test”.
  • The minimum salary exemption changed approximately every 10 years.
  • If employee met the “tests” and received minimum compensation of $23,660, small business owners could qualify that employee as exempt from OT.
  • Exempt employees working more than 40 hours per week would not trigger OT pay.

Your business after the new OT rule

 

  • Employees are exempt from OT rules if paid a minimum of $913 per week.
  • There are no new “tests” to determine eligibility of an employee’s exempt status, including no new “duties test”.
  • The minimum salary exemption will automatically update every 3 years (potentially increasing as economy improves).
  • If employee meets the “tests” and received minimum compensation of $47,476, small business owners could qualify that employee as exempt from OT.
  • Exempt employees working more than 40 hours per week would not trigger OT pay.

The new overtime rule is a good sign of things to come for not just “middle class workers”, but all U.S. employees.

However, for a very small or growing small business, the new overtime rule may present a hardship.

If a business generates less than $1 million dollars in revenue, it tends to have a small employee (if any) base.

While $913 per week may not seem like a lot to companies with over $1 million dollars in revenue, it IS a lot, because that’s the gross pay per week. That is not the burdened (read: with employment taxes) amount or cost of one employee.

The federal minimum wage is $7.25 per hour, but a small employer, located in a city or state with a higher minimum wage, will incur an even higher overtime hourly rate.

For small non-profit employers, there are the same concerns as for-profit employers, but there may be one complication: the fiscal year.

Many small non-profit employers have fiscal years following their grant reporting requirements, instead of the calendar year.

For budget/fiscal years ending over the summer or ending before the new overtime rule takes effect, the fiscal oversight personnel (e.g. executive directors, board members) will need to estimate payroll based on the new overtime rule.

For grant writing/seeking, the payroll estimates will need to factor in the new overtime rule.

The DOL provides a bit of guidance geared specifically to non-profit employers. Hopefully non-profit employers find it useful.

Do I agree with the new overtime rule? Surprisingly, I do. I believe it will, in the long-term, sustain our employment economy of scale and our communities.

If people can keep their heads above water, then their communities will benefit. At least, it’s what I believe.

However, what I wanted to see was a gradual scale of adoption or tiered exception in phases of the rule.

For small businesses looking to sustain and grow, an extra pair of hands may be an option. But, the cost, in the short-term, may be more hindrance than help.

If an employer grosses less than $1 million dollars in revenue (and I’m including small non-profits obviously), then it would only be fair to give more time to adopt the new overtime rule.

But, that’s not the case.

The compromise?

Instead of only having 30 – 60 days to implement the new OT rule, employers will have until midnight of December 1, 2016, or a little more than 6 months.

It’s not the best timeframe for the businesses with the greatest need to adjust, but it’s better than nothing.

What lessons will there be to learn as a result of this new overtime rule? Only time will tell.