How Small Businesses Should Interpret the DOL's Wage and Hour Regulations

What small businesses should do about the DOL’s wage and hour regulations

On the surface, the intent of the Department of Labor’s new overtime wage and hours regulations was to establish rules that make it easier for businesses to apply to their operations. However, according to Business News Daily, for small businesses, the proposal serves as a major shift in hiring practices, payroll and corporate structure. This is particularly true for smaller firms practicing accounting, law and consulting. 

A pall is cast over small businesses of any kind because there is no telling how these regulations will impact them in the long term. In fact, the troubling aspect of these regulations for many small-business owners is that it signals more changes on the way because the Department of Labor intends to raise the wage minimum threshold for overtime pay for non-exempt employees every three years starting Jan. 1, 2020.

All told, when these regulations take effect on Dec. 1 of this year, more than 4.2 million workers will be affected, according to the Society for Human Resource Management. These employees, who had been exempt from overtime pay or reduced pay, will now be entitled to receive new salary level minimums. The key issue is that in order for these employees to be considered nonexempt, their weekly earnings will need to be bumped up to comply with the new regulatory standards.

New rules will force small businesses to evaluate their workforces

The regulations will force many companies to make tough decisions regarding non-exempt employees. Small businesses will need to determine whether non-exempt employees are worth the bump in pay to make them exempt or if they will need to hire part-time or temporary workers to avoid paying the stiffer overtime wages. That is a major shift because the pay increase jumps from $455 per week in standard salaries for overtime pay to $913 weekly, and the highly-compensated employee threshold spikes from $100,000 to $134,004 annually.

All of these concerns can be avoided by simply not having employees work beyond the standard 40-hour work week. That will be especially important for employees making under $47,000 per year because of the spike in their overtime wages. The question is whether the rues will force smaller businesses to determine whether to have employees work fewer hours, implement bonus or commission structures to enhance productivity of employees within the 40-hour work week or just increase wages to make employees exempt. While there are certainly options for small businesses in terms of maneuvering employees around the exemption thresholds, the options will have a significant impact on their payrolls.

The impact will be expensive

On top of the potential salary increases, there will be several new considerations for small businesses in terms of employee hour controls. For instance, timekeeping systems may need to become an added expense to ensure nonexempt employees remain within the hourly threshold. Training and resource allocation will also need to be heavily monitored to ensure employees are within the exemption standards. Furthermore, smaller businesses may also need to hire part-time staff to accommodate the productivity gaps from nonexempt employees. Workload overflow is a reality for many small businesses, so it may very well be more cost effective to cap an employee’s workweek at 40 hours and hire additional staff.

Bottom line

The most substantial change in the new regulations is that it impacts salaried employees. Previously, small businesses were afforded flexibility with employee hours per week due to salary instead of hourly wages, but now those advantages are gone. For example, if an employee works additional hours to advance his career, it may actually impede his progress due to the overtime pay exemption thresholds.