The U.S. Department of Labor recently issued regulations that change the rules substantially when it comes to paying overtime. Presently, workers who earn less than $455 per week must be paid for overtime worked. However, on December 1, 2016, that threshold increases to $913 per week—a change that has caused a fair amount of pushback from the small business community.
Several issues come to mind, many of which are noted in the article New OT rules force small businesses to make hard choices.
- Many businesses employ low-level managers who, if they currently earn more than $455 per week, will have to be paid on a basis that would render them effectively non-exempt under the Fair Labor Standards Act (FLSA) unless they earn at least $913 per week. Many people in the small business community contend that raises may have to be given to certain managers to get them past the new threshold to avoid the payment of overtime.
- To combat this, some have pledged to send home managers as soon as their shift ends to avoid the payment of overtime.
- Another argument is that the rule will affect morale. Further, there may be times when an unhappy customer asks to speak to a manager, only to learn that one is simply not on the job. Can you imagine the customer service repercussions here?
One thing not mentioned in the article is that the current threshold of $455 was raised from $250 by then-President George W. Bush in 2004. Some argue that the increase was long overdue.
A More Compelling Argument
However, I think a more compelling issue exists that was not considered when the Department of Labor issued its ruling. The new threshold applies to all 50 states, whether you live in Massachusetts, where the median household income was $64,859 in 2014, or in Mississippi, where it was $36,919.
Business owners in the South can make a better case for a lower threshold given that wages (as well as the cost of living) are substantially less than in other parts of the country. For many companies in the Bay State, the new threshold does not present an issue. At Genesis, for example, all salaried employees make well in excess of $913. Clearly, this may not be the case for southern companies when compared to their northern counterparts.
Interestingly, one business owner in the article contends that “everyone coming to work for you wants to be salaried, have that cachet, that status.” A couple of things to remember here:
- First, the decision to classify employees as salaried or hourly is not a matter of choice. This is specifically addressed by the FLSA. You can learn more about FLSA classification here.
- Second, I would contend that employees want to be paid fairly. A salaried employee who works overtime is more likely more interested in being paid more rather than less, and sacrifice a little “cachet.”
Some argue that these increased costs will adversely affect the small business community. While the argument has some merit, it is also true that all businesses will be affected similarly. I believe the aphorism that “a rising tide lifts all boats” applies here—time will tell.