Recently, the U.S. Department of Labor (DOL) changed the regulations regarding overtime pay as part of the Fair Labor Standards Acts. It’s important for small business owners to have a firm understanding of the changes as they have the potential to have a significant impact on the bottom line. Here’s a look at the updates to labor laws and a few different ways companies can react to the updates without affecting long-term profitability.
The final rule
Referred to by the DOL as the final rule, the change is designed to address a perceived flaw in the way salaried white-collar workers are paid. Previously, salaried white-collar workers who made $23,660 a year and whose jobs required them to perform duties related to the management of a business were not entitled to overtime pay. As of December 1, 2016, the salary requirement will effectively be doubled to a rate of $47,476 per year. Additionally, the minimum salary requirement will now automatically rise every three years to keep pace with the U.S. economy.
Two compliance options
Now, there are a few different options available to business owners who have employees who will be affected by the change. The most obvious choice is to increase your managers’ compensation so that it meets the criteria for an exception to the final rule. As this surge in your company’s labor costs may prove to be problematic, another option worth considering is reducing the amount of hours your managers work per week. However, you may want to up your employees’ salary to compensate for their lost wages. Otherwise, you might be looking at a sudden and potentially devastating talent drain.
Depending on the size of your organization, you may want to consider implementing both of the above-listed solutions on a case by case basis. Baker Hostetler recommends instituting a program wherein your managers document exactly how many hours per week they need to do their jobs effectively before the final rule takes effect. You’ll want a decent cross section of data, so the program should last for at least a full quarter. That way you’ll be able to make the most cost-effective changes possible.
Lastly, there’s a third option you can employ to be compliant with the law while also blunting its financial impact on your business. In addition to raising the minimum salary requirement, the final rule also dictates that 10 percent of executive salary can be paid in the form of quarterly non-discretionary bonuses that are contingent upon factors like profitability. This option will likely prove to be the best for a company that is still in the process of getting its sea legs and doesn’t yet have the cash reserves to meet payroll in the face of a few bad quarters.
This article was written by Mario McKellop for Small Business Pulse