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BizReport : Research archives : September 22, 2016

SMB Owners: What you need to know about OT changes

In December, rules changing the minimum annual salary for overtime-exempt US workers will go into effect. Our expert explains what small business owners need to know about the rules, and how to prepare.

by Kristina Knight

Kristina: What do small business owners need to know about the overtime rule changes that are coming up in December?

John Swanciger, CEO, Manta: The new Department of Labor overtime regulation raises the minimum annual salary for overtime-exempt employees from $23,660 to $47,476. The rule goes into effect December 1, 2016, and applies to small businesses with at least two employees and annual sales of $500,000 or more. Moving forward, owners must decide whether it's more cost effective to meet the higher minimum salary, or switch certain employees to hourly pay with overtime. Businesses that fail to comply with the changes face fines and potential legal implications.

Kristina: What are the options for SMBs with these new rules?

John: Employers have three options. They can raise employee salaries above the minimum threshold; they can mark employees exempt, and pay them for any overtime worked; or they can make sure employees don't work beyond 40 hours a week, and if needed, hire more employees to pick up the slack.
Before the change, all companies need to confirm that the employees they have classified as exempt are truly exempt. Many employers, even small businesses, make the mistake of improperly classifying employees as exempt solely because they pay them a salary. It's important to remember that salary is a method of wage payment, not a classification of overtime ineligibility.
After identifying all exempt employees, companies should determine how close employees' salaries are to the new threshold ($47,476), and how many overtime hours each employee worked in the previous year. From there, owners must determine if it's more cost effective to increase employees' pay grade or pay the anticipated overtime costs.

Kristina: Is there an option that will fit most SMBs best? Why?

John: Unfortunately, due to the complex implications of the rules, there's no one-size-fits-all solution for complying with the new regulations. Small business owners need to carefully evaluate what these changes mean for their current pay structure. Employers must then determine what strategy will work best for their business and employees moving forward. Some owners, especially those with hourly employees that consistently work close to or over the 40-hour threshold, may need professional experts to assist in developing the best solution.

Tags: Manta, overtime exempt workers, SMB tips, SMB trends, US Department of Labor, US labor laws

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