New OT rules force some hard choices
The government’s new rules requiring overtime pay for millions of workers have small-business owners facing some hard choices.
The regulations being issued by the Labor Department Wednesday would double to $913 a week from $455 the threshold under which salaried workers must be paid overtime. In terms of annual pay, the threshold rises to $47,476 from $23,660. The rules take effect Dec. 1.
Many businesses like restaurants, retailers, landscapers and moving companies will have to transition staffers, many of whom are low-level managers, to hourly pay and limit the number of hours these employees work. That can increase the workload for other staffers, have everyone scrambling to get work done in fewer hours and hurt morale. Some owners say they’ll have to limit hiring, cut services or other costs.
Others are turning to technology to try to get work done in less time. And some say they’ll give staffers a raise to get them out of overtime territory.
Chad Brooks expects to switch managers at his eight franchise restaurants to hourly pay, and plans to send them home as soon as their shifts are over. Other staffers at the Pittsburgharea Qdoba and Burger 21 franchises will have to pitch in to handle their work. Brooks already foresees problems, for example, if a customer wants to complain to the manager.
“Guests will be extremely frustrated when they ask, ‘where’s the manager,’ and a worker says, ‘he’s not here,’” Brooks says.
Brooks has warned his managers that the change is coming. They’re not happy because they’ll work
fewer hours and take home less pay. And hourly pay in the restaurant business is seen as entry-level compensation, not the salary that managers get as they move up the ladder.
“Everyone coming to work for you wants to be salaried, have that cachet, that status,” Brooks says.
The new rules, which will be revised every three years, aim to increase pay for 4.2 million workers, including many who work 45, 50 or more hours in a week without extra pay. Businesses have been on notice about higher OT costs since last summer, when the government issued proposed regulations. Companies are on the hook not just for time and a-half, but also for higher Social Security and Medicare taxes employers must pay on all of a staffer’s compensation. The rules don’t cover many employees who are office workers, computer programmers or professionals.
Small businesses lack the large revenue streams and credit lines of bigger
companies, so they may struggle to afford the additional overtime costs.
Some owners will decide that it makes sense to give staffers whose pay is close to the $47,476 threshold a raise rather than face an uncertain overtime bill going forward, says Jonathan Sigel, a labor attorney in Worcester, Mass.
Ben Walker is cutting his marketing budget to come up with the money he’ll need for overtime for the four staffers at his phone call transcription service. Walker, owner of Transcription Outsourcing in Denver, decided not to wait for the regulations; he put his workers on hourly pay last November after asking them what they thought would be a fair wage. The change has resulted in staffers getting higher pay and slightly fewer hours. His payroll costs, which account for half his expenses, have gone up 15 percent.
“I guess I could be angry about it, but it’s the way it goes — and they’re happier,” Walker says.