Overtime Overhaul Could Add to Small-Business Overhead

by Neil Cotiaux

2 min read

President Obama recently directed the U.S. Labor Department to modify its regulations affecting overtime, opening the door to extra pay for millions of American workers.

Among the regulations up for review is the cut-off salary for the so-called “white-collar exemption.” This rule currently permits employers to deny overtime pay to salaried workers who earn $455 or more per week (or $23,660 a year and up) — if they engage in some staff supervision but otherwise conduct mostly lower-echelon duties. Revised regulations could raise the cut-off, but probably not before the end of this year.

The Intuit Small Business Blog spoke with Dalton Green, who specializes in employment law at Hedrick, Gardner, Kincheloe, and Garofalo, about how the federal overtime rules may change — and what those changes could mean for small-business owners.

ISBB: What types of jobs will be most affected by broadening eligibility for overtime?

Green: Those most likely to be impacted are managers in the fast-food, service, and retail industries. These industries tend to have a fair number of low-level supervisors who may routinely work 50 to 60 hours per week without overtime.

Now, if they meet the supervisory standard but the salary standard is increased, then suddenly these people could qualify for overtime. That could be a really big deal to employers.

How much might the cut-off salary for overtime increase?

The last time the threshold was increased was in 2004, from $155 a week to $455 a week. We could see something along those lines again.

Do you think the supervisory definition might also change?

At the present time, to qualify for the white-collar exemption, the employee must “customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.” Right now, two part-time employees are the equivalent of one full-time employee.

This language could be changed to include coverage for any employee who regularly supervises two other employees, either full- or part-time. This could greatly increase overtime coverage for those in smaller businesses with smaller departments, fewer employees, and more part-time employees.

So, what options might employers consider?

I think it’s going to depend on what kind of extra cost the employer can absorb. All of a sudden, if employers have to pay time and a half for 10 to 20 hours per week for two or three employees, that is a huge cost. If those employers don’t have the cash flow to absorb that kind of expense, they’re going to have to look to ways to get around it.

What could that mean?

Certain employers are going to have to cut hours or redefine job descriptions. Perhaps what has historically been one job gets divided into two different jobs, and those jobs are filled by part-time employees. So, instead of having one employee who works 60 hours per week, you’ve got two employees who each work around 30, and you avoid the overtime.

What about outsourcing?

Employers must be careful not to misclassify someone who is actually an employee as an independent contractor, as such an error can bring additional wage and hour liability.

Any other thoughts?

It’s not going to be subtle. I think we should all probably just buckle up.

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