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New OT rules will mean hard choices for small firms

Ben Walker, owner of a company that transcribes

Ben Walker, owner of a company that transcribes phone calls for doctors, lawyers and other professionals, says he has already shifted his salaried workers to hourly pay, knowing that his firm would be affected by the new overtime regulations. Credit: AP / David Zalubowski

The government’s new rules requiring overtime pay for millions of workers have small business owners facing some hard choices.

The regulations issued this month by the Labor Department would double to $913 a week from $455 the threshold under which most salaried workers must be paid overtime. In terms of annual pay, the threshold rises to $47,476 from $23,660. In New York, the current threshold is $675 a week or, $35,100 a year, by state law. The new rules take effect Dec. 1.

Many businesses like restaurants, retailers, landscapers and moving companies will choose 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, or cut other costs. And some say they’ll give staffers a raise to get them out of overtime territory.

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. The staffers are team leaders at the company, overseeing freelancers who transcribe phone calls for doctors, lawyers and law enforcement agencies.

Chad Brooks already foresees some problems at his eight franchise restaurants. He plans to switch his managers to hourly pay and send them home as soon as their shifts are over. Other staffers at the Pittsburgh-area Qdoba and Burger 21 franchises will have to pitch in to handle their work.

Brooks wonders what will happen, 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.

The new rules, which will be revised every three years, aim to increase pay for an estimated 4.2 million workers, including many who now work 45, 50 or more hours in a week without extra pay. On Long Island, the rules could make about 140,000 salaried workers newly eligible for overtime pay, according to the Fiscal Policy Institute, an Albany-based research group.

Businesses have been on notice about higher overtime 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.

Small businesses lack the large revenue streams and credit lines of bigger companies, so they may struggle to afford the additional overtime costs. And those in New York will also face paying higher minimum wages, as the state phases in an increase from $9 an hour to $15 an hour.

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 with the law firm Mirick O’Connell in Worcester, Massachusetts.

Money isn’t the only issue. Managers used to staying at work until a task is done may feel demoralized when forced to leave work unfinished, says Midge Seltzer, president of Engage PEO, a human resources provider based in Hollywood, Florida.

“Most of the workplace consists of conscientious employees. It’s going to be difficult for them to just throw their hands up and say, ‘I’m done,’ ” she says.

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