Cogs in the Machine?

Big Changes in the Overtime Rules

One of the biggest changes to affect small businesses, entrepreneurs and employees of them in years has just been issued by the Obama Administration. Under new rules implemented, the threshold for qualifying to overtime pay when they log over 40 hours per week will increase to $47,476 per year up from $23,660 per year currently. It is the first increase since 2004. Workers who are paid hourly are already eligible for overtime.

Filling Time Sheet with hours

© Depositphotos.com/Mayalain

Who is helped?

Some employees – There will definitely be an increase in pay for some employees. Especially younger professionals who do work outside of the office and are not far off from the $47,476 per year in salary. My prediction is employers will just give them the bump and not worry about all the additional record keeping.

Certain misclassified Exempt Employees – Employees who should be classified as hourly but have been classified as salaried/exempt employees to avoid having to pay them overtime. This is the one category of employees who really needed this change. It is one class of employee that unfortunately many companies have taken advantage of. Having worked with many non-profits and small businesses, I have seen this problem and this should help immensely.

Bookkeepers, Accountants and Lawyers – Someone has to keep track of all the hourly employees and make sure everyone is in compliance. Of course there will be lots of lawsuits over classification and back pay. Never forget who writes the laws and advises the politicians.

Who is hurt?

Some Employees – From my research into comments from businesses it could definitely have an effect on compensation for many employees, and not in a good way. Particularly affected will be store managers and assistant managers who work with  base salary and bonuses. I have seen many companies say they will have to change how they pay these people. More than likely their base pay will be reduced so with overtime for their average say 50 hours per week, the costs will remain the same. Another possibility I have see will be that benefits  and bonuses will be reduced to offset the costs.

Small employers – This will make the decision to hire employees tougher than it already is. An employer hires employees to make the company more money than what it costs to employ them. As an employer, you will have to do more cost benefit analysis before you add on an employee.

The record keeping burden will also be increased. I will be posting more on this topic in the near future.

Employers not located on the big coastal cities – $47,476 may not seem like much in San Francisco or New York City, but it is decent pay in small town USA. Much like minimum wage, one size does not fit all. It will definitely have an adverse effect in “fly over country.”

Telecommuters – The boom in people working from home, checking email everywhere on your phone, etc may become more difficult. Because of the new rules, employers will have to design a system to make sure employees aren’t working over their 40 hour maximum.

My Bottom Line

Our economy has been changing quickly the past 20 years. Technology advances and globalization has uprooted the old industrial way of life. Working at a factory or for a single company for your whole career. Exchanging hours for dollars also is ending. Today’s world values creative work over human repetition.

This change will definitely benefit some employees which I am very happy about. Many companies have taken advantage of young talented workers eager to pay their dues and be prepared for better jobs. I hope it doesn’t hurt these same workers.

Most likely what I believe will happen is the trend toward hiring independent contractors will continue to accelerate in areas where a physical presence is not needed. Store managers and supervisors will of course still be needed and paid accordingly. Other workers like graphic designers, IT people, etc will be outsourced even more.

Of course this could be a great opportunity for you. There has never been a better time to be an entrepreneur or an independent contractor. Companies put value on jobs completed and creative ideas – not just punching a clock. Be extraordinary and you can do better than you have ever imagined!

As always, if I can be of help be sure to contact me at david@davidcooperaccounting.com.