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Change in Overtime Regulation

 

Last month, the Obama Administration announced that the salary cutoff for overtime pay is being nearly doubled from $23,660 to $46,476 per year. This regulation, which will be effective December 1, 2016, will extend overtime compensation to workers whose annual salary is less than $46,476. An expected 4 million Americans will now be entitled to overtime pay within the first year of implementation. How does this affect small businesses? 

Minimum Wage Increase vs. Salary Increase
This regulation expanding overtime privileges is similar to the consistently increasing minimum wage, as both are components of the expansion of workers’ compensation. There are differences, however between the minimum wage and new salary regulation. The salary law does not mandate companies to increase their employee’s yearly earnings – it just entitles workers to overtime.

Impact on Small Businesses

Starting a business requires a sizeable initial investment. Once the business gets on its feet, arguably the most valuable investment may be its employees. Wage expense is an essential cost because employees help ensure the company continues and thrives. For companies that are marginally profitable, an increase in wage expense can be daunting to the bottom line

Small Business Resolutions

A survey distributed within a community of over three million small-business owners showed that over half were unaware of the upcoming regulation. Different ways to approach this change include the following:

  • Increase salaries - If current salaries are close to the $46,476 floor, increase your workers’ salaries to the point that their salary exceeds the cap and exempts them from overtime pay.

  • Corral new workers - Give salaried workers that consistently log many hours in excess of full-time a break by expanding your team. A more stable work schedule will alleviate stress and pressure for workers and promote higher quality performance.

  • Status quo - Show your employees that the new regulation will not force you to decrease their pay grade to save on wages. This will allow those below the threshold to be compensated accordingly if they work in excess of 40 hours per week.

 

Even though increasing salaries or compensating employees for overtime will take some cash from the bottom line, an increase in wages should bring about a higher level of job satisfaction, improving overall productivity and quality of work, thereby positively impacting profitability in the long run. 

There are different ways to approach this new regulation – some are less expensive than others, but making the additional investment in your employees can help your company be successful in its future endeavors. 

If you have any questions, or would like to consult a professional, feel free to reach out for our help. ECS Financial Services is a full-service accounting firm helping businesses succeed since 1962. Our accounting and tax professionals are committed to delivering Exceptional Customer Service at every step.

 

About the Author - Ryan Bruder joins ECS as an Accounting Intern for the summer of 2016. He currently attends the Carlson School of Management at the University of Minnesota Twin-Cities in Minneapolis, Minnesota. Entering his junior year this fall, Ryan is working towards his double-major in accounting and finance as well as a minor in risk management insurance. Ryan gained experience in financial markets, financial accounting, and managerial accounting throughout his coursework at Minnesota. After graduation, Ryan will look to earn his Certified Public Accountant designation along with other professional designations. Outside of school and work, Ryan is a sports fanatic and is currently training for the Chicago Marathon.