Small Businesses Could Face Increased Labor Costs Under Proposed Overtime Rule
Introduction: The Proposed Rule
On August 30, the U.S. Department of Labor (DOL) recently proposed raising the Fair Labor Standards Act's (FLSA's) annual salary-level threshold for overtime pay from $35,568 to $55,068.
This would mean that 3.6 million more workers would be eligible to receive overtime pay for any hours worked over 40 in a week. The department also is proposing automatic hikes every three years to the overtime threshold.
The proposed rule is still in its early stages, and it's not yet clear when it would be finalized or implemented. Until then, it is open for public comment until November 7, 2023. If individuals have any thoughts on the rule, they can submit their comments to the DOL here.
The Impact on Small Businesses:
Small businesses could be particularly hard hit by this rule. Here are some of the ways in which the proposed rule could impact them:
Increased labor costs: Small businesses may have to pay overtime to more employees, which could increase their labor costs.
Increased administrative costs: They may have to spend more time and money on administrative tasks, such as tracking employee hours and paying overtime.
Reduced profits: The increased labor and administrative costs could lead to reduced profits. This could make it difficult for small businesses to invest in growth and create new jobs.
Layoffs: Some small businesses may have to lay off employees in order to offset the increased costs.
The Exempt Status: The proposed rule would also make it more difficult for small businesses to classify their employees as exempt. Under the current rules, employers can classify employees as exempt if they meet certain salary and duties requirements. However, the proposed rule would make it more difficult for employers to meet the salary requirement, and it would also change the duties requirements.
Here are some next steps that small businesses can take to prepare for the proposed rule:
Review their employee classifications: Small businesses should review their employee classifications to determine if any of their employees would be newly eligible for overtime pay under the proposed rule. This includes reviewing the employee's salary, job duties, and responsibilities.
Estimate the impact of the rule: They should estimate the impact of the rule on their labor costs and profits. This can be done by using a tool like the DOL's Overtime Pay Estimator.
Develop a plan: They should develop a plan to comply with the rule, including how they will pay overtime to newly eligible employees and how they will track employee hours.
Stay up-to-date on the latest developments: Small businesses need to be checking updates on the rule regularly so they are not blindsided by any changes that could negatively impact them.
Know your rights: Small business employees should know their rights under the Fair Labor Standards Act (FLSA). If they believe that their employer is not complying with the FLSA, they can file a complaint with the DOL.
The proposed rule is a complex issue, and there is no easy answer for small businesses; however, by taking steps to prepare now, small businesses can minimize the impact of the rule and protect their bottom line.
