The new overtime rules will affect an estimated 4 million workers, according to the U. S. Department of Labor. Many of those will be in the retail and hospitality industries, and much has already been written on how to cope with the changes if you work in either field (Forbes, Fortune and Fast Company).
However, the new rule could also have a significant impact on small business owners from doctors' offices to pest control companies.
As we discussed in Part 1 of this article, many small business owners and their employees engage in a mutual agreement to misclassify positions as exempt. Both sides see positive reasons to do so and thus willingly forego hours and overtime tracking. This group of employees and employers may be significantly impacted by the new rule.
The numbers
$47,476 is a good salary for a small employer. Increasing the salary of a misclassified exempt employee to this new minimum could be a big raise for the employee, a significant new expense for the employer and/or could result in salary compression or other challenges in reconciling the new salary with other positions not subject to the change.
Not increasing the salary and changing the position to nonexempt could at the very least annoy the employee. But it could also increase employer expenses for both tracking time and paying overtime for hours that used to be included in the salary.
It can also result in some serious and legitimate questions about the previous classification — questions an unhappy employee is more likely to ask.
What to do
Consider this common example: your office manager. Both of you agreed she exercises decision-making discretion and therefore is exempt. Yet she makes $32,000 per year.
You are not prepared to offer her a 50 percent raise, but you know she works well over 40 hours per week. Even though you think you can manage the hours, you fear the overtime expense will still be costly.
You also know she will consider it a demotion to have to start tracking her hours. And if you do change her to nonexempt, what is to keep her from arguing she should have been getting overtime all along?
My normal recommendation is to engage qualified employment counsel when you have a classification question, and in this case that recommendation stands in bold, underlined. Before making any changes to an employee's status based on the new rules and ideally before talking about it with the employee, give counsel a ring.
Have ready answers to the following questions:
- What are the employee's major duties?
- What percentage of time does the employee spend on each one?
- How long has the employee been working in that position/status?
This will be a good basic starting point for what is sure to be an enlightening conversation — one best had sooner than later.
