5 Steps Small Businesses Must Take To Prepare for New Overtime Pay Rules

5 Steps Small Businesses Must Take To Prepare for New Overtime Pay Rules

Are you an employer? If so, you’ve got a major challenge to accomplish in the next few months.

Most businesses aren’t ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) that the Department of Labor recently published, which will impact to millions of U.S. workers and their employers. The rules go into effect December 1, unless Congress intervenes to prevent or modify them.

Why do these changes matter? Because it will almost certainly affect how you pay at least some of your employees. In brief, if you have a salaried worker making under $46,467 per year, you will either need to give them a pay increase, cut them to hourly, or start paying them overtime when they work more than 40 hours per week.

“Businesses aren’t really aware of the significance of these rule changes,” said Tara Wolckenhauer, Division VP at ADP. “We really need to communicate to them the impact of these rules, if they do go into effect. How will it impact the way we work, how it will change internal workflows, and what businesses need to be doing to prepare.”

The new overtime and worker classification rules doubles the threshold from $23,660 that salaried employees could make and be considered non-exempt from overtime (meaning employers would have to pay them overtime if they made less than that amount). That threshold, which equals $455 per week, had not been fully adjusted for inflation since 1975, although the last partial update had been made in 2004. Still, it doesn’t take a genius to realize that a worker making under $25,000 is not a critical manager.

In today’s economy, however, can it be effectively argued that even the new threshold of $46,467 is a defining mark for “white collar” managerial positions? The CEO of the financial services firm Sageworks says the number is somewhat arbitrary, particularly with significant cost of living differences across the nation. Many other business group are also against the new overtime threshold, including restaurant chains and those who rely heavily on telecommuters.

While the labor rule changes are quite monumental, Wolckenhauer says there is a silver lining: Employers have several months to prepare. “Delaying the rules until December 1 was almost a gift,” she said. “After seeing the initial proposal, we were concerned the Labor Department would push for implementation in 60 days.” Read more on CPA Practice Advisor.