New Overtime Rules, Other Change Heavily Inpacting Small Businesses

Expected to have serious impact on salaries and wages, the U.S. Labor Department has disclosed the details of its final revised regulations defining the executive, administrative, professional, "outside salesman", and derivative exemptions under the federal Fair Labor Standards Act's Section 13(a)(1).

The highlights include these:

  • The provisions will go into effect on December 1, 2016,
  • The salary threshold for exempt status will increase to a rate of $913 per week,
  • The total-annual-compensation threshold for the "highly compensated" exception will increase to $134,004,
  • Both thresholds will be "updated" every three years, beginning on January 1, 2020,
  • Employers will be able to satisfy up to 10% of the salary threshold from "nondiscretionary bonuses and incentive payments", including commissions, paid on a quarterly or more-frequent basis (but this will not be permitted as to the salaries of employees treated as exempt under the exception for highly-compensated ones),
  • No duties-related requirements were changed.

Not surprisingly, industry groups have reacted against some of these new regulations.

The Retail Industry Leaders Association (RILA) issued the following statement from Jennifer Safavian, executive vice president for government affairs, in response the release of the overtime rule by the U.S. Department of Labor.

"While a review of the current overtime threshold is justifiable, the dramatic changes imposed by the Department of Labor are not. The rule will certainly hurt those that it purports to help. Specifically, the rule will cause retail employees who are forced to be reclassified from salaried to hourly to lose much of the flexibility and upward mobility they value.

"Further, the Department of Labor's failure to adequately consider regional differences will ensure the most acute effects will be experienced by employees in rural areas and the automatic annual adjustment will create a perpetual state of disruption as businesses will be forced to reclassify employees every three years.

The International Franchise Association said the new overtime law will force thousands of employers to shift the pay status of their employees from salaried to hourly and diminish their quality of work life. The organization voiced its concerns in comments to Department of Labor and meetings with Office of Management and Budget. 

“Far from ‘giving America a raise,’ the new overtime rule will compel many franchise businesses to reduce their managers’ take-home pay simply to comply with the extreme new salary level,” said IFA President & CEO Robert Cresanti, CFE. “The rule is unfair to employees who will need to be reclassified from exempt to non-exempt, and thus effectively demoted. The Administration irresponsibly failed to conduct any economic analysts of this rule’s impact on myriad stakeholders and millions of employees will experience reduced take-home pay, opportunity and flexibility in the workplace as a consequence of the Administration’s actions.”

Under the new rule, the Obama Administration has more than doubled the current threshold for overtime pay for workers working more than 40 hours per week from $23,660 to $47,476, which far exceeds the highest state minimum salary threshold in California of $41,600.