With just about 90 days to go before the U.S. Department of Labor’s final rule dramatically updating overtime regulations is scheduled to go into effect, small business owners have petitioned the DOL’s Wage and Hour Division seeking more time to prepare for and implement changes to the way they operate their businesses so that they can remain compliant with wage laws. In a parallel move, on September 28, 2016, the U.S. House of Representatives also voted in favor of the Regulatory Relief for Small Businesses, Schools and Nonprofits Act, which would delay implementation of the DOL’s final overtime rule by an additional six months, until June of 2017. President Obama has threatened to veto the bill if it passes in the U.S. Senate.
The final rule will raise the minimum salary threshold triggering required overtime pay an will affect an estimated 5 million full-time employees nationwide, by raising the minimum salary threshold to qualify for the Fair Labor Standards Act’s “white collar” exemption from $23,600 to $47,476. This dramatic increase of more than double the existing salary threshold for overtime pay will likely hit small business owners the hardest. According to the petition filed by the National Federation of Independent Business (NFIB), 68 percent of U.S. businesses have fewer than 10 employees, and many of these businesses will be subject to either individual or “enterprise” coverage under the FLSA if they have an annual revenue of at least $500,000 or they engage in interstate commerce.
As employers have been preparing for the new overtime regulations to go into effect, many companies have been required to restructure their workforces and business operations, by reclassifying formerly overtime-exempt employees as non-exempt, investing in costly hour-tracking and recordkeeping systems and eliminating a great deal of the flexibility they were previously able to offer employees. Some companies have sought to eliminate overtime labor altogether by restructuring work shifts and adding duties and responsibilities to the jobs of exempt workers who were already fully utilized and working long hours. Many employees being downgraded to non-exempt status are losing benefits they previously enjoyed that were offered only to exempt employees.
When these sweeping types of operational changes are introduced suddenly in a small business, with its attendant tighter profit margin, lower revenue stream and leaner administrative resources to implement such changes, it stands to reason that employees may see a reduction in or elimination of benefits, be required to pay for or subsidize benefits previously provided entirely by the company, or even be laid off. Small business owners are struggling to find a way to keep their current workforces in tact, their doors open for business and still remain compliant with the new overtime wage laws.
While both the NFIB and the lawmakers supporting the Regulatory Relief for Small Business, Schools and Nonprofits Act concur that overtime rules are due for an upgrade, they believe the final rule, as presently written and scheduled to go into effect December 1, is simply too much, too fast, and America’s small businesses – which account for the majority of the country’s commerce – are simply not nimble enough to make these sweeping changes in the time given without hurting the employees the law is ultimately designed to help.
Employers need to be ready for the December 1 effective date of the new overtime regulations. The DOL will likely be on heightened alert – perhaps even work overtime? – to make certain companies know the new overtime regulations are here to stay.