The federal government has changed the rules over who gets overtime pay. That’s put Louisiana’s small businesses in a tricky spot. On Jan. 1, more managers qualified for OT.
Basically, federal law says executive, administrative and professional employees who earn above a certain amount are considered exempt from overtime pay. Their paychecks stay the same no matter how many hours they work.
Until the first of the year, the threshold was $23,660. On Jan. 1, it jumped to $35,568. Suddenly, managers and professionals who make, say, $35,000 will get overtime for every hour worked past 40 hours a week.
We don’t know exactly how many people are affected by the change in Louisiana. It’s estimated that raising the threshold affected 1.2 million workers nationwide.
Here’s the tricky part. If you’re a small business, you must:
- Give employees a raise to satisfy the new rule. If you do this, they’ll remain exempt from overtime pay requirements. For example, if someone used to make $455 a week, you would have to pay them an extra $229 per week so they can keep their exempt status.
- Start paying hourly wages and overtime rather than paying a higher salary. You must start tracking hours. If a formerly exempt worker used to put in over 40 hours a week, you’ll have to pay them overtime – or divide their responsibilities among several employees to limit overtime pay.
Some of those who supported the rule change argued that being reclassified from exempt to non-exempt status was a good thing for workers. But NFIB members with experience running a small business understand that an employee’s hours also limits opportunities for advancement.
Moving from a non-exempt to an exempt position is the first rung on the promotional ladder. Exempt employees know this, too, and will view the reclassification to non-exempt necessitated by the rule as a demotion. Their morale will suffer as their hours are closely monitored, and they’ll have to think twice before leaving work to see their children in a school play.
As frustrating as this problem is, it could have been worse.
In 2016, my association, NFIB, sued the Obama administration to block raising the threshold to $47,476 — a $23,816 increase that would have affected even more small businesses.
The Trump administration’s overtime rule is better than what the Obama administration proposed. However, it’s still a significant burden for small businesses — especially those in parts of the country where the cost of living isn’t as high and, as a result, salary levels are lower. That includes Louisiana.
NFIB hosted a webinar last month to outline strategies for complying with the new federal rule. Small business owners can still watch it free at https://www.nfib.com/webinars/new-overtime-rule-effective-jan-1-what-small-business-needs-to-know/.
To avoid legal trouble, small business owners should get ahead on overtime compliance now. Meanwhile, lawmakers considering changes must understand that the costs of legislation extend beyond payroll. New rules can have unintended effects on employees’ morale.
Dawn Starns | State Director for the National Federation of Independent Businesses’ for Louisiana
