How New Department of Labor Overtime Rule Will Affect Small Businesses

overtimeThe U.S. Department of Labor (DOL) announced this week the release of its highly anticipated final overtime rule, which expands overtime protection to millions of workers across the United States. This new rule will take effect on December 1, 2016.

What Does The New DOL Overtime Rule Do?
1. DOL has made any salaried worker who earns less than $47,476 eligible for overtime. Previously, the overtime threshold was $23,660. DOL’s new rule doubles this threshold!
2. National Federation of Independent Business estimates the new rule will impact 44% of small businesses. DOL has said it could affect over 10 million employees. The rule could force many business owners to reclassify salaried employees to hourly positions – resulting in a loss in flexibility, bonuses, and promotion opportunities.
3. The implementation window is very short. Businesses must act quickly to determine what employees will be impacted either by reclassifying exempt managers into hourly positions or raising salaries.

How Could This Affect My Business?
1. In order for small businesses to avoid the costly overtime pay, managers moved from their salaried positions to hourly jobs will need to keep time cards and be prohibited from working overtime. This will be a burden for businesses that depend on managers and supervisors to work when needed in exchange for flexibility and other benefits.
2. Worker morale will likely decline as a result of this rule. NFIB anticipates the changes will especially hit low-to-mid level managers. These managers may currently make less than the $47,476 proposed threshold, but enjoy perks such as flexibility of hours and benefits like health insurance.
3. Fewer salaried, managerial positions would signal to employees that there is little opportunity for growth at the company.

What Steps Should Be Taken To Comply With The New Rule?
1. Check state versus federal regulations. Each state may enact wage and hour rules that differ from Federal overtime requirements. Remember to follow whichever rule is more generous to employees.
2. Classify employees by salary. Make a list of salaried employees who make less than $47,476 because they may be entitled to receive overtime once the rule becomes effective. Employees making over $47,476 may be exempt from overtime if their job duties primarily involve executive, administrative or professional duties. For more on the duties test, go here.
3. Consider changes to salaried employees. For employees who make less than the new salary threshold of $47,476 consider whether it makes sense to raise salaries to at least $47,476 if these employees typically work more than 40 hours per week. Alternatively you could convert the previous salaried employees earning less than $47,476 to hourly employees and limit or prohibit overtime.
4. Monitor overtime. For positions that often result in overtime pay, consider hiring more hourly full-time, part-time and/or seasonal employees, or job restructuring to offset expansion of overtime pay.

If you need help in understanding how this new rule will affect your small business, please contact us. As a CPA, Accredited Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can help you to start, manage, and grow a successful small business. For more information, call (727) 391-7373 or else visit us on the web at