Earlier this year (May 18th, 2016) the Obama administration unveiled new changes to laws regarding overtime pay for workers.
These new regulations make changes to the minimum threshold under which full-time salaried employees are eligible for overtime pay. The old threshold was at $23,660 a year –meaning that full-time workers who earned less than this amount, and who worked overtime, were entitled to time and a half pay. Under the new regulations, though, this threshold has been raised to $47,476, and full-time employees earning less than this amount will now be eligible overtime pay when they work extra hours. The rules don’t, however, apply to hourly workers, who are eligible for overtime no matter what their earnings are.
Employers were given just 190 days to implement these changes, a timeframe that many businesses are struggling to work with.
Small Businesses Seek a Delay
On September 14, The National Federation of Independent Business (NFIB) called on the U.S. Labor Department to delay the rule –which was slated to take effect Dec. 1, 2016, to give employers some extra time to comply with the changes. This group seeks a delay in implementing the new rule until June 1, 2017.
“In many cases, small businesses must reorganize their work forces and implement new systems for tracking hours, record keeping and reporting,” NFIB President Juanita Duggan says. “They can’t just flip a switch and be in compliance.”
Additionally, small businesses, which are often strapped for cash, may find difficult to adjust to the increased costs of higher salaries.
Concerns of Small Businesses
These new changes will have an especially significant impact on small businesses, affecting four percent of the 5.5 million U.S. businesses with fewer than 500 employees, according to the NFIB. About 3.2 million of these companies employ ten, or fewer workers.
Adjusting a system that has been in place for a long period of time is a challenge in and of itself –but given the relatively short amount of time that businesses have to implement these changes, adjustment is even more difficult. Complying with the new rule of overtime, for many small businesses has become a significant burden, fueling the NFIB’s calls for an extension to the 190 days that were originally given.
The Impact on Workers
Working in a small business often allows employees more flexibility with their hours, and in many cases, workers can also climb the ranks faster than they would be able to in a larger corporation.
But many small businesses are concerned that the new regulations will force them to scale back the flexibility that they allow their employees to have. It’s expected that many businesses may try to shift previously salaried employees back to hourly wage status in an attempt to control costs, leading to less versatility in the workplace.
Take, for example, employer Bryan Pate, chief executive and co-founder of EllipitiGo, an elliptical bicycle manufacturer with 22 employees based in San Diego. Due to the rule change, Pate has said that he, like many other small business owners, will be forced to move his employees to salary pay instead of hourly wages.
Pate says that due to the rule change, he’s likely to move one recently salaried manager back to hourly status, and to hold off on moving two other workers from hourly wages to salaries.
“It [will] put a damper on their ability to evolve in the company,” Pate says.
According to a study by the National Retail Federation, while these changes mean that nearly half a million people will earn approximately $11,600 more in overtime pay; these gains might be offset by other reductions. Workers may see a cut in their base wages, as well as bonuses and other benefits as employers make cutbacks in an attempt to manage costs.
It remains to be seen whether Congress will provide adjustments to this regulation to allow small business owners additional time to implement the changes. NFIB officials, however, say they will continue to oppose the overtime rule and support a bill by Rep Kurt Schrader, D-Ore. –that would see the new changes phased in over a period of three years.