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What small business owners need to know about the new overtime rule

What small business owners need to know about the new overtime rule

As a small business you understand the need for ensuring you have the working capital available to cover payroll. Employees expect to be paid on a set schedule, whether that includes a biweekly or once-a-month process. If your staff members are not receiving their paychecks at the appropriate times, then it will lead to dissatisfied, disgruntled and even disenchanted with your company and seek out work elsewhere. With the recent passage of new overtime rules, it’s crucial that small business owners understand these changes to employee compensation so they don’t find themselves without enough capital to cover payroll.


Working overtime

In 2014, President Barack Obama directed the U.S. Department of Labor to review the regulatory definitions in the Federal Labor Standards Act for what constitutes minimum wage and overtime for white-collar workers. Further, President Obama instructed that the rule be modernized, simplified and updated to ensure both that workers are receiving a fair day’s pay and that the regulation’s overtime protections are implemented.


The update was largely aimed at boosting low and middle-income wages that economists say have plateaued over the past years, USA Today reported. By ensuring higher compensations for white-collar workers who work more than 40 hours a week, the move should both appease employees and stimulate the economy.


On July 6, 2015, the Labor Department posted a Notice of Proposed Rulemaking in the Federal Register, which allowed more than 270,000 people and parties to comment on the proposal. The deadline to submit written comments passed Sept. 4, 2015. President Obama and Labor Secretary Thomas Perez announced the publication of the Final Rule May 18, 2016 and the updated version of the overtime regulation will go into effect until Dec. 1, 2016.


Although there is still more than half a year until the rule’s effective date, Labor Department officials anticipate the change will immediately extend overtime pay protections during the first year to more than 4 million workers. To prepare for changes, small business owners should carefully review the new regulations and prepare for any repercussions.


What are the changes?

According to the Labor Department, the new rule has three key provisions which focus primarily on exemptions for executive, administrative and professional workers. This includes:

  1. Raises the minimum wage for white-collar workers from $455 to $913 per week, or $47,476 annually for a full-time employee; this standard salary level equals the 40th percentile of earnings for a full-time salaried worker in the South, which has the lowest-wage Census Region.
  2. Raises the standard for highly compensated employees subject to a minimum duties test from $100,000 to $134, 004 a year; this standard salary level equals the 90th percentile of full-time salaried workers nationally.
  3. Creates a schedule for automatically reviewing and increasing the salary and compensation levels every three years.


How this impacts small businesses

The FLSA requires employers to pay most employees at least the amount required by the federal minimum wage for all hours worked, and overtime pay for all hours worked beyond 40 in a single week. Prior to the new rule, business owners could exempt executive, professional and administrative workers from overtime pay if they earned a salary of not less than $455 per week. Come Dec. 1, 2016, though, this exemption number jumps to $913 per week.


For some small businesses, the new overtime rule will not affect them. Companies with blue-collar workers earning hourly wages will most likely already be paying time and half or an equivalent for overtime.


However, USA Today noted that many companies may be forced to convert salaried employees to hourly positions to avoid paying overtime rates. This move may end up eliminating benefits for the individual and could even feel like a demotion. In addition, if an employer is intent on restricting overtime pay, many workers, including those employees who fall just below the new regulation’s salary threshold, might be much less inclined to go the extra mile for their jobs if they will not be compensated for it.


Small business owners with employees that fall under one of these categories might find the requirements under the new rule eating into their labor budget. An excellent way to bridge the higher payroll costs is a small business loan from an alternative lender. With easy applications and quick approval rates, you can find the extra capital you need to comply with the new federal regulations and also keep your employees satisfied.


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