The Effect of New Overtime Rules on Small Businesses
What are the effects of new overtime rules on small businesses?
According to new regulations from the U.S. Department of Labor, as of this past December, approximately 4.2 million more Americans have become eligible for overtime pay. As long as you own a small business with full-time employees, this change is likely to affect you.
The new regulation stipulates that hourly workers, lower-wage earners and non-managerial workers must now be paid overtime wages, one and a half times their regular hourly wage, when they work more than 40 hours in a week. As a result, overtime will be paid to considerably more workers than previously, including those who are salaried.
What specific changes do the new regulations make?
The new regulations involve the following changes:
- Minimum salary threshold for exemption from overtime rules for a full-time salaried worker has been raised from $23,660 to $47,476 annually ($455 to $913 per week)
- There will be an adjustment to this level every 3 years
- Employers can include up to 10 percent of the employee’s salary level in non-discretionary bonuses and commissions
History of Labor Law
As most of us are aware, working conditions in the U.S. were extremely poor during much of our history. During the Great Depression, things had gotten particularly bad. It was at this time, during the 1930s, that the Fair Labor and Standards Act (FLSA) was enacted to address some of the issues of worker maltreatment. This act established:
- A 44-hour work week, which morphed into the current 40-hour work week
- An 8-hour work day
- A national minimum wage of 25 cents — now $7.25
- Limitations on child labor
- Overtime pay of time-and-a-half
Clarifications of New Regulations
In order to understand the new federal regulations, one has to comprehend the difference between exempt and non-exempt employees. Even when the FLSA was first enacted to prevent worker exploitation, it was recognized that flexibility was necessary, so executives, administrative and professional employees, as well as outside salespeople and many technology employees were exempted from overtime pay.
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