Business have options under new overtime rule, experts say
New federal overtime rules may have some small businesses nervous as the date it takes effect looms.
But Tri-City experts encourage smaller mom-and-pop businesses not to worry.
“I really think the big focus here is to know what the law is and to know you have options,” said attorney Scott Boyce of The Cicotte Law Firm in Kennewick.
The U.S. Department of Labor’s new federal overtime rule changes the salary and compensation levels necessary for administrative, professional and executive level workers to be exempt from overtime.
The rule goes into effect Dec. 1.
Under the new rule, employees making less than $47,476 per year, or $913 per week, will be eligible for overtime for working more than 40 hours per week. That’s up from the current threshold of $23,660 annually, or $455 per week.
The new rule will automatically make 35 percent of salaried workers eligible for overtime pay, according to the Department of Labor.
Not everyone supports the change, including the Tri-City Regional Chamber of Commerce.
“If implemented, this higher salary will mean many employers will have to either increase their employees’ salaries to keep them exempt, or reclassify them as hourly employees and possibly pay them overtime. For many of our large and small employers, this regulation could mean a disastrous hit, or reduce the ability of many businesses to serve their customers,” according to an April letter to Congress signed by the regional chamber as well as other chambers nationwide.
The chamber is offering a free class Sept. 29 on how businesses can prepare for the new federal rule.
The chamber’s panel of experts scheduled to speak, including Boyce, agree that auditing current employees is the first step to take to prepare.
The new rules are significant, said Valerie Pitre, director of human resources for Pay Plus Benefits in Kenewick.
“I have some small clients who are nonprofits. This new rule doubles that salary requirement. For a small business, if they have five bona fide exempt employees they’re paying at the current level, they now have to double those salaries. That’s a huge amount of money,” Pitre said.
But, she said, there are options, including:
- Never let them work overtime.
- Increase their salary to retain their exempt status.
- Pay overtime.
- Reduce the amount of pay allocated to their base salary and add pay to account for overtime to keep their total weekly pay constant.
- Reclassify employees to non-exempt and pay overtime, which is one-and-a-half times the employee’s regular pay rate for any hours worked over 40 hours in any work week.
“You’ve got more options than ‘Everybody gets a pay raise’,” agreed Boyce.
Pitre recommends businesses review all their classifications of employees, particularly those who are exempt to determine if are they truly exempt.
Attorney George Cicotte, of Cicotte Law Firm said businesses should be prepared “to deal creatively with this law.”
How companies handle it will vary from business to business, Boyce said.
The new rule could negatively affect many in the food and hospitality sectors, which have a lot of managers and supervisors, Pitre said.
On the flip side, some employees may get a raise as a result of the new rule. Those who are already close to making $45,000 a year may get a $2,000 to $3,000 raise to get them to the new limit, Cicotte said.
But Cicotte worries the law could have unintended consequences.
“Long term I see so many changes that our government is making that continue to do exactly the opposite. They’re trying to achieve more family wage jobs … but people aren’t going to pay overtime and they’ll simply cut hours and create part-time jobs,” he said.
But the overtime rule hasn’t been changed since 2004 and Pitre said it’s overdue to bring the minimum level of compensation up.
“It’s something that’s needed to happen for a long time,” she said.
And this lag won’t happen again as the new rule establishes automatic updates for the salary levels every three years, beginning Jan. 1, 2020.
Do I qualify for an exemption?
To qualify for an exemption from overtime, an employee generally must:
- Be salaried, meaning they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
- Be paid at least a specified weekly salary level.
- Primarily perform executive, administrative, or professional duties, as defined by Department of Labor regulations. Certain outside sales and computer employees may also be exempt professionals.
- Certain employees are not subject to either the salary basis or salary level tests, such as doctors, teachers and lawyers. The federal regulations also provide an exemption for certain highly compensated employees who earn above a higher total annual compensation level, currently $100,000, and satisfy a minimal duties test.
Preparing your businessfor new OT rule
Want to know how the new federal overtime rule will affect your business?
The Tri-City Regional Chamber of Commerce is offering a class designed to answer all your questions, called, “How to Prepare Your Business for the New Federal Overtime Rule.”
Attendees can expect to learn what changes are included in the new overtime rule, how it will affect businesses and employees, what implementation will look like and the long-term consequences of the new rule.
The class is from 1 to 3 p.m. Sept. 29 at the Tri-Cities Business & Visitor Center in the Bechtel Board Room.
Cost is $25 for regional chamber members and $35 for others.
RSVP by Sept. 28 at bit.ly/ChamberOTrule or call 509-736-0510. Light refreshments will be served.
The program, sponsored by Banner Bank, features attorneys George Cicotte and Scott Boyce of The Cicotte Law Firm, and Valerie Pitre of Pay Plus Benefits Inc.
The session is part of the chamber’s September Business Development University.