Vail Daily column: Is your business ready for new overtime regulations?
Get ready, local businesses. The Department of Labor has revised the definition of exempt employees, which is likely to impact many businesses across industry sectors. Small businesses with a high number of hourly and seasonal employees, nonprofits and retail, restaurant and manufacturing industries will be most affected.
A bit of background: Last July, the Department of Labor proposed a dramatic change to the regulations that determine whether a white collar employee — executive, administrative, or professional — is eligible to be paid overtime for any hours worked beyond 40 per week. Currently, if these employees are performing the primary duties of their classification and paid a salary more than $23,660 annually ($455 per week), they are classified as exempt from being paid overtime. The new proposal would increase that salary to $50,440 annually ($970 per week), and increase it annually. For more information, local businesses can view an informational webinar from the U.S. Chamber by visiting http://bit.ly/1S31IrA.
Here are a few of the key details on the new rule:
• The final rule radically increases the salary threshold under which most employees will be automatically eligible for overtime pay. The current salary level required for exemption is $455 a week ($23,660 for a full-year employee), which was last updated in 2004, and the new exemption threshold will be $913 a week, or $47,476 per year. The deadline to comply is Dec. 1.
• Employers can take up to a 10 percent credit toward the salary threshold from commissions or bonuses as long as they are paid at least quarterly.
• The change in the salary threshold also includes an automatic adjustment every three years. The adjustment will be tied to the 40th percentile of full-time salaried workers in the lowest wage region of the country (currently the Southeast).
• The overtime rule leaves intact the current duties test that employees must meet to be exempt, in addition to being paid a salary above the $47,476 threshold.
If implemented, this higher salary will mean many employers will have to either increase their employees’ salaries to keep them exempt, or reclassify them as hourly employees and possibly pay them overtime. For many of our large — and especially our small employers, this regulation could mean a disastrous financial hit, or reduce the ability of many businesses to serve their customers.
Effects on businesses
Reclassifying employees will mean many employees will lose the ability to set their own hours, and to work from home or use electronic technology to conduct their work since that time will be compensable and tracking it will be impossible. Many employees who will be reclassified are likely to consider it a demotion and likely resent the change of status.
Overtime can be costly for small businesses with fewer employees and locations, especially when there may be only a few vital managers or workers whose occasionally heavy workweeks are both expected and necessary. This could either lead to tighter budgets for those businesses or unexpected layoffs of valuable employees no longer over the exemption threshold.
While much attention on the impact of the proposed changes has rightly been on how typical for-profit employers will have to adjust, what has gotten inadequate attention is the impact the new rule will have on the most vulnerable employers, such as nonprofit charities, academic institutions, and local and municipal governments — all of whom will be challenged to increase their revenues to cover higher labor costs. These groups are our partners in helping to make our communities attractive locations in which to live and start businesses. What will hurt them will hurt us.
Employees of nonprofits routinely work long and odd hours to serve their clients whose needs do not fall neatly into the typical eight-hour workday or 40-hour workweek. To avoid this significant budget hit, many charitable groups will be forced to reduce the amount of emotional counseling, free medical care and other services for people and families in need.
The Protecting Workplace Advancement and Opportunity Act would address the problems with the new rule. First, it would nullify the proposed regulation — either in its proposed stage, or if it has been finalized. Second, this bill would require the Secretary of Labor to conduct a detailed and extended economic analysis identifying the impacts on employers that were ignored in the proposed rule such as nonprofits, small governments, Medicare and Medicaid dependent health service providers and academic institutions. The economic analysis must also identify the impacts in different regions of the country and non-financial impact such as employee benefits, workplace flexibility and career advancement opportunities.
Consider contacting your congressman and senators to voice your opinion in support of the Protecting Workplace Advancement and Opportunity Act if you believe this regulation will negatively impact your business. In the meantime, begin to prepare for the changes coming to exempt employee and overtime rules.
Chris Romer is president and CEO of the Vail Valley Partnership.
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