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Businesses may not like the overtime rule, but best not to mess with it

By March 16, 2019No Comments

(This post originally appeared on The Guardian)

Starting in January 2020, small businesses will see their compensation costs rise. It won’t just be due to the increased wages as a result of the tight labor market. Or entirely because of higher minimum wages mandated by a city or state. Or as a result of the paid time off that’s increasingly becoming required in regions. All of those factors will contribute. But now there’s another thing: overtime pay.

Currently, if a business – big or small – pays a salaried worker who does not supervise others and is not a salesperson more than $23,600 a year, then that worker is not entitled to any overtime. This week, the Department of Labor issued a proposed ruling – effective next year – that would raise those wages approximately 50% to $35,308. The DoL estimates the 1.1 million US workers will be affected.

Business owners “generally do not like it when the federal government intervenes on wage issues”, Karen Kerrigan, president of the advocacy group Small Business & Entrepreneurship Council, told the Associated Press. That’s not surprising. But the rule, however, isn’t a big surprise to most of the business owners I know. There’s a history.

The overtime ruling was first changed by the Obama administration back in 2016, which increased the level of wages where overtime would be payable to $47,476. That move was challenged in the courts by a few opposing business groups. Now the Trump administration is back with a revised rule – which is open for public comment – and there are some twists that benefit employers.

According to law blog JD Supra, employers will have more flexibility as to how annual bonuses and one-time payments are applied to the new threshold. For example, an employee earning $35,000 would be subject to overtime during the year, but the new rule would allow a bonus at the end of the year – say, for $500 – which would put their compensation above the pay required for overtime compensation. That would benefit an employer where that employee’s overtime during the year was higher than $500.

In addition, $147,414 a year would be exempt from overtime so long as the employee performed at least one of the exempt “duties” under the executive, administrative or personal exemption tests. Previously, that amount was $100,000.

There are some additional tactics besides the ones I mentioned above. After making a list and determining which employees would become applicable for overtime pay under the new rules in 2020, you can firm up your work hours and better define workday limits (“overtime” can be as little as responding to an email over the weekend or staying an extra 15 minutes after a normal eight-hour day). You can also make adjustments to compensation, such as switching some employees to hourly pay or fiddling with bonuses and an employee’s job duties.

But if you’re going to play these games – and yes, they are games – you should do so carefully. And consider whether it’s worth it.

Monkeying around with an employee’s compensation just to avoid paying a few hours of overtime may not sit well with that employee. It’s also not a great idea in these times of low unemployment and competition for good workers. And make no mistake – if an employee has a beef with your practices he or she can easily report your actions to the Department of Labor. And that’s a can of worms you don’t want to open.

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