Preparing Small Businesses For The New Overtime Regulations

Preparing Small Businesses For The New Overtime Regulations


As a small business owner, you are no doubt constantly facing situations with unexpected costs that may require obtaining a working capital loan or other sources of alternative financing. Without the proper foresight, these unforeseen expenses, such as an inventory shortage or repairs and maintenance, can add up and place a heavy burden on operating capabilities. One such new rule that can potentially blindside owners if they’re not paying attention is the new federal overtime regulations. While the regulation is still in its proposal stage, many experts agree that the U.S. Department of Labor will issue its final rule sometime in 2016, which would effectively overhaul the overtime exemption rules and salary threshold provisions of the Fair Labor Standards Act.

The new overtime regulations

Back in June 2015, the department released its proposed overtime regulations that would more than double the minimum salary for executive, administrative and professional exemptions from $23,660 (or $455 per week) to $50,440. This means anyone you pay below the $50,440 threshold will be eligible for overtime for any hours worked above and beyond 40 per week.

Further, the new regulations would also reclassify the total annual compensation requirement that would automatically exempt highly compensated employees from $100,000 per year to $122,148 annually.

Finally, the proposed rules would also create a mechanism for automatically increasing the threshold for salary and compensation levels to ensure they continue increasing at adequate rates. However, the department has not stated whether this will be based on inflation or other metrics.

Next steps for owners

While keeping this important rule change on your radar is important, it’s also equally crucial that you take the necessary steps to prepare your business and protect your budget from these changes.

The Society for Human Resource Management, recommended some crucial next steps that all small business owners should undergo during this transition period. This is especially key for companies that do not utilize a human resource division or that do not have a dedicated human resource manager.

First, it’s key that you know exactly how many hours a week your employees work. This might entail creating threshold alarms or scheduling tools to manage overtime so you know when an individual is on the clock for more than 40 hours a week. There are great software programs that you can purchase to assist with this monitoring process.

Next, it might be wise to consider raising employees’ base salary if they were previously exempt from the overtime rules but who would now fall under the new regulation. This would require you to calculate the increased salary and compare it to the estimated overtime costs to determine if this is a viable, cost-effective strategy. For some companies it might be a good route, while for other ones it could end up being more expensive.

As noted in MarketWatch, experts anticipate roughly 211,000 small businesses employing 1.8 million workers to face new compliance regulations for these overtime pay rules. In particular, many low-wage salaried workers in western and southeastern states will most likely be affected.

With the potential for an increase in labor costs, small business owners must be prepared to take on additional operating budget items. This might include increasing managers’ salaries, lowering rent, hiring and training new part-time employees or some other combination of cost-cutting measures to avoid these new overtime expenses. For some businesses, it can take time to revamp the budget, and owners might find themselves short of cash. In a situation like this, obtaining a small business loan from an alternative lender can be key for bridging this fiscal gap.