In a landmark executive order, President Obama recently proposed substantially increasing the number of salaried workers who receive overtime pay. Currently, only salaried workers who earn $23,660 or less receive overtime pay, but Obama’s plan would require employers to pay salaried workers earning less than $50,440 time-and-a-half pay when they work more than 40 hours per week, according to the White House Office of the Press Secretary.
This order, which would affect nearly 50 million workers, follows on the heels of the president's recent executive order that raised the minimum wage.
As a small-business owner doing your best to pay your employees fairly, the proposed overtime changes may bring some concern—and it should, claims communications strategist Sheila Stewart, CEO of Sonic Seven Communications. “Incentivizing more than 5 million workers with overtime is going to have a broader and more far reaching impact than many may understand,” Stewart says.
“Like the minimum wage hike, the bottom line impact of the overtime pay will be on consumers and businesses, who will end up paying more for services and products, because no business can afford to cut profit margins in an already competitive market and economic recession," says Stewart, who offers an example. "A manager making $50,000 calculated at a 40-hour week is making $39.66 per hour. That means for every extra hour over 40 hours, there will be almost an extra $18 per hour paid to the employee.”
While many small-business owners strive to pay their employees fairly, there can be a lot of gray areas and special circumstances. “I don’t believe that anyone will dispute the fact that employees should be paid adequately,” Stewart says. “Rather, the issue is when an emergency happens, such as a late night email or the need for a red-eye flight, such instances will be considered overtime and subject to the additional hourly rate, the cost of which has to be passed along.”
As with any sweeping change, the overtime pay decision may bring unplanned consequences that can affect employees and owners, according to Stewart. “In regards to company culture and internal morale, the change creates a divide between those making less than $50,400 and those making more,” Stewart says. “This divide could cause those making less to actually make more. Businesses may also raise the pay of existing salaried employees to more than the threshold in order to avoid paying overtime, which could cause employees to leave and work for competitors that pay the overtime.”
Other possible results of Obama’s decision announced by Randy Johnson, U.S. Chamber of Commerce Senior Vice President of Labor, Immigration, and Employee Benefits, include reclassified employees potentially losing opportunities for advancement, benefits, status and flexibility. Johnson feels it’s possible that small-business owners may find it necessary to cut workers to part time and hire more independent contractors.
The consequences can be far reaching, Stewart agrees. “With this new law, every hour and every minute will need to be tracked, documented and then compensated for by the business," she explains. "This means the person is not really salary anymore, but technically hourly. Most businesses will likely reduce the 'hourly' rates of employees from what they were making in their salary in order to compensate for the additional monies that will need to be spent tracking hours, monitoring emails, cell phones, etc.”
Another wrinkle may occur in the area of training. Currently, when an employee is getting up to speed on new information, extra work hours are involved. “This new system actually punishes business owners by having them pay to educate and provide experience to workers,” Stewart says.
To ensure that your company weathers the salary changes, Stewart suggests focusing on creating a positive morale by implementing these processes:
- Create an apprenticeship program. When employees are being taught new skills, consider moving them into an hourly apprenticeship program that is structured as a learning lab. This tactic can support a positive win/win scenario among the workforce and management.
- Develop a mentorship program. You can take the apprenticeship program a step further by creating an internal mentorship program where higher paid managers are incentivized to work-mentor others on the team. “A mentorship program allows for more of a hands-on approach to managing and identifying potential inefficiencies and ways to reduce overall overtime while increasing overall camaraderie,” Stewart says.
- Update record keeping. New overtime rules will create the need for an updated set of internal systems to be implemented by business owners, because currently, if there is a salaried manager on a team, the individual’s hours are not tracked, as most companies work on the honors system. Rather than determining the record keeping method yourself, though, encourage a buy-in from employees by asking for their opinions on how this should be done—such as suggestions for the best app or software solution for tracking hours.
For small-business owners, changes in overtime hours regulation can be challenging, but those companies that work smart and develop creative ways to bring work teams together are the ones that will thrive.
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