As most small businesses know, the Department of labor made good on its plans to increase the wage threshold portion of the Overtime Test that concerns White Collared Salaried employees. The current standard places the wage at $455 a week ($23,660 a year), which changes to $913 a week ($47,476 a year) on December 1 with the Fair Labor Standards Act (FLSA), more than double its previous level. This change in the wage threshold is leaving many small and medium sized businesses, including many franchised service industry companies, scrambling for solutions. While there is time to prepare for this change, it does not appear that the Department of Labor gave much thought concerning the impact of this change.
The Department of Labor did publish some thoughts as to what businesses can do to become compliant with the new law – all of which are pretty straightforward, but some are not practical when looking at them from a small business perspective. Here are the three major ways to stay in compliance that the DOL came up with:
- Raise the salary.Frankly, not a very feasible response for most small businesses. In fact, if one looks to various areas where local municipalities and states are trying to wage the minimum wage to $15.00 per hour, you are seeing businesses roll out enhanced automated ways of interacting with customers and reducing their staff. Both Panera Bred and McDonalds are testing or using unmanned kiosks for customers to place and pay for their order.
- Another option proffered by the Department of Labor is to adjust the wages so that the total cost is not more than what you would otherwise pay, once you take into consideration the hours worked and what the overtime rate would be.
You may be asking yourself, what the heck does that mean. The simple answer is that it is government speak for requiring companies to figure out how much time someone actually works during the week, and then adjust the “weekly wage” so that it allows for overtime pay for those hours worked in excess of 40 hours.An example of this is to come up with a reduced salary that is paid for 40 hours a week, with the recognition that they get paid the overtime rate for everything above 40 hours – to put numbers to the example it means that if they work 45 hours a week, pay them a salary of $600 per week for 40 hours (base rate of $15.00 per hour), and then the overtime rate of $22.50 for any overtime – this example comes out to approximately $712 per week if they work 45 hours per week. Because you can only pay for the actual overtime hours worked, it does not alleviate the administrative burden of tracking time. This approach will probably not go over well with employees because it could mean a reduced base wage, and the receipt of overtime pay during the times that they actually work overtime. Yes, the government is saying that cutting pay is a way to deal with the increased wage level for the overtime rules.
- Adjust workloads/track hours, so that folks are working no more than 40 hours a week – and in most cases a few hours less. A number of restaurants and other businesses are already implementing plans to reduce weekly scheduled to 35-hour work weeks to ensure that they do not exceed the 40-hour limit, or to reduce job responsibilities, and with it reduce salaries, so that the 40 hour a week limit is not exceeded. Again, the direct impact of this approach is to reduce wages, not increasing them, which flies in the face of one of this Administration’s stated goals – increase wages for the middle class.
Unfortunately, none of the options are great when it comes to helping a business grow. Because of the rules that are involved, and the fact that they apply to everyone, businesses are going to find themselves dealing with more administrative functions in this area. My advice is to make sure that there is a policy in place so that no one works overtime without the express permission of management for each project or occurrence that overtime occurs. Not only do you need to have this policy written down, you need to enforce it as well. Unfortunately, even with the policy, the administrative onus of tracking time still falls on the business owner and is something that needs to occur. The good news with having the policy is that if someone happens to work overtime in violation of the policy, and you become aware of that fact afterwards – say because they file a complaint with the state or federal government – having the policy and strictly enforcing the policy can allow business owners to avoid penalties for knowingly violating the FLSA, provided of course that the back wages owed are paid. While not a complete solution to the problem, it does provide a way to mitigate the potential harm of a wage and hour violation.
Additionally, because this change is more than likely going to involve the tracking of hours more closely, adequate training on what is expected on the part of employees is going paramount. Part of this process involves training employees that they are NOT to respond to work emails on their time off. Also, employees are going to have to become more efficient at doing their jobs so that they can get their work done in 40 hours, and business owners are going to have to look at modifying workloads/assignments so that the 40 hours are not exceeded. One tool that can aid in part of this process is the implementation of a time tracking system, whether it be a time clock or some way to track when employees login or out of their workstations/computers.
I wish that there was an easier way to deal with this issue; unfortunately, there is not. The regulations are going to cause all kinds of issues for businesses, and I think adversely impact the economy because folks will be working fewer hours with reduced pay.
