Businesses prepare for new federal employee overtime rules

Businesses prepare for new federal employee overtime rules

By Chris Teale (File photo)

Local businesses large and small may need to make some changes to their employees’ pay after new rules governing overtime were announced last week by the U.S. Department of Labor.

Under the rules, announced May 17, any full-time employee who makes less than $47,476 and works more than 40 hours a week is entitled to overtime, which must be tracked by their employer. The previous over-time threshold was $23,360 and the new rules will take effect December 1. Automatic updates to the salary threshold will take place every three years, beginning January 1, 2020.

Vice President Joe Biden announced the new rules at an event in Columbus, Ohio, and gave a preview of the regulations in a statement posted online.

“If you’re a manager on salary and you work an extra 10, 20, 30 hours a week — you often don’t get paid a dime more for those additional hours,” Biden wrote. “That’s simply wrong. Starting in December, we’re making sure that more workers get paid fairly for the over- time hours that they work.”

Alexandria Chamber of Commerce president and CEO Joe Haggerty said the new rules would be especially tough for small businesses, which may have to absorb a lot of changes for employees on payroll. Haggerty said the chamber recommended upping the over-time threshold in smaller increments, so it would be less immediately burdensome.

“[Businesses] are now going to have to look at people that they considered management and treat them as hourly employees and pay them time-and-a-half after 40 hours,” Haggerty said. “Someone who is working 50 hours a week would get 10 hours of overtime, which is fine, but you jump the rate from $24,000 to $47,000, that’s a pretty big jump to make companies change all their procedures.”

John Porter, president and CEO of city community nonprofit and fundraising organization ACT for Alexandria, said the impact on city nonprofits could be severe. He said to avoid spiralling payroll costs, some organizations may need to look at using independent contractors rather than full- time employees.

“Nonprofits are going to have to make decisions just like small businesses do,” Porter said. “Many nonprofits are operating on very slim margins and therefore it could have an impact both on staffing size and/or the types of employees.”

Under the new rules, it is the employer’s responsibility to track the number of overtime hours worked by employees who meet the requirements. Bill Reagan, executive director of the Alexandria Small Business Development Center, said that could add even more paper- work for owners that have plenty of bureaucracy to deal with already.

“From small businesses’ aspects, we hate to see any more regulatory matters that impose an additional burden on business owners to have to document and record,” he said. “They are busy enough as is, and this just adds more to their administrative burden.”

Haggerty said he acknowledged the extra money for employees who work more than 40 hours a week is a nice idea, but he argued the pain it could cause small businesses could nullify any positives.

“Any employer rule that the federal government has in place, they normally ad- just over a number of years or some kind of a more moderate adjustment,” he said. “One hundred percent in one year, and saying we’re just going to double this on you, is difficult on small businesses. You can argue people should get paid overtime for their work depending on what they’re doing, but that’s an awfully big jump for the average small business to try to absorb.”

All three said the SBDC, ACT and the chamber will likely collaborate to put together an information session for local entrepreneurs, as well as put out information in the form of a webinar or written material to inform business owners of the changes.

In the meantime, Haggerty recommended businesses start preparing now ahead of the new rules coming into effect. Porter said organizations should do their research and familiarize themselves fully with the new requirements.

“Now that it’s passed, I’d say make your plans for 2017 right now,” Haggerty said. “Start planning for 2017 and look at it from a budget perspective and try to figure out who’s affected and what’s the fairest way to treat your employees. You want to treat your staff in a fair manner, and this is the law, so you have to abide by it, but figure out the costs so you can plug them in for 2017.”