Editors Note: Currently this law is held up in the courts, but it still may come back!
Now that we’ve looked at three significant ways new overtime laws could potentially affect small businesses, let’s shift our attention to what, specifically, you can do to prepare for any changes before they become law. How businesses can prepare for new overtime laws. New overtime laws might not be coming tomorrow—or even in January 2020. How new overtime rules affect small business. Most state and city labor laws. They must be paid at least federal and state minimum wage and receive overtime pay of 1.5 times their regular.
Whether you are an existing business owner or looking to hire to support a new business, new federal overtime rules could significantly impact your payroll. The Labor Department finalized an expansion to the overtime rules that will raise the overtime salary threshold. This means that all employees making less than $47,476 per year will be entitled to overtime pay—that’s time and a half for any hours over 40 per week.
What changed?
Prior to the overtime expansion, the threshold was set at only $23,660, allowing business owners to establish a salary for managers without being forced to pay overtime compensation under the “white collar” exemption. According to the U.S. Department of Labor, the final version of this rule will raise the minimum salary and require overtime pay for an estimated 4.2 million workers who are currently exempt.
Do I need to raise the salary for all of my managers?
Not necessarily. Depending on how many hours your current managers are working you could maintain their salary and make sure that they are not working more than 40 hours per week. This could mean hiring additional workers to cover the time gap or you could simply pay the overtime. Either way, it would be wise to do a cost benefit analysis of your needs and your business operations and determine how to best cover overtime.
Do I need to reduce the hourly expectation for my managers?
Any employees who make less than $47,476 will be entitled to time and a half. Whether you decide to minimize hourly expectation to prevent overtime payments or raise the yearly salary is up to you. The new overtime laws are intended to protect middle-class workers regardless of their titles. The new laws apply to all employees, including managers.
What are the penalties for overtime violations?
The new laws go into effect December 1, 2016 so you should ensure compliance by that date. Employees who are denied overtime can file lawsuits and join class actions against employers who have failed to comply with the law. This could result in steep fines and penalties so it is in the best interests of every employer to adjust payroll and salaries before the new overtime laws go into effect.
Can I simply cut the hours of my employees?
To prevent overtime pay obligations, many employers will shift to part-time and temporary workers to make up the difference. You could also convert your employees to hourly so that you can better track hours worked and ensure that all of your workers stay under the 40 hour per week threshold. There is no law that prevents you from shifting to part-time or a temporary workforce, however you should still be mindful of employee rights, workers’ compensation, and the fine line between independent contractors and employees.
Who will be most impacted by this change in law?
Any business owner offering employees a salary under $47,476 will automatically be forced to pay overtime for those employees. Workers who were paid hourly are already entitled to overtime regardless of their annual earnings. Primarily, the law will impact employers and the millions of lower level and mid-level managers and office staff. The federal overtime law change will have a broad effect on industries nationwide including retail, restaurant and service, universities, non-profits, and the professional business sector.
What are other businesses doing to absorb costs?
If you are a new business owner worried about how the new overtime laws may impact your bottom-line, consider what other businesses are doing to absorb the costs. Some have simply reduced the starting pay for new managers to compensate for the overtime they will need to pay out. For example, if you started out new employees at $40,000 you could lower to $35,000 and expect to pay overtime. Other employees have cut benefits and shifted workers to an hourly rate rather than salary. These options can work against the employee, but many employees have had to make such adjustments to ensure compliance and protect their profit margins.
Do bonuses apply to salary minimum?
Yes. If your employees receive a salary plus a bonus, that bonus can count toward up to 10% of wage. This means that if a combined salary and bonus is more than the minimum $47,476 you do not have to pay overtime.
What activities actually constitute overtime for managers?
Some jobs require afterhours attention, including checking Blackberries or iPhones at home, writing emails on the weekend, or travel time for work. But do these activities constitute overtime under the new law? When the federal overtime law kicks in in December, employers may have to take a second look at such activities and could require that employees be compensated for these after-hours activities. Pay challenges can also creep up when employees are needed to make calls overseas at odd hours or handle other tasks that would normally be covered by a salary.
Do I need an expert to help with my payroll?
Depending on how many employees you have and the extent of your payroll, you could benefit from working with a human resources expert or attorney to ensure compliance with wage and hour law. Any violations could result in serious penalties or consequences. Wage and hour violations may include failure to pay overtime, misclassification, and other discrepancies. Under the Fair Labor Standards Act (FLSA), any employer who violates minimum wage and compensation laws could be liable for both shortfall and liquidated damages.
Government penalties are becoming steeper for employees who flout wage and hour laws. Business owners can also be held personally liable. In a recent case, the president of a Minnesota company was sentenced to two years in jail and a potential fine of $3.3 million for intentionally underpaying overtime and benefits. To avoid fines and criminal penalties employers must comply with all state and federal minimum wage, overtime, and other benefit related regulations. An experienced human resources consultant or employment law attorney could help review your payroll and benefits to help protect your investments and business.
Effective December 1, 2016, the Department of Labor is enacting a new overtime law in which the Fair Labor Standards Act is being changed, allowing the threshold annual income below which overtime pay is required (assuming all other requirements for overtime pay are satisfied) to rise to $47,500, compared to $23,660, which was the amount under the old law.
This means that salaried workers who make less than that amount will become eligible for overtime pay when they work more than 40 hours in a week. This is leaving millions of Americans wondering how the new overtime law will affect them. However, in order to understand how the new overtime law will affect you, you first must know how overtime pay works.
How New Federal Overtime Laws Can Affect Your Small Business Tax
Understanding The Overtime Laws
How New Federal Overtime Laws Can Affect Your Small Business Taxes
Under the Fair Labor Standards Act (FLSA), a non-exempt employee, who qualifies for overtime,must receive time-and-a-half pay for any hours worked over 40 hours during a work week.
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However, The FLSA also contains dozens of exemptions under which specific categories of employees are exempted from overtime requirements.
Employees that are considered exempt, and ineligible for overtime, are so if their job passes a duties and salary test, and involves the responsibilities as defined by the Labor Department. These positions typically consist of administrative, executive, and professional employees, as well as computer professionals, and employees who perform outside sales.
Exemptions from the overtime requirements of the FLSA are exceptions to the rule and are very narrowly construed by the courts. An employer will always have the burden to prove that he has correctly classified an employee as exempt, otherwise he could be liable to pay double the unpaid overtime plus the employees’ legal expenses.
Understanding The Changes To The Overtime Laws
While the only major change to the FLSA’s overtime law is the salary threshold for exempt employees, which is almost doubling, this is leaving many employees wondering if they will now be considered non-exempt, becoming entitled to overtime.
How New Federal Overtime Laws Can Affect Your Small Business Income
How New Federal Overtime Laws Can Affect Your Small Business Account
The Labor Department has concluded that people who have the title of “Manager” or “Assistant Manager”, especially in retail or service operations, may be the ones who will be more affected than others, simply because of what their responsibilities entail and how much they are paid.This means that if their position can’t pass both the duties and salary tests, they will now be entitled to overtime pay.
The new overtime laws could be quite costly for employers. This is where employers may look to make meaningful changes in job duties (not just titles) to ensure they don’t become liable for overtime pay to employees who were not entitled to overtime pay in the past.
For more information or any questions that you may have in regards to your employment rights or eligibility to receive overtime pay or your duty to pay overtime, contact the attorneys at Maduff & Maduff today.