The U.S. Department of Labor recently passed wage regulations that more than double the limits set for overtime eligibility — and they did so over the objections of many small businesses.
The new rules mean that anyone making $47,476 or less is now eligible for overtime pay if he or she works more than 40 hours a week. Some fields are exempt: teachers, police, firefighters. Managers aren’t exempt, unless they make more than the limit. Retail workers, line workers in assembly plants, hourly restaurant staff — all are eligible under the new rules. Figures show about 5 million people nationally will now be eligible.
And businesses have to figure out how to maintain current levels of productivity and still keep their bottom line in the black.
It’s not going to be easy.
The rules are complex, and some businesses are hiring human-resource consultants to examine every job description and every position to see who is eligible for overtime and who isn’t. In some cases, costly time-keeping methods — computerized or punch cards — will be needed to accurately track workers’ time on the job.
Some companies will try to use flex time, giving time off if an employee works more than 80 hours in a pay period. That might work, but legal experts say it’s risky — a complaint from an employee leads to labor department investigations and possible civil penalties in addition to paying the overtime that was due.
There are arguments in favor of the decision: The overtime wage regulations were hopelessly stuck in the 1970s, when the limit was placed at $23,660. Supporters argue that the increase is necessary to keep pace with the economic realities of the 21st century. It clearly was the Obama administration’s answer to failure in Congress to increase the minimum wage.
But it was too much, too fast. Instead of gradually increasing the wage limit over a number of years, the Labor Department decided to double the overtime wage limit. After this year, the department is set to make gradual increases in line with cost of living adjustments.
Instead of giving businesses years to work through legalities, red tape and needed additional technology — they have months. And the burden will fall on small businesses, many of which cannot afford either the consulting fees to get it right or the civil penalties if they get it wrong. To localize that point, places like Fountain and Palmer Lake — with much lower costs of living — will face the same limits regarding overtime wages as big cities like San Francisco or New York.
In some cases, opponents argue that workers lose. The National Federation of Independent Businesses, an industry group that lobbies on behalf of small and micro-businesses throughout the nation, believes that entry-level management jobs will disappear as employers revert salaries to hourly wages to make sure they comply with the rules.
And, the NFIB says, the revisions mean businesses will spend millions in additional labor costs — even if they aren’t seeing a corresponding increase in revenue.
The huge jump in the baseline limit leaves small businesses struggling with difficult choices, which actually could harm workers the Labor Department is seeking to help.
While Congress could act to block the regulations, it’s unlikely in an election year, leaving businesses with little recourse but to set up new timekeeping measures, change job descriptions and move employees to hourly wages before the December start date.
A more nuanced approach could have solved the issue: gradual increases in the overtime wage limit instead of doubling it in a single year.
It’s too late for nuance, however — and business owners are left to sort out the regulations to balance jobs, productivity and revenue.