Businesses unprepared for cost of new overtime rule
November 21, 2016
With a reprieve at best uncertain, business owners are gearing up to meet the Dec. 1 deadline to implement the Department of Labor Final Rule.
The DOL rule more than doubles the salary an employee must earn to be exempt from overtime regulations, from a minimum of $23,660 per year to a minimum of $47,476, and increases the requirements for tracking work hours for nonexempt employees.
Employers are moving some salaried employees to hourly — with a loss of the flexibility that salaried workers generally enjoy — giving raises to others who are close to the threshold, adding time card procedures, retraining employees and managers to handle the procedures and looking for ways to make budgets work in the new reality.
Reno's Moana Nursery has 160 employees, including many seasonal and part-time staff positions, Bruce Gescheider, owner of Moana Nursery, told the NNBW during an interview at the main nursery. About 47 are salaried employees, in positions of team leaders and manager.
Many of those already make more than the new minimum salary and those that were close received raises to bring them over the threshold, Gescheider said. Those under the threshold will be required to track hours, even though the nursery will keep them technically as salaried employees to maintain benefits.
"In this case it takes our best young managers who are climbing the ladder and it takes away incentives to be on salary," he said.
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Instead of the flexibility of being able to go to a child's ball game or to a teacher conference or to care for a sick relative, they now have to clock in and clock out.
"The advantages of a small business is that you can have a family atmosphere — family work balance," he said. "All that ends up going away for a small group."
Gescheider foresees the times that an assistant manager will be in the middle of helping a customer with a garden issue, or unloading a delivery truck and realize, "Oh, no, I have to clock out for lunch."
David Frohnen, owner of Silver State Analytical Labs and Sierra Environmental Monitoring, also noted the loss of flexibility in a small business where flexibility is one of the perks.
"The feedback we've received, people like working here," he said. "The challenge is how to preserve that type of culture (when you have to monitor a time clock)."
The company with labs in Reno, Las Vegas, Elko and Sacramento, has 29 employees, Frohnen said. Ten are hourly. Three or four employees will receive a one-time pay increase to get them over the threshold, he said, and 8-10 salaried employees are being converted to hourly.
"We don't have time clocks right now," Frohnen said. But with salaried and hourly employees working side-by-side, everyone needs become time clock sensitive.
"The time will be spent doing timecards and payroll as opposed to serving clients," he said. "We'll have to mitigate that."
With raises and the extra cost of tracking hours both in terms of new software and hardware plus the time involved in managing it all, businesses are looking for ways to balance their budgets.
Many of Silver State Analytical Labs' employees are professional chemists and biologists.
"We may have to hire less people with college degrees and more technicians," he said. Profit sharing and bonus programs may need to be cut back, he added.
For those who no longer make enough to be exempt from overtime, the new rule places an added burden on both employers and employees to accurately track hours worked.
"The paperwork is enormous. It takes away the fun of seeing our business grow," Moana's Gescheider said. "This should be the best of times. We're coming out of the recession and construction is booming."
While the transition is difficult, Moana Nursery is ahead of the game and Gescheider said he's "blessed with good" human resources and financial staff.
However, most businesses are not ready, according to Randi Thompson, Nevada state director of the National Federation of Independent Business (NFIB), said in a phone interview with the NNBW.
"We have had only six months to implement the workplace regulations," she said in a phone interview with the NNBW.
"It's a lot more than just tracking hours. Small business does not have the personnel to cope with the regulations."
The NFIB estimates the new rule will impact 44 percent of small businesses. The DOL said it could affect more than 10 million employees.
The DOL's own Initial Regulatory Flexibility Analysis estimates small businesses will face nearly $750 million in new costs in the first year: $186.6 million in implementation costs and $561.5 million in additional wages.
"Unfortunately, these estimates simultaneously underestimate the compliance costs to small businesses and overestimate the transfers top employees," Thompson wrote in a follow-up email.
With no clear indicators that the ruling will be overturned, employers need to be ready to implement it.
Employers will be required to track the hours of non-exempt employees much more carefully, which requires new accounting software and procedures, in addition to determining which employees should be in the exempt category and which need to be shifted from salary to hourly pay.
"Most (business managers) I've talked to are just telling their employees that they have to track their hours really closely. If they're not used to tracking billable time, its hard to do," Thompson said. Employers "may need to implement some kind of clock-in and clock-out system."
It's a burden on both employer and employee.
"People are tracking hours that they haven't needed to track," Thompson said. "People are changing from hourly to salary or salary back to hourly, depending on where they are (in terms of their wages)."
And if the employee does not keep a detailed account of hours worked?
The onus is more on the employer, Thompson said. "A lot is driven by trial lawyers," she said. "It increases the ability of employers to be sued."